For a valuation via arbitration, final means final

In a California case, the company that owns the Woodlands grocery store chain decided to buy the condominiums it was renting for its San Francisco store. The store occupied five condo units on the street level of a luxury residential building. A couple who owned a minority interest in the company disagreed with the decision and wanted out. The shareholder agreement called for such matters to be arbitrated with a jointly selected appraiser to determine the buyout value.

Paper chase: The appraiser that was selected set some ground rules that included the requirement for both sides to submit all documents and information that they wanted considered before a draft valuation report was done. When the draft was issued, the couple had a problem: They said that the condos were undervalued and pointed to a letter they had received from company counsel that confirmed this. But the couple had never given the letter to the appraiser.

Nevertheless, the appraiser asked the company for more information on the real estate, but the company refused, contending that, under the terms of the engagement, the deadline for discovery had passed. The appraiser issued a final report using the purchase price of the condos as fair market value but stated that it was an “extraordinary assumption.” However, the appraiser believed there was sufficient information to support the valuation in the final report. The couple sued in state superior court, seeking to vacate the appraisal-arbitration award, but they did not prevail. The couple then appealed.

Made your bed: The appellate court affirmed the lower court’s ruling, citing, among other reasons, “arbitral finality,” i.e., when parties agree to arbitration, they also agree that it be final and binding. A court will only vacate it if there is “fraud, corruption, misconduct, an undisclosed conflict,” or other serious problem, and there was none of that in this case, the court found. Plus, the court noted that the couple had documentation about the real estate value that they failed to hand over to the appraiser on time, so they cannot complain about it not being considered in the valuation.

The case is Hardiman v. Woodlands Store, Inc., 2024 Cal. App. Unpub. LEXIS 1283; 2024 WL 827706, and a case digest and full opinion are available on the BVLaw platform.

Disconnect woes plague BV firms using remote staff

“Loss of human interaction” is the biggest drawback of a remote or hybrid work arrangement, cited by over half (53%) of BV firms recently polled. Other concerns include communication problems (18%) and productivity loss (11%). On the plus side, 43% of firms cited an improved work-life balance as the biggest advantage of a remote or hybrid setup, and 21% pointed to less commuting time.

Do the advantages outweigh the disadvantages? BV firms apparently think that they do, given that 89% of them are either on a hybrid or fully remote arrangement. But some experts warn that this is not the way to go. “The way we’re working is not working,” stated Penny Zenker (The Focusologist), during her keynote at the AICPA & CIMA Forensic and Valuation Services (FVS) Conference in Las Vegas this past November. She said that “disconnection is one of our greatest threats” and urged the valuation firm managers in the audience to address it and make it a priority to improve employee engagement.

Ideas: Bringing on new staff members who are remote poses a particular challenge, and BV firms are using increased communication to meet the challenge. Some firms require a period of in-office time of one to two weeks when a new hire joins the team. Many firms use “frequent and continued communications” for a new hire, and some start it weeks before the new hire comes on board. Several firms use a “buddy” system, i.e., assign someone specific the new hires can contact for general questions, concerns, and guidance.

The challenge is even greater with a new hire with no experience. Some firms say they won’t get into this situation, and others who have tried it report a “bad experience,” vowing “never to hire an entry-level remote employee again.”

This was the latest in our monthly “Two-Minute Practice Builder” surveys, and we thank those of you who participated. We will have another survey in next week’s issue.

Live today! SCOTUS arguments in the COLI valuation case

A live audio feed of oral arguments to the U.S. Supreme Court in the Connelly case will be broadcast today, March 27. The question to be resolved is: How should corporate-owned life insurance (COLI) designed to fund the redemption of a deceased shareholder’s stock impact the fair market value of the subject company and the value of the decedent’s gross estate?

Live from D.C.: A link to the live audio feed will be available on the homepage of the court’s website. The court generally hears two arguments a day starting at 10 a.m. (ET), and each case is allotted one hour for arguments. The oral argument audio and a transcript of the oral arguments will be posted on the court’s website following oral arguments each day. The docket number is 23-146.

In Connelly v. United States, the IRS argued that the insurance proceeds should be included for purposes of valuing the corporation for estate tax purposes. On appeal, the U.S. Court of Appeals for the 8th Circuit sided with the IRS, creating a split with the 11th Circuit, which, in the 2004 Blount case, ruled that it should not be included.

Preorder alert: FactSet Review 2024

The 2024 edition of the FactSet Review (formerly known as the FactSet Mergerstat Review) is now available for preorder. PDF orders will be available for download in mid-April, and print copies will ship in early May.

The FactSet Review includes rosters and statistics on mergers and acquisitions between U.S., U.K., and global privately held, listed, and cross-border enterprises. This is one of the most referred-to sources of industry pricing, premia, and payment terms. Each annual subscription includes current updates via the Flashwire US Monthly, an update on M&A activities, trends, and deal data by industry.

Comments due this week on fair value exposure draft

The Business Valuation Resource Panel (BVRP) of The Appraisal Foundation (TAF) has issued an exposure draft of Valuation Brief #3: Professional Interactions Unique to Fair Value for Financial Reporting. It discusses some of the roles, interactions, and common issues encountered in the overall financial reporting fair value process among appraisers, management, and auditors. Comments are due March 31 and can be submitted if you click here.

AICPA BV school is not just for CPAs

Two BVR editorial board members will be teaching in the five-day AICPA and CIMA 2024 National Business Valuation School, which will be held live in Denver from August 12 to 16. Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos PC) and Harold Martin (Keiter, Financial Consulting Group) are the longest tenured instructors for this course, having taught it since 2007. The course textbook is Financial Valuation: Applications and Models, edited by Jim Hitchner (Yeanoplos and Martin are co-authors). This course is designed for new staff, and it serves as preparation for the ABV exam. The course is open to all financial professionals. Registration is now open and, for more details, click here.

Reminder: IRS is hiring a flock of BV experts

Honolulu; Palm Springs, Calif.; Las Vegas; Orlando, Fla.; and even the Bronx, N.Y., are just a few of the 249 locations for which the IRS is hiring 31 business valuation experts, according to a job announcement, which is available if you click here. The salary is $103,409 to $167,336 per year, according to the announcement. The posting is for a “financial analyst,” but that’s the title the agency uses for its business valuation specialists (the “appraiser” job title deals with real and personal property).

Comments sought on Saudi bank valuation rules

The Saudi Central Bank (SAMA) seeks public opinion on the draft rules for the valuation of “systematically important” financial institutions. “Systematically important” financial institutions are those that are considered an important part of the financial system where their failure negatively affects the financial system in the kingdom. These rules were developed in cooperation with the Saudi Authority for Accredited Valuers and can be found if you click here.

BV movers . . .

People: Archita Shah, CPA, CVA, CFF, has joined Morones Analytics (Portland, Ore.); she has more than 20 years of experience in forensic accounting with an extensive background in complex litigation, and she is skilled at analyzing complicated financial relationships, enjoying the challenge of untangling interconnected financial arrangements and assets … Lori A. Roth, CPA/ABV, CFF, global managing partner at Prager Metis, has been recognized as No. 15 in the “ROI Influencers: Women in Business 2024: Top 50”; she is based in Basking Ridge, N.J., and oversees all of the day-to-day operations for the entire firm and provides guidance and oversight to each of the firm’s office managing partners and service line leaders.

Firms: Arlington Va.-based Ascend, a private-equity-backed accounting platform, has integrated the advisory practice of LevitZacks of San Diego; the firm offers tax, accounting, and business advisory services across diverse industries, and the deal brings nine partners and 51 staff members to the Ascend team … Newport News, Va.-based PBMares has established a new risk advisory consulting practice, which combines two stand-alone services: cybersecurity and internal controls; the firm has also added a new service, operational excellence, to help clients access business process improvement solutions … Two Long Island, N.Y., firms, Brinster & Bergman (Rockville Centre) and Gary Carpenter & Associates (Smithtown), entered into a strategic partnership to provide a combined team to assist and support businesses in the home healthcare sector in New York state.

CPE events

Is There or Isn’t There Goodwill: Expert Disagreements, March 28, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Josh Shilts (Shilts CPA PLLC). CPE credits: 2.0.

Valuations performed in the context of divorce litigation encounter scrutiny and challenge from opposing counsel and their experts. An expert witness and appraiser discusses common areas of disagreement, effective communication techniques to exemplify your position, and how to mitigate bias.

Appraisal Review: Common Areas of Critique and Risk in Litigation, April 4, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Brandon McFarland (JS Held) and Andrew Duncan (JS Held). CPE credits: 2.0.

The common areas of critique in the context of appraisal review, including examples of subjective inputs and assumptions (as well as common rebuttal responses), are discussed. Also, data sources and relevant reference material to corroborate these inputs and assumptions are examined.