BVWire Issue #188-3 | May 16, 2018


Sold-out ASA event underscores importance of fair value

The growing importance of fair value for financial reporting and the ongoing efforts to improve the quality in this area of practice triggered a sell-out for the ASA/USC 13th Annual Fair Value Conference held May 10 in Los Angeles. For those not able to attend in person, BVR webcast the entire event, which Ray Rath (Globalview Advisors) and Professor Tom Ryan (USC Leventhal School of Accounting) co-organized. Here are just a few takeaways:

  • So far, 100 individuals have earned the Certified in Entity and Intangibles Valuation (CEIV) credential with another 750 in the pipeline; a panel of large audit firms said they are ready to certify their staffs as soon as the inspection and quality control process is ironed out;
  • This summer, the AICPA will issue a final version of its best practices framework for its new Certified in Valuation of Financial Instruments (CVFI) credential;
  • The Federal Reserve’s QExit strategy will progressively lead to an increase in the cost of equity;
  • An ASA task force on tax reform’s impact on business valuation will soon present a third in a series of webinars on its findings;
  • Personal goodwill in a PTE could spell trouble for the firm’s ability to take the new tax law’s QBI deduction, which doesn’t apply if a firm’s principal asset is the “reputation or skill” of one or more people;
  • A working draft of the AICPA accounting and valuation guide to private equity/venture capital is now available if you click here (comments are due August 15); the next guide is business combinations, to be issued in 2019;

  • There are no fundamental changes to The Appraisal Foundation’s draft of its contingent consideration guidance; the next draft (or final) will be out this fall; and
  • The levels of fair value audit deficiencies have improved, but there’s still room for improvement.

Thanks to KPMG for providing the facilities for this excellent event, and a detailed recap will be in the July issue of Business Valuation Update. Also, an archive of the webcast will soon be available from BVR.

Extra: BVWire now heads to New York City on May 21 for the annual business valuation conference hosted by the New York State Society of CPAs. There’s a good lineup of session topics, including purchase price allocations, Monte Carlo, cash-intensive businesses caught up in divorce, intellectual property, lost profits for shareholder disputes, noncontrolling interests in real estate holding companies, and more. For more details and to register, click here. We’d love to see you there, but, if you can’t make it in person, you can watch the webcast.

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ESOP settlement involves Vermont company

Vermont Business Magazine recently reported that the DOL settled its ESOP litigation involving First Bankers Trust Services (FBTS) and the principals of a Vermont company, Sonnax Industries, the maker of automatic transmission parts. This suit arose out of a 2011 transaction in which Tommy Harmon, the company’s president and CEO, and Frederick Fritz, an influential board member, sold their shares in the company to the Sonnax ESOP. They hired FBTS to serve as independent fiduciary for the transaction. In 2016, the DOL filed a complaint alleging FBTS, Harmon, and Fritz caused the ESOP to overpay for the company stock by millions of dollars.

As the court’s Consent Order notes, the recent settlement was contingent on “certain events occurring in early 2018,” that is, the sale of Sonnax for more than $65 million to Marmon Holdings Inc., a subsidiary of Warren Buffett’s Berkshire Hathaway. The sale went through in late March. Under the settlement, FBTS must pay $225,000 to the Sonnax ESOP, as well as a $25,000 civil penalty. Harmon and Fritz shall pay $2 million to the ESOP and a civil penalty of $200,000. FBTS, Harmon, and Fritz “neither admit nor deny the allegations” in the DOL’s complaint.

FBTS was a defendant in several similar suits and, in late 2017, settled three of them with the DOL.

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BVLaw Recent Case Additions

Case law matters. Check out these three divorce decisions, recently added to BVLaw, which arose in different states and which all dealt with the question of whether it was appropriate to discount the owner-spouse’s interest in a closely held business. The different state courts arrived at different answers. But there is one common theme: Trial courts have great discretion in deciding whether to apply discounts and are often more guided by a notion of equity than valuation principles.

Telfer v. Telfer, 2018 Tenn. App. LEXIS 120 (March 5, 2018)
The Tennessee Court of Appeals finds that the trial court did not err when it applied a marketability discount in valuing the partial interests in businesses representing the wife’s separate property; the use of DLOM is within the trial court’s discretion and depends on the facts of the case, the appeals court says.

Tate v. Tate, 2018 Ohio App. LEXIS 1340 (March 29, 2018)
The Ohio Court of Appeals upholds the valuation of a minority interest in farm entities based on the fair value standard of value. The court notes the prevailing expert specifically referenced buy-sell agreements that did not contemplate the use of discounts in valuing an exiting member’s partial interest.

Cobane v. Cobane, 2018 Ky. App. LEXIS 107 (March 23, 2018)
The Kentucky Court of Appeals says that, in valuing the owner-spouse’s minority interest in an LLC, the trial court “would have been well within its discretion to apply a minority discount”; however, it was not error for the trial court to reject a discount based on certain questionable actions related to the owner’s interest.

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Think your social media marketing is not working?

Many valuation firms say they feel their involvement in social media is not a very effective way to market their practices, according to the findings in the BV Firm Economics & Best Practices Guide. We asked two BV firm marketing experts for their thoughts on this. “People sometimes want to see hard ROI numbers from their efforts, but it’s often very difficult to determine that a lead came from social media,” says Mellanie Bartlett of Sweeney & Bartlett Marketing Partners Inc. “We also find that, when surveyed, clients often don’t ‘connect the dots.’ Even if you directly ask them, they won’t reference that they saw you on LinkedIn or Twitter—it will be another source. Social media is important in that it allows you to be ‘out there’ and connected, but you often will not be able to measure a direct ROI because it’s just one part of an overall branding campaign.” Plus, some firms have an overly complex social media strategy and lose sight of the fundamentals, according to Debby Sweeney. “For example, when using social media, it’s critical to make yourself ‘findable,’ so you can simply focus on having a good LinkedIn profile, and that can help a great deal,” she says.

In addition to BV firms, Sweeney and Bartlett also have clients that are law firms, CPA firms, and professional associations. In 2018, the firm celebrates its 10th anniversary in business. Sweeney and Bartlett offer other BV firm marketing insights in a full interview in the June issue of Business Valuation Update.

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Valuing cryptoassets

It’s tricky, and the science is still emerging for valuing cryptoassets, says an article in MIT Technology Review. One pioneer is Chris Burniske, a co-founder of Placeholder Ventures, a New York firm that specializes in cryptoassets. He and other financial analysts are starting to get their hands on real tools for determining the underlying value of blockchain networks. The metric that has emerged as the most common way to determine what a given network is worth is called the “network value-to-transactions ratio,” he says. Burniske is the author of a new book, Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond.

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Global BV News

APEC issues IP valuation manual

In the wake of two three-day workshops titled Promoting Innovation Through a Mechanism for IP Valuation, Financing and Leveraging IP Assets held in Manila, Asia-Pacific Economic Cooperation (APEC) has issued the Intellectual Property (IP) Valuation Manual: A Preliminary Guide. It is intended as a reference for APEC economies primarily to enable them to present to stakeholders why IP has value, how it is being valued, and why it is important to come up with an IP valuation mechanism. While this manual elaborates important principles as a guide in valuing IP assets, it is not designed to be a comprehensive guide in valuing various kinds of IP. A more thorough discussion and in-depth study will be conducted to develop a more detailed and comprehensive guide.

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Preview of the June 2018 issue of Business Valuation Update

Here’s what you’ll see:

  • Use of Financial Projections in Solvency Opinions” (Craig Jacobson).Financial projections are often a key input to the financial models used to assess solvency, but projections management or its professional advisors prepared are sometimes overly optimistic. Here’s how to identify whether projections are reasonable and assess the level of risk.
  • BV Firm Marketing Experts Reveal Practice-Building Insights” (BVR Editor). An interview with Debra Sweeney and Mellanie Bartlett, co-owners of Sweeney & Bartlett Marketing Partners Inc. They work with a number of business valuation firms to help them build their corporate and individual brands.

The issue also includes:

  • An expanded section of “BV News and Trends/Global BV News and Trends.”
  • Regular features: “Ask the Experts,” and “Tip of the Month.”
  • BV data spotlight: “Pratt’s Stats MVIC/EBITDA Trends,” “ktMINE Royalty Rate Data,” “Economic Outlook for the Month,” and “Cost of Capital Center.”
  • BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the June issue of Business Valuation Update.

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BV movers . . .

People: Robb Strukoff has joined Milwaukee-based Wipfli as director in the firm’s healthcare practice focusing on the senior living market … Who’s Who Legal named Phil Beckett, a managing director at Alvarez & Marsal, “Investigations Digital Forensic Expert of the Year” for the second year running … Mo Merali, an advisory partner and head of private equity at the U.K.’s fifth-largest firm, Grant Thornton, has been appointed as the chairman of the Corporate Finance Faculty for the Institute of Chartered Accountants in England and Wales (ICAEW).

Firms: Chicago-based Topel Forman LLC has joined Moore Stephens North America, an association of 40 member firms that have over 130 collective offices in most major North American cities … Anders CPAs + Advisors of St. Louis has added a 2017 Tax Cuts and Jobs Act Resource Center to its website … Crowe Horwath LLP, based in Chicago, will begin practicing under a new name, Crowe LLP, effective June 4; the name change will be delayed in certain states pending final review of name change applications in those states … has added the “Certified Patent Valuation Analyst Curriculum Training Sessions” to its offerings … The National Association of Black Accountants Inc. (NABA) Metropolitan Washington, D.C., Chapter recognized Baker Tilly Virchow Krause LLP for ongoing support for diverse and inclusive workplaces … Columbus, Ohio-based GBQ launched a new, redesigned version of its website ( … Duff & Phelps opened its new office in Dublin, which can accommodate 30 additional staffers to its Irish team; it will look to grow a number of practice areas including valuation … Houlihan Lokey wins “Best Valuation Firm for Hard to Value Assets” in HFMWeek’s annual European Hedge Fund Services Awards 2018.

Please send your professional and firm news to us at

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CPE events

  • Fundamentals of Financial Modeling (May 16), with Mark Shirley (V&L Consultants). This is Part 3 of BVR’s Special Series on Advanced Modeling and Methodologies.

    An introduction to the logical structure of decision theory (problem solving) applied in constructing financial models, including a mathematical model structure for spreadsheet application.
  • How the IRS Determines Reasonable Compensation and What You Should Do (May 22), with Michael Gregory (Michael Gregory Consulting).

    A former IRS manager will give an update on the determination of reasonable compensation for federal tax purposes. Topics include definitions, the market, income and cost approaches, sources of information, five common concerns, and insights on loans and exempt organizations.

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BV Experts Clash Over Statistics

The “Value” of Beer—and Breweries—Is Rising!

Thoughts on the Usefulness of Historical Private Company Transaction Multiples?

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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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:

ASA FV event

ESOP settlement

New BV cases

Social media


Global news

BVU preview

BV movers . . .

CPE events

LinkedIn discussions


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