BVR Logo May 19, 2021 | Issue #224-3

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:

Major changes in energy sector valuations

In the wake of the pandemic, there is a “paradigm shift” in valuations in the energy sector, according to one speaker at the Energy Valuation Conference, hosted by the Houston Chapter of the American Society of Appraisers on May 12. Well over 200 attendees in 10 different countries listened to a full day of sessions from top experts in this sector. BVR sponsored the live webcast of the event.

The pandemic hit the energy sector particularly hard. Earnings plummeted, and more than 100 North American oil and gas firms filed for bankruptcy in 2020. M&A activity took a hit, and now there appears to be more sellers than buyers. Speakers pointed out that transaction multiples going forward are expected to shift in certain subsectors.

Rebound timing? Several third-party forecasts predict the energy sector won’t get back to prepandemic levels until 2030. Best case is 2024, if there’s a big economic recovery, and worst case is 2050, if the recovery is slow, speakers said. Interestingly, several speakers did not put much weight on the impact of the rise of electric vehicles on the oil and gas business.

Several speakers discussed the regulatory environment, which is abuzz with a number of major proposals that would directly impact this sector. What’s more, there are serious concerns about the Biden administration’s actions so far concerning the oil and gas industry.

For valuation experts not familiar with this industry, speakers gave some good overviews of the different components of the industry, namely, the upstream, midstream, and downstream subsectors. There was also an interesting session on the new proposed tax provisions and the important role valuations play in tax credits. Also interesting was a session on the fast-paced world of used equipment auctions (this sector is fixed asset-heavy). The growing trend in environmental, social, and corporate governance (ESG) was also covered. A recap and key takeaways from the conference will appear in the July issue of Business Valuation Update.

Court disses restaurant’s ‘direct physical loss’ theories in COVID-19 suit

The key question in many COVID-19-related insurance disputes is what constitutes “direct physical loss,” a federal court recently explained as it rejected a plaintiff’s breach of contract claim against the insurer. The plaintiff unsuccessfully offered two theories to meet this prerequisite for coverage, and they are similar to the arguments Caesars Entertainment recently presented in its massive lawsuit against nearly 60 insurers. The outcome here and in similar cases bodes ill for Caesars’ case.

The plaintiff owned a restaurant in South Miami whose operations were curtailed by pandemic-related measures. The plaintiff had an all-risk commercial property insurance policy with Certain Underwriters at Lloyd’s. (Caesars, too, had all-risk insurance, as its complaint emphasized.) The policy included business interruption coverage and covered the actual loss of business income due to the necessary “suspension” of the business’s “operations.” The “suspension” had to be caused by “direct physical loss of or damage to property.”

Cleaning is not direct physical loss: In its suit (subject to Florida law) against the insurer, the plaintiff proposed two explanations of how the virus and various governmental actions caused it to suffer direct physical loss. Under one theory, the plaintiff contended it lost the use of its facilities because of the high risk of transmission of physical coronavirus inside the premises.

The court rejected the “loss of use theory,” as has the “vast majority of federal courts around the country and all courts within this district.” The court said, “[C]ourts reject this theory because it is an attempt to recover for economic losses that happen to be caused by something physical (e.g., the coronavirus particles) rather than a ‘direct physical loss.’ In contrast, losses caused by a hurricane would be ‘clearly covered.’” Here, the property did not change on account of the virus, but the world around it did. “And for the property to be usable again, no repair or change can be made to the property—the world must change,” the court said.

Under the plaintiff’s physical contamination theory, the plaintiff maintained the virus was physically present inside its premises. The plaintiff acknowledged that there was no test to show so but claimed that, as the virus was omnipresent in the community, it is a “virtual certainty” that it was on the premises at some point. The court cited applicable 11th Circuit case law that has rejected this argument, finding “an item or structure that merely needs to be cleaned has not suffered a ‘loss’ which is both ‘direct’ and ‘physical.’” The court in the instant case said that, by now, “it is widely accepted that life can go on with hand sanitizer and disinfecting wipes.” The court also observed that the plaintiff had in fact continued to do take-out business “from the very premise they argue has suffered direct physical loss.”

The court dismissed the plaintiff’s complaint.

The case is Town Kitchen LLC v. Certain Underwriters at Lloyd’s, 2021 U.S. Dist. LEXIS 361919 (Feb. 26, 2021). BVLaw has been tracking many of these disputes (the list keeps expanding), and digests and the court opinions are available to BVLaw subscribers.

Updates to BV standards and guidance you should know

Constantly evolving, business valuation standards and guidance come from a variety of sources. During a recent webinar, veteran valuation expert Jim Alerding (Alerding Consulting), who has been involved in the development of some of the key standards, gave a review and update, which included these important developments:

  • The AICPA has put out a Subsequent Events Toolkit that gives guidance on making disclosures about events occurring after a valuation date that impact the valuation, which is particularly useful now as valuations deal with the pandemic;
  • The Appraisal Foundation has issued a series of four valuation advisories for financial reporting (relevant in other areas as well); the latest one is on contingent consideration, and two new ones are in the works (one on company-specific risk and another on discount rates for intangibles);

Alerding covered a lot more in his 100-minute webinar, which is available if you click here (purchase required for nonsubscribers).

Extra: During this time of uncertainty, a good paper to read is “Dealing With Valuation Uncertainty at Times of Market Unrest,” by Alexander Aronsohn, who is the technical standards director at the International Valuation Standards Council.

Leading damages guide spawns two-day virtual conference May 26-27

Compelling topics direct from the pages of BVR’s Guide to Economic Damages will come to life during the first National Economic Damages Virtual Conference on May 26-27. Intellectual property damages, COVID-19 damages, forensic evidence, and the ins and outs of appearing in court are among the topics. Speakers include attorneys and financial experts who are contributing authors to the guide. Also, several panels will recap key takeaways and field your questions. Earn up to seven CPE/CLE credits. If you hold a BVR Training Passport Pro, there is no additional charge for this conference. You can check out the agenda and register if you click here.

Debut of complex securities conference is tomorrow, May 20

Want to move from standard business appraisals to more difficult-to-value assets? Attend the Complex Securities Virtual Conference on May 20, presented by the American Society of Appraisers (ASA). This is a brand-new full-day event and will cover such topics as SPACs, volatility, contingent consideration, NFL contracts, and more. Speakers from the Big Four and leading valuation firms will present sessions and answer your questions. BVWire will definitely be there!

Damodaran to teach valuation fundamentals

Professor Aswath Damodaran (New York University Stern School of Business) will present a four-day, 12-hour online course on valuation May 25-28 at the Institute for Mergers, Acquisitions and Alliances (IMAA). Damodaran (known as the “dean of valuation”) will go over the fundamentals of each approach to valuation, together with limitations and caveats on the use of each, as well as extended examples of the application of each. He will also conduct this program in September and November. For more information, click here.

Global Investor Valuation Forum being considered

There will be an exploratory meeting with some of the world’s largest investors to determine whether it would be worthwhile to establish a global Investor Valuation Forum. The purpose would be to discuss common valuation issue areas that major investors encounter, explore emerging areas of interest (e.g., intangibles, ESG), and provide input to help improve the global approach to valuation. The meeting will be held on May 26 by the International Valuation Standards Council (IVSC). If you would like to attend, please email for more information.

Preview of the June 2021 issue of Business Valuation Update

Here’s what you’ll see:

  • How to Use New Data on Invested Capital Premiums” (BVR Editor). To estimate acquisition premiums, the use of invested capital premiums is highly encouraged in certain situations. This article presents a case study and step-by-step guide to using these data that are now included in the Factset Mergerstat/BVR Control Premium Study.
  • Economic Damages From Design Patent Infringements” (Richard F. Bero, The BERO Group PA, and Christopher V. Carani, Esq., McAndrews, Held & Malloy Ltd.). The authors discuss the challenges of determining lost profits for design patent infringement. This is an excerpt from The Comprehensive Guide to Economic Damages, 6th edition.
  • Updated Data in Largest Pre-IPO Study Reveal High Discounts” (BVR Editor). New pre-IPO data for the first quarter of 2021 has been added to the Valuation Advisors Lack of Marketability Discount Study, which is the largest study of its kind. The use of pre-IPO data is a widely used and accepted method for estimating a discount for lack of marketability (DLOM).
  • Eliminating Outliers in Financial Data Without Cherry-Picking” (J. Richard Claywell). The author discusses one method for determining outliers that is defensible from the allegation of cherry-picking, that is, bias in selecting data to either suit the client’s wishes or to generate a specific result for the client.
  • Defining Terms: Forecasts v. Projections—Why Does It Matter?” (BVR Editor). One area that can trigger some confusion is the difference between the terms “forecast” and “projection.” Some people use them interchangeably, but these are formal terms found in the literature, so they should be used appropriately.

The issue also includes:

  • A full section of “BV News and Trends/Global BV News and Trends.”
  • Regular features: “Ask the Experts” and “Tip of the Month.”
  • BV data spotlight: “DealStats MVIC/EBITDA Trends,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “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 2021 issue of Business Valuation Update.

BV movers . . .

People: William A. Johnston, ASA, IA/BV, will assume the role of CEO of Empire Valuation Consultants from co-founder Terry Griswold, who will step down as CEO later this year but will maintain full-time status at the firm; Johnston currently leads the firm’s financial reporting practice and is the office managing partner for the firm’s New York City office.

Firms: The existing shareholder group at New York City-based Empire Valuation Consultants transferred 100% of the firm’s shares to an employee stock ownership plan (ESOP); this new structure of employee ownership “will ensure the firm’s independence, preserve our culture, and position us to continue serving our valued clients at the highest level,” the firm says … Long Beach, Calif.-based Windes has joined Allinial Global, an association of independent accounting and consulting firms … Cincinnati-based Clark Schaefer Hackett has acquired strategic HR inc., which is also in Cincinnati; the firm provides human resources support to organizations that need additional HR resources or do not have their own HR department.

Please send your professional and firm news to us at

CPE events

Mr. Ghaidarov will review a simple and robust methodology that extends the use of restricted stock discount models to scenarios in which the trading restriction period is random or indefinite.

If you haven’t already, you are bound to encounter clients with digital asset holdings. The speakers will discuss blockchain and crypto currency, the considerations for valuing digital assets, and some forensic techniques for fraud and asset tracing.

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


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