BVWire Issue #176-4 | May 24, 2017


Feedback needed on global valuation standards

Your input is wanted to help set the agenda for the future development of the International Valuation Standards (IVS). The International Valuation Standards Council (IVSC), the global standard setter for valuation practice and the valuation profession, has opened an Agenda Consultation Paper on future revisions. This is part of the IVSC’s new efforts to continually evolve IVS instead of issuing completely revised standards every few years.

Due August 15: At a conference last week, BVWire saw Mark Zyla (Acuitas), chairman of the IVSC’s new Standards Review Board, who alerted us to the paper. The board “distilled the main findings of our own gap analysis and collated the many valuable suggestions for revisions to IVS from stakeholders in previous consultations,” he says. “We are looking forward to receiving views and recommendations on our IVS Agenda from practitioners, valuation professional organizations, academics, corporations and regulators, and working collaboratively with them to improve IVS.” The comment period ends Aug. 15, 2017, and all comments will be posted on the IVSC’s website.

IVS 2017 adoption becomes mandatory this July, according to the IVSC website. The standards are now available in print or PDF format, and they are a good resource for both U.S. and non-U.S. appraisers.

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ASA issues its first CEIV credentials

The American Society of Appraisers (ASA) says that two individuals are the first ASA members to have earned the new Certified in Entity and Intangible Valuation™ (CEIV™) certification. They are Brian Marler, a director of Houlihan Lokey’s Financial Advisory Services business in the Los Angeles area, and Joseph Shalhoub, a vice president in the Portfolio Valuation group of Duff & Phelps located in Morristown, N.J. BVWire congratulates these two individuals!

The CEIV credential is related to fair value for financial reporting, and it has been developed under a joint effort of the AICPA, ASA, and RICS. These groups want to bring more consistency to the profession and reduce the number of questions auditors raise about the valuations. You can get the credential through the AICPA, ASA, or RICS, and there’s a special website where you can find more information. Recently, the ASA’s CEIV program development representative, William Johnston (Empire Valuation Consultants LLC), conducted a webinar for BVR that explains the credential and how to get it.

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Tax Court’s valuation of trust’s interest in LLC weathers appeal

The 11th Circuit Court of Appeals recently upheld a 2013 Tax Court ruling involving a revocable trust’s interest in a limited partnership. The valuation turned on the marketability discount. The 11th Circuit opinion shows the Tax Court’s decision regarding expert testimony was less focused on valuation methodology than on key assumptions underlying the experts’ analyses.

DLOM divide: In connection with a major asset sale in late 2004, the decedent formed a limited liability company (LLC) and made a will in which he left the residue of his estate to a revocable trust. At the time of death, the trust owned a 50.5% total interest in the LLC. The decedent’s children, who were shareholders in the company, conditioned the deal on the LLC’s’ redemption of their shares. They all accepted the LLC’s redemption offers before the decedent died, but the offers closed after his death.

The case went to the Tax Court over the Internal Revenue Service’s claim the estate and trust had underpaid taxes. The crux of determining the FMV of the trust’s interest in the LLC at the time of death was the size of the DLOM. The estate’s expert used a regression analysis involving 88 companies that produced an initial DLOM of 26.6%. Based on differences the expert perceived between the LLC and the 88 companies, he adjusted the rate upwards and arrived at a 31.7% DLOM.

The IRS’s expert rejected the regression analysis and instead considered the characteristics of the LLC to conclude a 7.5% DLOM was appropriate. Above all, he assumed the risk the redemptions would not go through was small. Owning a majority interest, the revocable trust would be able to force the LLC to distribute most of its assets once the redemptions closed. The Tax Court agreed with this key assumption. It concluded a hypothetical seller would expect to be able to force a distribution of most of the LLC’s assets. The majority interest holder would receive about $140 million in a distribution. Since the estate’s expert valued the interest at $110 million, the court found the IRS expert’s $148.5 million valuation was more credible.

Fundamental issue: In their appeal, the petitioners argued the Tax Court improperly had disregarded the estate expert’s regression analysis, “a proven and scientifically valid method for determining marketability,” and ignored other flaws in the IRS valuation.

“While the Tax Court discussed the specific details involved in each of the experts’ methodology, its decision mainly turned on a larger issue,” the 11th Circuit noted—whether a hypothetical seller would anticipate being able to force a distribution of the assets. The IRS’s expert held this view, as did the Tax Court. The estate’s expert did not. This assumption, the Court of Appeals said, is the “fundamental reason” why the Tax Court adopted the IRS expert’s valuation. The estate failed to show that the Tax Court was wrong regarding this issue.

The 11th Circuit also upheld the Tax Court’s determination that interest payments related to a loan to cover tax liability were not a necessary administrative expense.

The case is Estate of Koons v. Commissioner (Koons II), 2017 U.S. App. LEXIS 7415 (April 27, 2017). A digest of the decision and the court’s opinion will be available soon at BVLaw. A detailed discussion of the Tax Court decision in Estate of Koons v. Commissioner, 2013 Tax Ct. Memo LEXIS 98 (T.C., 2013), is available now at BVLaw.

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A few nuggets from the NYSSCPA BV event

BVWire attended the annual business valuation conference of the New York State Society of CPAs (NYSSCPA) in New York City. As usual, it was an excellent conference, and here are just a few takeaways (we’ll have more in the next issue).

Committee chair Jeffrey Gibralter (Klein Liebman & Gresen LLC) opened the conference and introduced veteran valuator and business broker Toby Tatum, who discussed his total market method when using the BIZCOMPS database. He uses inferential statistics to select comps from this database of “Main Street” private-company transactions. He also has done a new analysis of the entire database and revealed some interesting findings. For example, all-cash deals are priced 10% lower than those with seller financing, so you need to adjust for that. You also need to take company size into account as there is “clearly a size effect” on the data. But there’s no need to adjust for geographical regions or if the deal was done years ago, according to his analysis.

Eric J. Barr (Marks Paneth) described his modified Delaware MRI method for valuing PTEs, which adjusts for things such as entity-level PTE income taxes, income retained in the business, effective income tax rates of the owners, state income taxes, and other factors. He also mentioned that for the first time there is a case pending in Tax Court that may result in a change in the IRS’s no-tax-affecting stance on valuing PTEs (see our prior coverage on this case).

Attorney Neil Katz (Smith and Chwat Inc.) mentioned an alarming statistic: 78% of small-business owners need to monetize their ownership in their firms to afford retirement. And more effective succession planning is needed, as only 15% of firms are successful in transferring to the next generation—that’s down from 30% 20 years ago.

“Sheer guesses” and “ludicrous” are the words Baruch Lev (New York University Stern School of Business) uses to describe some of what you see in financial reports today. There’s an average of 150 estimates in financial reports today as opposed to just 30 in 1995, he points out. The result is a mishmash of historical accounting and fair value estimates that render traditional financial statements useless. His recommendation is to recognize “strategic assets”—those that: (1) generate benefits; (2) are limited in supply; and (3) are difficult to imitate. These are the assets that create value, says Lev who explains more in the book The End of Accounting, which he co-wrote with Feng Gu (SUNY Buffalo).

Our congratulations to conference co-chairs Mitchell H. Chosak (FSA LLC) and Jean J. Han (Baker Tilly Virchow Krause LLP) for putting together an outstanding event!

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FASB releases stock compensation update

The Financial Accounting Standards Board (FASB) says there is a great diversity of practice in how to account for modifications to the terms or conditions of share-based payment awards. There is also confusion over what exactly is meant by "modify." As a result, the FASB released a new Accounting Standards Update, ASU 2017-09, designed to clear up the ambiguities.

Separately, the FASB issued an Invitation to Comment on Efficiency and Effectiveness of GAAP Financial Reporting Taxonomy. Comments are due June 15.

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RICS Chicago summit addresses value of Cubs

During last year’s Summit of the Americas, members of the Royal Institute of Chartered Surveyors had fun putting a value on the White House. This year, being in Chicago, they chose the Chicago Cubs, in honor of their World Series win, which broke a 108-year drought.

Bruce B. Bingham (Berkeley Research Group) put a $2.3 billion value on the Cubs franchise as a whole. Of course, this is just a theoretical value based on information that’s publicly available. In doing the exercise, Bingham used the three approaches and looked at a range of aspects from stadium ownership and its bargain lease to naming rights, broadcast contracts, advertising, parking, and other facilities. Of course, the biggest expense is player salaries that include future escalations. Bingham also pointed out that "ego value" must be taken into account.

At future summits, RICS members will tackle valuations of other U.S. landmarks, such as the Statue of Liberty and Grand Canyon. We suggest a follow up to the Cubs valuation: a valuation of the right of publicity for the billy goat that allegedly triggered the “curse” on the Cubs. Is the tin termite now less relevant because the curse is now broken?

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What’s the value of a laugh?

How do you put a price on a punchline? We may get an idea if a case against Conan O’Brien makes its way through the courts. The comedian has been charged with copyright infringement by a writer who said he plagiarized punchlines about Caitlyn Jenner, Tom Brady, and the Washington Monument, according to a report from the Associated Press. The judge in the case refused to dismiss the case, so we may get to glean some insight into the value of laughter.

While this case involves comedy, it’s a serious matter. Years ago, a once-famous comedy film writer/director committed suicide after being hounded by charges of improperly reusing gags from films he had worked on in his heyday.

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NACVA’s annual get-together has several online attendance options

It’s conference season! BVWire will shortly be headed to Chicago June 7-10 for NACVA’s Annual Consultants' Conference where the theme will be “Redefining Our Profession.” While we’d love to see you there, many of you simply can’t make the trip to Chicago. No problem—you can attend online using several options. You can live stream the entire conference, or you can pick and choose which of the 46 broadcast sessions you’d like to attend.

Roger Grabowski (Duff & Phelps) will be one of the keynote speakers, and he’ll talk about current controversies and new research regarding the cost of capital. Another keynote session will be Experts Sabotaging Themselves in Court—The Judges Tell All, which will be moderated by Michael Kaplan (Kaplan, Abraham, Burkert Associates) and will include Honorable Judge Elizabeth Gonzalez, Honorable Judge Steven I. Platt (Ret.), and Honorable Judge Christopher P. Yates.

Networking opportunities abound: a sunset dinner cruise, a Cubs game, a visit to the Art Institute, and nightly “dine-arounds” at local eateries.

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ASA’s 2017 Advanced BV Conference to mix theory with actionable tips

We just took a look at the newly released agenda for the ASA’s 2017 Advanced BV Conference in Houston October 7-10. Not only will there be the high-quality and thought-provoking sessions we’ve come to expect at this event, but speakers will also present practical applications along with the theory. Using case studies to demonstrate key concepts means you’ll walk away with actionable advice that you can put into practice right away. Here are just a few examples:

  • Practical Ways to Use Regression Analysis in Your BV Appraisal (Mark Shirley, V&L Consultants LLP);
  • How to Forecast Balance Sheets and Cash Flow Statements for DCF Analyses (Joseph Emanuele, Hemming Morse LLP); and
  • Using New REIT Date to Value Family Limited Partnerships (Spencer Jefferies and Jim Park, Partnership Profiles Inc.).

BVWire will be in Houston to attend these sessions and others. Will we see you? Come visit us at the BVR booth!

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Global BV News

Valuation disputes derail many deals in Africa

Disagreements over the valuation of assets along with the transparency of the financial information available for review in the dealmaking process are often key factors in the ability to complete transactions in Africa. These factors are also important for the success of post-transaction integration, according to the “PwC Valuation Methodology Survey,” 8th edition.

The survey found that, across the continent, nearly 40% of deals fell apart because the parties could not agree on a valuation. There are a number of reasons for that, chief among them are being valuation-related issues such as an inability to forecast how the assets will grow or respond to competitors, as well as the overall lack of reliability of multiples and comparable assets across the continent.

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BV movers . . .

People: Jason Bodmer has joined Rehmann as a senior manager in its Ann Arbor, Mich., office … Woodbury, N.Y.-based Gettry Marcus announced the appointment of Mark Dolinger as principal … Mike Gillis, managing partner at DMJ & Co. in Greensboro, N.C., was elected to a three-year position on the North Carolina Association of CPAs’ board of directors … Matt Jensen has joined Alpharetta, Ga.-based Coker Group as a senior manager. Jensen will work out of San Diego … Steve Whiteaker has joined Coral Springs, Fla.-based ENVRS Grant Thornton International named Peter Bodin CEO-elect. He’ll succeed current CEO Edward Nusbaum at the end of the year … Yasmine Misuraca has been promoted to partner in the advisory group of New York City-based Marks Paneth.

Firms: Boston-based AAFCPAs has joined global firm association PrimeGlobal as an independent member … Bennett Thrasher has relocated its headquarters within Atlanta, becoming the first tenants at the Riverwood 200 tower. The accounting and consulting firm also unveiled a new logo … Skokie, Ill.-based Michael Silver & Co. was named as one of the “Best Places to Work in Illinois for 2017” … The Milwaukee Journal Sentinel named Sikich’s Brookfield, Wis., office one of the top places to work in southeast Wisconsin.

Please send your professional and firm news to us at

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CPE events

Narrative and Numbers: The Value of Stories in Business (Keynote Quarterly) (May 31), with Professor Aswath Damodaran (Stern School of Business, New York University).

The Power of PWERM (June 1), with Annika Reinemann (Brittan Park Valuation). This is Part 8 of BVR's Special Series on Fair Value.

Emerging Markets for Minority Interests (June 13), with Christine Baker (Charter Capital Partners) and Charles Sheridan (Huron Capital).

Valuing Loan Guarantees (June 15), with Gary Schurman (Applied Business Economics), Part 6 of BVR's Special Series on Banking and Financial Services.

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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Your discussion could be featured here—BVR's LinkedIn group is a place for valuation professionals to share, discuss, and learn about compelling BV topics. If you're not already a member, request to join:

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Holiday Break

BVWire will not be published next week due to the Memorial Day holiday. We will return on June 7. Have a happy and safe holiday!

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We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden (Executive Legal Editor) at:
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In this issue:

IVS feedback

First CEIVs issued

DLOM appeal


FASB updates

Cubs’ value

No joke

NACVA confab

ASA Advanced BV

Global news

BV movers . . .

CPE events

LinkedIn discussions

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