BVWire Issue #182-4 | November 29, 2017


Valuation and forensics pros converge at AICPA FVS conference

BVWire attended the AICPA’s 2017 FVS Conference in Las Vegas where over 1,000 business valuation and forensics experts mingled and attended a vast array of breakout sessions, workshops, and networking events.

AICPA doings: In terms of AICPA developments in this area, a major accomplishment was the launch earlier this year of the new credential for fair value for financial reporting for U.S. publicly traded companies, Certified in Entity and Intangible Valuations (CEIV). The AICPA, ASA, and RICS have spearheaded this effort, and the credential is now being issued. The AICPA also announced it is developing a second new credential on its own, Certified in Valuation of Financial Instruments (CVFI). Public comments are being reviewed on an exposure draft of a “disclosure framework” similar to the CEIV’s Mandatory Performance Framework (MPF).

There will be a big impact on the valuation process for alternative investment funds with the coming of the AICPA’s Private Equity & Venture Capital Accounting and Valuation Guide. A draft is expected to be released in April 2018 or May 2018. The guide is expected to be over 650 pages and contain examples of exercising valuation judgments, providing more in-depth industrywide guidance leading to greater global consistency.

Practical tips: There were many breakout sessions to choose from with excellent presenters. Here are some takeaways from just a few of the sessions we attended:

  • University libraries are a good source of local economic data, noted Gary and Linda Trugman (Trugman Valuation Associates) during their preconference workshop on valuation report writing.
  • Do not use healthcare compensation surveys as a basis for a FMV opinion—they’re fine for benchmarking only, advises Mark O. Dietrich (Mark O. Dietrich, CPA, PC), who has done groundbreaking research in this area.
  • To market your practice to attorneys, attend events they do where you’ll feel uncomfortable being there—that means your competitors probably won’t be there, says attorney Randy Kessler (KS Family Law).
  • In the context of damages, unjust enrichment—a very misunderstood remedy—means disgorging “gains” not “profits,” a key distinction, points out Nancy Fannon (Marcum).
  • For older restricted stock studies used for DLOM, the underlying data are no longer available, observes Jim Hitchner (Valuation Products and Services).
  • If you need a third-party expert, never do the hiring yourself—let the attorney or client do it, advised a panel on ethical dilemmas. It’s fine to give recommendations, though, say panel members Michelle Gallagher (Gallagher Valuation & Forensics PLC), Robert Gray (Baker Tilly), and Elizabeth Woodward (Dean Dorton).
  • An earnout based on future services may not be deemed “contingent consideration” under forthcoming guidance from The Appraisal Foundation, say Travis Chamberlain (CliftonLarsonAllen) and Gary Raichart (Duff & Phelps). Chamberlain is on the team working on the new guidance.

You’ll find complete coverage of the conference starting in the January issue of Business Valuation Update.

Kudos to the conference planning committee on the valuation side: conference chair Stacey Udell (HBK Valuation Group) and committee members Marc Bello (Edelstein & Co.), Randie Dial (CliftonLarsonAllen), Nathan DiNatale (SC&H Group), Shannon Farr (Pershing Yoakley), Laurin Quiat (BakerHostetler), and Peter Weinstein (KSV Valuations, Toronto).

Next year’s FVS conference will be in Atlanta (dates not announced yet), so we hope to see you there!

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Disagreements over how to handle causation issue

Causation presents one of the most vexing problems for damages experts. This much became clear during a very informative panel discussion at the 2017 AICPA FVS Conference in Las Vegas. The panel, Linking Causation to Damages, sought to impress on financial experts the need to engage with causation, rather than prepare a damages calculation based on the assumption that causation exists.

Not everyone was on board. One skeptical audience member repeatedly asked whether the panel was suggesting that experts had to prepare a causation analysis—as if to say that causation was a legal issue that lawyers dealt with.

Causation is a critical element in establishing a plaintiff’s cause of action. It links the defendant’s alleged misconduct to the plaintiff’s claimed economic harm. Broadly speaking, there are two types of causation requirements. The higher standard requires a showing that, “but for” the defendant’s conduct, the harm would not have occurred. A less rigid standard requires a showing that the alleged misconduct was at least a “substantial factor” in causing the harm.

No matter which requirement applies, panel members urged experts to develop a thorough understanding of the case and the alleged causes of action. This may mean studying the company’s financial history, the state of the industry, as well as the company’s position in the market in order to determine and weigh all the factors that could have contributed to the plaintiff’s claimed financial loss.

“Experts need to be part of the case preparations,” Christian Tregillis (Hemming Morse LLP), one of the panelists, said. He noted that it’s common for the retaining attorney to want to wall off the damages expert. Attorneys often ask experts simply to rely on the information or data the attorney or client provide. In complex cases, financial experts often are told to build their damages calculation on the conclusions a separate industry analyst provides.

Tregillis and the other panelists insisted that experts take a big risk if they simply go along with the attorney’s modus operandi. As they see it, the key is to educate the lawyer why there is a need for the financial expert to speak directly with company management or the designated industry analyst. The panelists also said they usually do their own industry analysis and they double down on revenue projections to ensure their calculations sufficiently account for all the variables in play.

If you are building your calculation on “but for” revenue projections, you better understand what’s behind the forecasts, the panel members warned.

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TAF releases advisory on control premiums

The Appraisal Foundation’s third working group developing best practices for control premiums has issued Valuation for Financial Reporting (VFR) Valuation Advisory #3, The Measurement and Application of Market Participant Acquisition Premiums. These guidelines are in the context of fair value for financial reporting and do not address premiums in other contexts, such as tax or disputes. The fundamental perspective of the working group is that a premium for control is not always warranted. Also, the group recognizes an ongoing need for benchmark data, but they should not be used as the sole input for the estimation of a premium. Auditors (who follow TAF advisories) will scrutinize comparables much more closely in the future.

This is the third VFR advisory TAF has issued; the other two are:

A fourth working group is developing guidelines on valuing contingent consideration.

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Berkeley Research Group named M&A valuation firm of the year

The M&A Advisor named Berkeley Research Group (BRG) the 2017 Valuation Firm of the Year at its 16th Annual M&A Advisor Awards Gala in New York City. BRG also won Energy Deal of the Year (over $100 million) for its complex restructuring of multinational coal company Peabody Energy Corp. In addition to BRG, valuation firm award finalists were Generational Equity, VRC/Valuation Research, Withum, CohnReznick, and MPI. For a detailed list of the award recipients, please click here.

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U.S. goodwill impairment down by half in 2016: D&P study

U.S. public companies recorded $28.5 billion in goodwill impairment (GWI) in 2016, half the $56.9 billion they reported in 2015, according to the 2017 U.S. Goodwill Impairment Study from Duff & Phelps. The study was prepared and issued in partnership with the Financial Executives Research Foundation (FERF).

Energy hardest hit: For the third year in a row, the energy sector was the hardest-hit industry, although it saw a notable improvement in 2016. The amount of GWI in the energy sector dropped by 60%, from $18.2 billion in 2015 to $7.2 billion in 2016. Overall, nine out of the 10 industries analyzed saw their aggregate GWI amounts decrease—the only exception being the healthcare industry.

The study examines general and industry goodwill impairment trends through December 2016 for over 8,400 U.S. publicly traded companies. It also reports results from an annual survey of Financial Executive International (FEI) members, representing both privately owned and publicly traded companies.

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Guideline public comps tool adds analyst estimates

If you’re pulling public-company financial data from free online tools into your own Excel spreadsheets for ratio and other analyses, you may want to check out TagniFi. It’s designed as a cost-effective alternative to expensive tools that automate the process of developing comps for the guideline public company method (GPCM). At the AICPA FVS conference in Las Vegas, we ran into Chad Sandstedt, CFA, who is its director of customer development. He showed us some of the recent improvements to the tool, including enhanced search capabilities. The newest additions, however, are analyst estimates for more than 4,000 companies with tags that include revenue, EBITDA, and EPS. It also added analyst recommendations that include items such as the number or buy, overweight, hold, underweight, and sell recommendations along with the average recommendation and score. Cost: $299 per month.

Extra: Some of our readers are already using TagniFi, according to our latest survey of BV firms and practitioners. The most cited sources for GPCM comps are EDGAR and Yahoo! Finance.

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Global BV News

ASEAN valuers group adopts IVS

The ASEAN Valuers Association (AVA) has formally adopted the International Valuation Standards, it announced at its 20th AVA Congress held in Singapore. The AVA was established in 1981 with five founding members: Indonesia, Malaysia, Philippines, Singapore, and Thailand. AVA members now include Brunei, Vietnam, and Cambodia. The Singapore Institute of Surveyors and Valuers (SISV) organized the event, which almost 300 ASEAN valuers, as well as representatives from Asia and the Middle East, attended. “While each of the AVA countries has its own unique local valuation standards that reflect its particular characteristics and norms, we agree unanimously to adopt the IVS for consistency and transparency, and to meet the growing international needs,” said Dr. Lim Lan Yuan, AVA prexy.

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New rules in India on agenda at BV Summit January 17

The agenda has been posted for the Business Valuation Summit 2018 to be held in India (Bengaluru) on January 17. This is good timing, as the Indian government recently announced finalized rules on the valuation of unlisted companies, and these rules will be a topic of discussion at the conference. Also on the agenda will be valuation of startups, valuations in M&A transactions, and current hot topics, such as cost of capital in India, complex financial instruments, contingent consideration, and insolvency issues. Valuers, regulators, standard setters, and corporate and private equity thought leaders will make presentations. Among the presenters will be Nick Talbot (IVSC, UK), Raymond Moran (MG Valuation, USA), Michael Badham (iiBV, Canada), D S Vivek (Annveshan Business Solution, India), Sr Elvin Fernandez (Khong & Jaafar, Malaysia), Mark Zyla (Acuitas, USA), and others. For more information and to register, click here.

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What’s in the December 2017 issue of Business Valuation Update

Here’s what you’ll see:

  • “Inside Pratt’s Stats: Impact of Entity Form on Selling Price (Part 1)” (Eric J. Barr, Marks Paneth, and Peter L. Lohrey, Montclair State University). This is a two-part article that explains how transaction size and the entity form of the buyer and seller support the existence (and the magnitude) of the “pass-through entity premium” where the buyer is able to take advantage of the pass-through status of the seller. This article is based on the results of various statistical analyses of Pratt’s Stats transactional data.
  • “A Reflection on Low Risk-Free Interest Rates” (Matthew Crane, Marshall & Stevens Inc.). Although business appraisals often do not concern themselves with the details of monetary policies, given the current low-interest-rate environment, it’s useful for appraisers to have a historical perspective, in addition to understanding some of the relevant economic theories regarding the outlook for changes in interest rates.

The issue also includes:

  • Regular features: “BV News At-a-Glance/Global Perspective,” “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 December issue of Business Valuation Update.

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BV movers . . .

People: Taylor Cothran and Eli Neal of Cogence Group PC (Portland, Ore.) recently acquired their ABV credentials; both are CPAs working in business valuation and forensic accounting … Michelle F. Gallagher of Gallagher Valuation & Forensics (Lansing, Mich.) is the recipient of the AICPA Business Valuation Volunteer of the Year award, which was presented at the AICPA FVS Conference in Las Vegas … William Scally, formerly with PwC, has joined Marcum as partner-in-charge of litigation services in the firm’s Boston office; his focus is on equity and debt valuation, business enterprise valuation, business model due diligence, and contract compliance … Ely Friedman has joined Warren Averett as a strategic adviser in the private equity and corporate advisory area in its Birmingham, Ala., office … At the FASB, James L. Kroeker has been reappointed as vice chairman; new to the board is Gary R. Buesser, former portfolio manager and financial analyst at Lazard Asset Management; both terms start July 1, 2018 … Lucas VanDeWoestyne has been named partner at Apex CPAs & Consultants (St. Charles, Ill.); he’s director and COO … Richard Lee is now with New York City-based AlixPartners as a managing director in the firm’s Financial Advisory Services practice in Dallas; he’s from Houlihan Lokey and also worked at the Big Four accounting firms Ernst & Young, Arthur Andersen, and Deloitte.

Firms: Cherry Bekaert expands its presence in the Greater Washington, D.C., metro area with the acquisition of Berlin Ramos & Co. PA On December 1, Ericksen Krentel will be honored at an awards event for firms making the New Orleans CityBusiness 15th annual “Best Places to Work” list … Three Dallas firms combine into one: La Verdure & Associates PC; Henvey CPA LLC; and Atlas Tax Advisors have teamed up to create L&H CPAs and Advisors … Michigan firms Lewis & Knopf, CPAs, PC and Fausey & Associates, CPA, PC have merged … Desnudas running amok in Times Square may be one reason why Ernst & Young is vacating its offices there and heading to Manhattan West on Ninth Avenue (at West 33rd Street) … Nathan Wechsler & Co. PA celebrates 60 years of providing audit, accounting, tax, and advisory services to the New Hampshire community … New York-based Marks Paneth LLP has acquired Dylewsky, Goldberg & Brenner, a firm based in Stamford, Conn.; the deal adds two partners, Scott M. Brenner and Dannell R. Lyne, one director, Lawrence S. Goldberg, and eight professionals to Marks Paneth … Carr, Riggs & Ingram (CRI) expands west with its acquisition of RPC CPAs + Consultants LLP, New Mexico’s largest CPA firm; the deal adds eight locations in New Mexico and Texas to CRI, along with 12 partners and approximately 50 staff members; CRI has about 190 partners and 1,300 staffers.

Please send your professional and firm news to us at

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CPE events

The Essentials of CAPM Beta (November 30), with Dr. Michael Crain (Florida Atlantic University) and Dr. G. William Kennedy (Duff & Phelps)

Explore the theory and evidence of CAPM beta, its use in valuation practice, and its link to capital structure.

Normalizing Owner Compensation: Up Your Analysis (December 5), with Stephen Kirkland (Atlantic Executive Consulting)

A fresh look at the basics—and beyond—of the most significant adjustment a valuation expert typically makes during an engagement.

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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:

AICPA FVS confab


Control premiums

Top M&A valuer

Impairment study

GPCM tool

Global news

BVU December

BV movers . . .

CPE events

LinkedIn discussions


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