BVWire Issue #176-1 | May 3, 2017


Inside look at the method that made the CUT in the Amazon case

In the recent Amazon Tax Court case, the IRS challenged the valuation of trademarks the company transferred to its overseas subsidiary. The case involved tax deficiencies of over $200 million, but the court agreed with Amazon’s experts on almost all points. To value the trademarks, experts used the comparable uncontrolled transaction (CUT) method to whittle down market transactions into those that most closely compare to the subject. This is not easy because of the large amount of empirical data on royalty rates, which can be “noisy.” Fortunately, we have an inside look at how the winning side did it.

Three-step approach: An expert for Amazon, Robert Reilly (Willamette Management Associates), found over 7,700 agreements in his initial search of the ktMINE database. Of these, he identified 865 to be in the “marketing intangible” category. Narrowing his search to the retail and Internet industries yielded 167 agreements, all of which he reviewed to find CUTs. To do this, he used a three-step approach where you (1) eliminate, (2) adjust, and (3) assess the data. In the end, he selected six comparables to determine a royalty rate.

We point out that you should not rely on only one data source when doing this analysis. In the Amazon case, Reilly also used RoyaltySource and RoyaltyRange, but did not identify any additional CUTs beyond what he determined from ktMINE data.

Get the details: An article that illustrates Reilly’s approach in detail with a hypothetical example he supplied but using real-world data is available from BVR as a complimentary download. This article originally appeared in Business Valuation Update titled “Three-Step Analysis to Manage the ‘Noise’ in IP Royalty Rate Data.” BVU subscribers already have access to this article as part of a searchable archive of over 20 years of articles that represent the collective wisdom and practical advice from the top experts in the valuation profession.

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No grandfather rules in eligibility for new CEIV credential

During a recent webinar on Certified in Entity and Intangible Valuations (CEIV), a new valuation credential, an audience member asked if there are any rules that grandfather in individuals with a great deal of experience in fair value for financial reporting. At this point, there is no exemption from any of the education requirements for experienced professionals, according to William Johnston (Empire Valuation Consultants LLC), chair of the ASA’s BV committee and the ASA’s CEIV program development representative.

Two-part process: Getting the CEIV credential is a two-part process that Johnston compares to getting your undergraduate degree and then a graduate degree. As an undergrad, you have to achieve a base level of business valuation education. If you already have a business valuation credential from the ASA, AICPA, or RICS (the VPOs that issue the new credential), then you’re all set in that regard. If you have certain other credentials from another organization, there may be some equivalency credit given. For example, at the ASA, if you have a CFA credential and five years of business valuation experience, you can qualify for a fast track to CEIV accreditation by joining the ASA and meeting some other requirements, such as ethics training.

After you complete the “undergraduate” phase, then, for what Johnston calls the graduate-degree part, you need to meet the experience and education requirements specific to fair value and the CEIV credential. This part of the process is the same for all three VPOs: You need to have completed 3,000 hours of fair value experience over the past five years, to take a two-part course, and to pass the two-part exam. The first part of the course is a body of knowledge on general accounting and valuation issues related to financial reporting; the second part is education related to the Mandatory Performance Framework (MPF), a set of best practices all CEIV holders must follow.

“We want to make sure that everyone is on the same high level in terms of the education and training for this new credential,” Johnston says. “We’re trying to raise the bar here and we want to make sure everybody is up to date on current developments.”

For more information, there’s a special website set up for the credential.

Extra: Just as we were going to press, the AICPA, ASA and RICS announced that the CEIV exam is now available. It is a timed, online exam divided into two parts, with each part containing 60 multiple-choice questions. The exam, which will take two hours to complete, is the same no matter which organization administers it.   

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Latest update propels Pratt’s Stats past 26,500 private-company transactions

Pratt’s Stats, the private-company transaction database from Business Valuation Resources, has just added 562 new transactions and now contains details of more than 26,500 private-company transactions. But more important than the number of transactions is the expanded breadth of the data—the new transactions include 53 transactions outside the U.S. and add to the database’s global expansion. For these non-U.S. transactions, the median deal price is $99.2 million; the median revenue figure is $22.2 million, with an average of $139.4 million. The top three countries from which the new transactions come are Canada (15 transactions), Spain (9), and Italy (5). Other countries include the United Kingdom, Finland, Netherlands, Poland, and Russia, among others.

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Delaware’s Laster discusses the appraisal remedy

Why isn’t the merger price necessarily fair value? Listen to Delaware Chancery Court vice chancellor Travis Laster as he talks about Dell, DFC Global, and appraisal actions in a podcast from the Columbia Law School. Topics include the history of appraisal, when markets may depart from fair value, how appraisal may act as a reserve price, the discovery burden in appraisal, interest rates and the relevance of interest, how to determine fair value, and the future of appraisal.

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Duff & Phelps updates multiples in healthcare services

The S&P Healthcare Services Index decreased 0.9% over the last month, underperforming the S&P 500, which remained flat over the same period, according to the March 2017 Healthcare Services Sector Update from Duff & Phelps.

The best performing sectors were emergency services (up 12.0%), care management/TPA (up 4.9%), and HCIT (up 4.1%). The poorest performing sectors were healthcare staffing (down 9.9%), assisted living/independent living (down 8.1%) and pharmacy management (down 6.1%). The current average LTM revenue and LTM EBITDA multiples for the healthcare services industry overall are 2.3x and 13.1x, respectively.

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Get focused to burnish your expert status

An excellent book about how to become an expert in a particular field is The Visible Expert, a free e-book. A recent issue of NACVA’s QuickRead contains an article by Dr. Lee W. Frederiksen discussing seven keys to becoming a visible expert. One way is to be focused. “Choose to pursue a specific target market,” he writes. “You will also need to develop an online presence, and the best ways to do that are by publishing blog posts, articles, and videos. Later, you might decide to add networking, public speaking, and partnership building to the mix.”

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Global BV News

Scandal in Hong Kong: valuation bigwigs arrested

Not long after BVWire left the offices of the valuation firm Roma Group, anti-corruption forces of the Hong Kong government raided the place, and the CEO was arrested. The next day, the executive director at asset appraisal and advisory firm GreaterChina Professional Services Ltd. was also arrested—part of a probe by Hong Kong’s Independent Commission Against Corruption (ICAC). The two firms are connected—they are joint shareholders in asset valuation firm Greater China Appraisal Ltd.

Kelvin Luk, chairman and CEO of Roma Group, was arrested for his “alleged personal involvement in a transaction of one of the clients of the Group,” according to a company statement referred to in a report in Reuters. Luk has resigned from Roma. No details were given on the arrest of David Yip, executive director at GreaterChina Professional Services Ltd., according to a report in Bloomberg. Yip is also chairman of a Hong Kong-based company that said it had a deal to buy the English Premier League soccer team Hull City. Luk told Bloomberg that his arrest was related to a personal matter and was not connected to Greater China Appraisal.

The Wild East: In our prior coverage of the business valuation profession in Hong Kong, we reported on the concern over the quality of valuation work there and noted that there is no formal oversight of the profession. If these recent arrests are related to valuation practice, they may trigger a crackdown from regulators to pressure the local profession to get its house in order.

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Can the valuation profession rise to the challenge in Europe?

That’s the question triggered by recent reports that highlight the lack of a distinct body of business and intangible asset valuation professionals in many European countries. A blog post from Valuology says: “This represents both an opportunity and threat for valuers operating in Europe. If they can organize themselves into a recognized profession, the need is there, but if they fail, the threat of other bodies creating rules and standards without their input is rapidly increasing.”

Marianne Tissier, former executive director of the International Valuation Standards Council (IVSC), and Chris Thorne, former IVSC chairman and also its technical director, are the directors of Valuology. The firm helps organizations and firms ensure that their valuation policies and procedures are best in class and reflect globally accepted standards of professionalism.

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Explore M&A transactions next week in San Francisco

BVR partner Transaction Advisors will present an event where you’ll hear perspective and practical insights on the latest strategies for evaluating and structuring corporate transactions. The San Francisco M&A Conference will be on May 11 at Wharton San Francisco and will feature experts from Lazard Middle Market, McKinsey & Company, Dolby Laboratories, DigitalGlobe, EY, Blakes, Echo Global Logistics, Weil, Gotshal & Manges, Euclid Transactional Euclid Transactional, Kirkland & Ellis, Cadwalader, Wickersham & Taft, and Houlihan Lokey.

BV movers . . .

People: Anne Bahr Thompson, Doug Bania, and Brian Buss have been named managing directors at Brand Finance. Thompson will be based in New York City; Bania and Buss will work out of the San Diego office … Raleigh, N.C.-based financial analysis software provider Sageworks announced the promotion of Jay Blandford to president … Aaron Bobb, supervisor in Mueller Prost’s St. Louis office, has earned the ABV designation … Russell Bedford International announced the appointment of Stephen Hamlet as CEO … Gabe Shurek was promoted to partner at Woodbury, N.Y.-based GettryMarcusJoel Stadler was appointed manager at Appleton, Wis.-based Schenck SC.

Firms: BlumShapiro of West Hartford, Conn., was selected as the “Best Accounting or CPA Firm” in the 2017 Hartford Magazine readers’ poll for the second consecutive year … LBMC of Nashville, Tenn., has acquired the Intacct practice of Atlanta-based Pivotal Bridge, folding it into the LBMC Technology Solutions group … New York City-based Marcum has merged in Meyers, Harrison & Pia and Meyers, Harrison & Pia Valuation and Litigation Support, adding 55 partners and staff in Portland, Maine, and New Haven, Conn. This acquisition will be covered in detail in a future issue of BVWire … For the third year in a row, Skoda Minotti’s Tampa Bay, Fla., office was named one of the “Best Places To Work” by the Tampa Bay Business Journal … East Brunswick, N.J.-based Wilkin & Guttenplan is merging in Martinsville, N.J.-based Gail Rosen, CPA, effective June 1 … Withum has united with PWM Advisory Group to form investment advisor Withum Wealth Management, with offices in New York City and Red Bank, N.J. Withum Wealth will service Withum clients exclusively.

Please send your professional and firm news to us at

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CPE events

Purchase Price Allocations for Banks (May 3), with Rick Childs (Crowe Horwath LLP) and Charles Clow (Crowe Horwath LLP). This is Part 5 of BVR's Special Series on Banking and Financial Services.

Courtroom Confidential: Solutions to Real World Valuation Problems (May 10), with Pasquale Rafanelli (Grassi & Co.) and Jennifer Rosenkrantz (Schlissel Ostrow Karabatos PLLC).

Current Trends in Ambulatory Surgery Center Valuations (May 16), with Robert Mundy (Ankura Consulting) and Angie Smith (Ankura Consulting). This is Part 9 of BVR's Special Series presented by the BVR/AHLA Guide to Healthcare Industry Finance and Valuation.

Write Like an Expert Witness: Reports that Excel in Court (May 23), with R. Christopher Rosenthal (Ellin & Tucker) and Zachary Reichenbach (Ellin & Tucker).

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist

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In this issue:

Amazon CUTs

CEIV credential

Pratt’s Stats update

Laster speaks

Healthcare multiples

Get visible

Global BV news

M&A Confab

BV movers . . .

CPE events

LinkedIn discussions

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