Strong turnout for ASA Houston’s energy valuation event

BVR had 100 online attendees for its webcast of the Houston ASA Energy Valuation Conference, and more than 100 attendees were on-site, so it was another strong turnout for this event, which is in its 12th year. It was a full-day conference hosted by the Houston chapter of the American Society of Appraisers, and here are just a few takeaways:

• Transactions have become rare in most downstream segments as buyers currently lack access to capital markets, reports Horace Hobbs, formerly the chief economist at Phillips 66;

• Environmental, social, and governance (ESG) factors are enhancing transaction values, says Thomas J. McNulty (Chiron Financial), who presented some case studies;

• Several speakers mentioned the rise of electric vehicles in the context of the government’s plan to reduce greenhouse gas emissions by 50% by 2030—although a third of all vehicles sold by 2030 will be electric, that will not be enough to help achieve the target reduction;

• Michelle Michot Foss, Ph.D. (Rice University, Baker Institute), “rocked the boat” with her prediction that it will take 150 years to get to net zero—not by 2050, as the government predicts; she also gave her views on climate change and what the public data purportedly show and recommended a book: Unsettled: What Climate Science Tells Us, What It Doesn’t, and Why It Matters, by Steven E. Koonin.

Johnnie White, ASA’s CEO, was also there, and he mentioned the organization’s new headquarters, a systems overhaul, a new PR campaign to raise awareness, and its recently launched website. On its old website, the most clicks were to “find an appraiser,” so that feature is front and center on the new site. There’s also a live chat feature.

Other speakers discussed midstream and upstream valuations, property tax issues, and valuing renewable energy assets for purchase price allocations. We’ll have a more detailed recap in the July issue of Business Valuation Update.

Appeals court vacates going-concern valuation for firm being wound down

In an Arizona divorce case, the couple owned a business that was being phased out. The husband had bought out the wife’s share and stopped operating the business—and started a new business in the same line of work. But the husband’s valuation expert was unsure that he knew about all this and valued the wife’s interest assuming a going concern, and the trial court accepted that valuation. The appellate court noted that the husband had not given the expert sufficient information that would have showed that the business was being wound down. Therefore, the trial court’s determination of value was vacated and remanded.

The case is In Re Riddle, 2022 Ariz. App. Unpub. LEXIS 304, and a case analysis and full opinion are available on the BVLaw platform.

Extra: The full agenda has been posted for the National Divorce Conference, sponsored by the American Academy of Matrimonial Lawyers (AAML) and BVR. The conference will be both online and on-site at the Venetian Resort on September 18-20, and up to 17.5 CPE/CLE credits are available.

Hitchner examines the Pepperdine survey

BVR has long been a supporter of the Pepperdine University Capital Markets Project, which conducts an annual survey of expected rates of return with respect to private companies. Respondents include lenders, private equity, venture capital firms, private-company owners, business brokers, business appraisers, and more. A BVWire poll found that 40% of respondents use this survey as part of their toolbox for estimating small-private-company cost of capital.

It’s useful: In the latest issue of Hardball With Hitchner, Jim Hitchner (Financial Valuation Advisors) takes a look at the 2021 report and concludes that the Pepperdine surveys are “indeed useful.” But he cautions users about using the information on a “standalone basis,” pointing out the small sample sizes and that some of the averages show a wide dispersion. Also, many of the businesses are very small, he notes.

In practice, valuers sometimes rely solely on the Pepperdine surveys for small-firm cost of capital. A case study of one such appraiser is in the March 2022 issue of Business Valuation Update.

EBITDA multiples continue upward trend, per DealStats analysis

The median selling price/EBITDA multiple increased to 4.5x in 1Q2022, up from 3.9x for 4Q2021, according to the latest DealStats Value Index, which summarizes valuation multiples and profit margins for acquired private companies by time period, sector, and size. The multiple (across all industries) was the highest in the third quarter of 2018 (5.5x) but had decreased through the third quarter of 2021 before starting to trend upward (see chart).

ASA debuts virtual ESOP conference June 21

The American Society of Appraisers has added a new specialized event to its conference schedule: the 2022 ASA ESOP Virtual Conference on June 21. This is a half-day event (up to five hours of CE credit) that will cover ESOP valuation basics, key issues from recent litigation, ESOP stock purchase transactions, and advanced topics (such as control premiums, repurchase obligations, and synthetic equity). It’s a strong agenda with top speakers, so check it out!

New methodology for tax valuation of unlisted shares in Switzerland

The application of different valuation bases has a significant impact on the wealth tax value of unlisted shares in Switzerland, according to an article from KPMG. One decisive factor is the capitalization rate. According to the guidelines (known as KS 28), the enterprise value is calculated (with some exceptions) by weighting the capitalized earnings value twice and the net asset value once. To determine the capitalized earnings value, the average annual profit (of the last two or three years, depending on the valuation model) is divided by the capitalization rate.

The capitalization interest rate is composed of the interest rate of a risk-free investment and the risk premium applicable to unlisted companies (including a surcharge for illiquidity) and is published annually in the price list of the Federal Tax Administration (FTA). On Dec. 1, 2021, the Swiss Tax Conference published a new methodology for determining the capitalization rate for the valuation of nonlisted shares. The capitalization rate has increased to 9.5%, and, consequently, the company values will decrease (all else being equal). The FTA will publish the rate for valuations each year.

What’s in the June 2022 issue of Business Valuation Update

Here’s what you’ll see:

• “Cellular Telephone: An Interesting Decision for Valuation Practitioners” (Gilbert E. Matthews, CFA). A recent Delaware decision in a breach of fiduciary duty case awarded more than triple the amount originally paid to partners who were squeezed out of their collective 1.881% interest in a partnership. Several aspects of this decision are of particular interest to valuation practitioners, especially those whose practice includes litigation services. The case is In Re Cellular Tel. P’ship Litig.; 2022 Del. Ch. LEXIS 56 (Cellular).

• “Delaware Chancery Case on Shareholder Dissent Likely to Raise Eyebrows” (R. James Alerding, CPA/ABV). Additional commentary on the Cellular case.

• “New Toolkit for Passive Appreciation Takes Shape” (BVR Editor). BVR and Dr. Ashok Abbott (West Virginia University) are developing an automated tool and supporting documentation that embodies his methodology for separating active from passive appreciation of business assets in a divorce context.

• “Trugman’s Approach to Assessing Company-Specific Risk” (Gary Trugman, CPA/ABV, FASA, MVS). This is an excerpt from the new 6th edition of Understanding Business Valuation, which has a companion website that includes a good selection of full sample valuation reports and other supporting material.

• “Coronavirus Updates for 24 U.S. Industries” (BVR Editor). The latest pandemic-related news from the Vertical IQ industry research platform.

• “DealStats Yields Insights on How Crises Impact Exit Values for Small Firms” (BVR Editor). Recently, BVR provided some assistance to researchers at Colorado State University who were examining the sales of small businesses in the wake of a crisis, such as the pandemic. Their study offers some new insight on how crises impact exit value and the selling process.

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”; and

• BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the June 2022 issue of Business Valuation Update.

BV movers . . .

People: Anthony M. Venette, CPA/ABV, has joined DeJoy Knauf & Blood LLP (Rochester, N.Y.) as senior manager for business valuation; the firm looks forward to him “raising the profile of DKB’s Business Valuation practice, regionally and beyond,” the firm says in a press release … Kristin Ward has been promoted to a partner at Antares Group of Conyers, Ga.; her expertise is in the areas of business consulting, financial analysis, business valuations, and payroll.

Firms: Houlihan Lokey’s European Portfolio Valuation and Fund Advisory Services practice has earned the title of “Best Valuations Firm for Hard to Value Assets” in this year’s With Intelligence HFM European Services Awards … Greensboro, N.C.-based DMJ & Co. PLLC is merging with Asheville, N.C.-based Johnson Price Sprinkle PA (JPS); the combined firm will be known as DMJPS PLLC with expanded services to include valuations, M&A, and succession and exit planning, as well as healthcare practice consulting, and will employ more than 135 professionals, including 13 partners, across seven statewide offices … Chicago-based RSM US LLP will launch a human-centered design practice through the acquisition of Andculture, a Harrisburg, Pa.-based firm that provides client-facing marketing strategy, design, and technology services; the deal adds nearly 60 strategists, designers, engineers, client advisors, and support staff to RSM … San Ramon, Calif.-based Armanino LLP is adding Philadelphia-based tax firm Drucker & Scaccetti; this is the firm’s second acquisition on the East Coast in less than a year … Dallas-based Ryan has acquired Greystone Property Tax Advisors of Marblehead, Mass.; the acquisition follows Ryan’s recent acquisition of Marvin F. Poer and Co., the second-largest property tax consulting firm in the United States.

Please send your professional and firm news to us at editor@bvresources.com.

Leadership change in BVR Training

BVR wishes Jared Waters all the best in his new endeavor as a business owner and welcomes our new training director, Debbie Goldfarb, to our leadership ranks. Debbie would love to hear from you with any program ideas or general feedback! You can reach her at debbieg@bvresources.com or 971-200-4848.

CPE events

• Estate and Gift: The Complete Valuation Package (A BVR Workshop), May 24, 10:00 a.m.-2:00 p.m. PT/1:00 p.m.-5:00 p.m. ET. Featuring: Carla Glass (Marcum LLP) and Marissa Turrell (Marcum LLP). CPE credits: 4.5.

The special considerations in performing valuations of ownership interests for gift and estate purposes is completely discussed.

• Best Practices in Developing Intangible Asset Valuations and Asset-Based Approach Business Valuations (A BVR Workshop), May 26, 10:00 a.m.-2:00 p.m. PT/1:00 p.m.-5:00 p.m. ET. Featuring: Weston Kirk (Willamette Management Associates) and Robert Reilly (Willamette Management Associates).

How to apply the asset-based approach to value going-concern businesses is discussed in depth, as well as best practices in applying the market approach and the cost approach to value intangible assets within an asset-based approach business valuation.