BVWire Issue #194-3  | November 28, 2018


First public demo of BVR’s new cost of capital platform

Last week, valuation experts got the first walk-through of BVR’s Cost of Capital Professional, the newest resource for developing a cost of equity capital estimate. A main takeaway from the demo is that users are not steered toward outputs from a “black box” of complex mathematics. The platform is flexible in that it allows the expert to use his or her professional judgment and common sense in developing one or more COE estimates using the build-up method and CAPM for any valuation date.

Freedom of choice: The platform integrates data from multiple sources, including the University of Chicago’s Center for Research in Security Prices (CRSP) data, Professor Aswath Damodaran’s data resources, and the U.S. Federal Reserve on Treasury bond yields. You have the freedom to choose the period of historical return data for your analysis. For example, during the demo, a start date of 1982 for estimating the size premium was used that showed virtually no size premium in CRSP Decile 10 (companies with the smallest market capitalization). If you go all the way back to the 1920s, the size effect will be very different. The point is that the analyst controls the period of historical return data that he or she feels is most appropriate for the specific subject company. The platform currently has CRSP market return data up to Sept. 30, 2018. Year-end 2018 data will be added by the end of January.

The demo was conducted during a free webinar presented by the author of the platform, Dr. Michael Crain (Florida Atlantic University), and advisory board co-chair Ronald Seigneur (Seigneur Gustafson LLP). Adam Manson (BVR), the other advisory board co-chair, was on hand to field the many questions from the huge audience. In response to a question on methodology, the presenters said that the platform is based on the fundamental approach from the SBBI series that had been widely used for many years. Another listener asked about valuation dates, and the presenters showed that your valuation date can go back to any date in the past.

Try it free: The Cost of Capital Professional is available to all practitioners on a free trial basis until the end of 2018. After that, it will be made available on a subscription basis. To sign up for the free trial, click here. BVR welcomes feedback and comments from all users.

back to top

AICPA issues inventory valuation guidance

The AICPA’s Financial Reporting Executive Committee has issued an early working draft of Inventory Valuation guidance and would like feedback by Feb. 1, 2019. The draft is part of the upcoming Business Combinations Accounting and Valuation Guide on how to estimate the fair value of inventory acquired in a business combination in accordance with FASB ASC 820, Fair Value Measurement. The draft contains a section with general principles for valuing inventory and two examples, one on how to value finished goods and the other on work-in-process inventory. You’ll also see Q&As that illustrate some of the inventory valuation considerations discussed in the draft. Please submit comments to

back to top

More on the alimony deduction

Our coverage of the recent AICPA Forensic & Valuation Services Conference sparked a few comments from readers concerning the elimination of the tax deduction for alimony that becomes effective December 31. A point made at the conference is that the IRS is expected to follow a strict interpretation of the rule, meaning that a marital settlement agreement must be approved by the court—not just agreed to by the parties—before that date for the alimony to be deductible. One reader mentioned that the court order may have to be stamped and entered before the end of the year for it to qualify. It’s not clear that the IRS would go that far, but, given the lack of guidance on this matter, that would be a safe strategy.

Another reader pointed out that, in some states, marital settlement agreements are not approved by courts. The American Academy of Matrimonial Lawyers (AAML) recently issued an alert about this matter, stating: “The alimony agreement needs to be in a final settlement or court order [emphasis added]—not a temporary agreement—in order to maintain the deduction.”

Bottom line: Consult with a tax expert before making any decisions in your particular case.

back to top

New study of M&A deals spotlights fairness opinions

A study of about 2,000 M&A deals from 2006 to 2016 suggests that acquirers should pay closer attention to the fairness opinions third-party analysts provide. The study’s author, Matthew Shaffer, a doctoral candidate at the Harvard Business School, finds that differences between actual deal prices and the valuations estimated by third-party analysts consistently predict whether acquirers will eventually be forced to write down their goodwill over the following five years. The study examines the usefulness and the bias of fairness opinion valuations and finds “tight evidence for both.” The study is discussed in the paper, “Truth and Bias in M&A Target Fairness Valuations: Appraising the Appraisals.”

Extra: Hundreds of fairness opinions are at your fingertips if you use BVR’s Fairness Opinion Research Service (FORS). It gives you full access to actual fairness opinions from around the world, searchable by any data point or field.

back to top

Survey: Small biz expects to do well in 2019

Small businesses are doing very well, and 70% say they expect to increase profits over the next 12 months, according to Accounting Today’s inaugural “Small Business Accounting Insights Survey” of over 1,000 owners and leaders from small businesses. The survey also revealed that roughly half of the firms have a “low affinity” for their accountants, meaning they hadn’t bought any services from them in the previous year, and were less likely to buy any in the coming year. Those firms were less likely to post better results than firms that work closely with their accountants and CPAs.

back to top

GDP growth continues on strong pace per 3Q 2018 Economic Outlook Update

The U.S. economy—as indicated by GDP—grew at an annual rate of 3.5% in the third quarter of 2018, putting it on pace to have the largest annual average GDP figure in over a decade, according to the 3Q 2018 Economic Outlook Update (EOU). The third-quarter increase is slower than the upwardly revised rate of 4.2% reported for the second quarter of 2018. Still, the 3.5% rate marked the second highest quarterly GDP rate in four years. Other highlights:

  • The employment cost index increased 0.8% in the third quarter of 2018;
  • The U.S. economy recorded the 113th consecutive month of growth by the end of the third quarter;
  • The FOMC raised the target range for the federal funds rate to between 2.00% and 2.25%;
  • Pending-home sales were at 104.6% in the third quarter and are down 1.0% from one year ago; and
  • Construction spending was at an annual rate of $1,329.5 billion in September, an increase of 7.2% from one year ago.

You get permission to quote any or all of the material in the EOU in your valuation reports as long as you give proper attribution. The EOU is published monthly and quarterly.

back to top

NACVA surveys valuation analyst salaries

The National Association of Certified Valuators and Analysts (NACVA) is conducting a survey of annual entry-level salaries for valuation analysts. To take the survey, click on this link:

back to top

Global BV News

IVSC ‘2018 Annual Report’ now available

The International Valuation Standards Council (IVSC) has issued its “2018 Annual Report” that gives updates on its development of International Valuation Standards (IVS) and its work with standard-setters and regulators around the world to ensure alignment. The report also looks at how and where IVS is being used around the world, drawing on the insights of valuation leaders to understand why common standards are vital to the markets in which they work.

Extra: A recap of the IVSC Annual General Meeting held in Dubai is in the December 2018 issue of Business Valuation Update.

back to top

Preview of the December 2018 issue of Business Valuation Update

Here’s what you’ll see:

  • Have We Lost the Forest For the Trees?” (R. James Alerding, CPA/ABV, ASA). When BVR recently announced the launch of the Cost of Capital Professional, the author was pleased with its back-to-basics approach to estimating the cost of equity. The growing complexities of various aspects of business valuation prompted him to write this article, which speaks to the need to preserve the “art” of valuation.
  • Letter to the Editor: Calculation Engagements and USPAP” (Carla G. Glass, CFA, FASA, and Jay E. Fishman, FASA). In response to the recent controversy over the use of calculation engagements, BVU recently published several articles on calculation engagements. This letter is in response to those articles.
  • Building a Successful BV Practice Within a CPA Firm” (Robert E. Kleeman, Jr., CPA/ABV, ASA, CVA). A BV practice is very different from a CPA practice. Here are five fundamentals that can spell the difference between success and failure of a valuation practice within a CPA firm.
  • Rethinking the Traditional Levels of Value—Continuing the Conversation” (Andrew Strickland, FCA). While the representation of a hierarchy of value has served generations of business valuers well, it now needs to be reshaped. One concern is that the hierarchy has at its core the concept of the control premium, a concept that has become strained beyond the breaking point.

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: “DealStats 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.

back to top

BV movers . . .

People: Matthew Crane, DBA, ASA, CPA, has joined MSG Accountants, Consultants, and Business Valuators as managing director in the firm’s New York City office … Christine Davis, CPA, CFF, CVA, has joined Bates Group as director of forensic accounting and financial crimes and will be based in the firm’s new San Francisco office … PKF O’Connor Davies LLP has hired Ralf Ruedenburg as principal and practice leader of the firm’s new German Desk specializing in audit, tax and advisory services, merger and acquisition advice, and tax structuring for U.S., German, Austrian, and Swiss clients … Walt Eckert, CPA, CVA, has joined Carmel, Ind.-based Blue & Co. as a director in its Columbus, Ohio tax practice … Chicago-based UHY Advisors has named Steven McCarty as its new CEO, effective Jan. 1, 2019, succeeding longtime CEO Tony Frabotta, who will remain chairman; McCarty will look to expand the UHY footprint.

Firms: Valuation & Research Specialists (Athens, Greece) has opened a new office in Luxembourg to support its strategy of international growth; the firm provides advanced equity research and valuations as well as value-related advisory services Centerville, Iowa-based TDT CPAs and Advisors has relocated its West Des Moines office to a new and larger space in the same vicinity … Friedman LLP is moving its headquarters from midtown to lower Manhattan, renting 44,767 square feet at 1 Liberty Plaza, which is in the heart of the New York City’s financial district … Henderson Hutcherson & McCullough (HHM), based in Chattanooga, Tenn., has acquired Grisham Wildman & Work (GWW), a Memphis, Tenn., firm that focuses on automobile dealerships; HHM’s employee total is now 155 … Newport Beach, Calif.-based Squar Milner will combine with Boas & Boas of San Francisco on Jan. 1, 2019; Boas & Boas specializes in high-end tax services and has over 10 professionals and staff who will relocate to Squar Milner’s San Francisco office … Richard T. DeSimone & Co. (Oak Brook, Ill.), a niche firm with a 50-year history of serving the automobile dealer industry, will merge with Selden Fox Ltd., also of Oak Brook … May, Cocagne and King PC, a Decatur, Ill.-based accounting and consulting firm, has acquired Sulaski & Webb CPAs, based in Bloomington, Ill.

Please send your professional and firm news to us at

back to top

CPE events

  • Divorce and Valuation: 15 Issues for Cross-Examination (December 4), with Sean Saari (Skoda Minotti) and Rob Ranallo (Skoda Minotti).

    Hear about the most common errors made when valuing businesses to not only improve your own analyses, but also what to look for when reviewing opposing experts’ reports.

back to top

New and Trending
LinkedIn Discussions

Comparing BVR’s New Cost of Capital Professional With D&P’s Navigator

Is a Merger Causing a Culture Clash in Your Organization?

OPM Backsolve and Convertible Debt Financing

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:

back to top

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

Not a BVWire subscriber?
Get on the list today.

In this issue:

CCP demo

Inventory valuation

Alimony deduction

Fairness opinions

Small biz outlook

GDP growth

Salary survey

Global news

BVU December preview

BV movers . . .

CPE events

LinkedIn discussions



Copyright © 2018. All rights reserved.

Business Valuation Resources, LLC
111 SW Columbia Street, Suite 750
Portland, OR 97201
P: 1-503-479-8200