BVR Logo November 4, 2020 | Issue #218-1

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

ESOPs: good for employees but facing an uncertain future

A recent article in the New York Times extols the virtues of employee ownership through employee stock ownership plans (ESOPs). And trade groups for employee-owned businesses have noted bipartisan Congressional support for ESOPs. But ESOP experts (trustees and appraisers) worry that the Department of Labor’s antagonistic attitude toward ESOP transactions, validated by key victories in court, has stymied ESOP formation.

Great performance record: As the Times article explains, ESOPs are a vehicle for owners to sell their company to their employees. ESOPs are particularly attractive to owners of family or small businesses who want to ensure that the company remains intact and its employees, who were instrumental to the flourishing of the company, are able to keep their jobs and build up a decent retirement account.

The article cites research from Rutgers University’s School of Management and Labor Relations and the Employee Ownership Foundation that shows employee-owned companies have done better at retaining jobs for workers than nonemployee-owned companies during the COVID-19 crisis. Also, employees in companies that have an ESOP often are able to save more for retirement than employees with other retirement plans, including 401(k)s, because of the ESOP structure and also because employees as part-owners of the company are motivated to work extra hard.

Undue scrutiny: The article acknowledges that there are downsides. Owners selling to an ESOP won’t get the highest price because ESOPs, by law, must not pay more than fair market value for company stock. Also, ESOP transactions are complex as ESOPs are subject to the regulatory scrutiny of the Department of Labor. This is where the problem lies for many ESOP professionals. They believe that, rather than encourage the creation of ESOPs, the DOL in recent years has cast doubt on their legitimacy through relentless investigations or threats of investigations into ESOP transactions and lawsuits against ESOP trustees and selling shareholders. In 2018, a group of Congressional members similarly complained that the DOL was undermining ESOPs.

Misunderstandings: In several key cases (e.g., Brundle and Vinoskey), courts have ruled in favor of the DOL and assessed steep damages against the ESOP trustees overseeing the contested transactions as well as the owner/seller in the Vinoskey case. The appraisal profession has been particularly troubled by some of the valuation-related rulings the trial courts have issued. The concern is that these rulings, based on a lack of understanding of fundamental valuation principles, may become precedent. In its amicus brief in support of the Vinoskey appeal to the 4th Circuit, the ASA recently tried to “correct” numerous valuation-related “misunderstandings” by the trial court related to valuation methodology and the concept of control. In another case, the ASA has sought to educate the reviewing court on the concept of fair market value, the standard applicable in ESOP transactions.

Lack of guidance: The ESOP community faults the DOL for failing to issue a set of regulations that would serve as guidance to ESOP transactions. ESOP practitioners also have lamented the DOL’s lack of interest in working with the ESOP community on resolving issues. They say this attitude contrasts with the IRS’ openness to cooperation with the appraisal community.

The New York Times article quotes a wealth advisor saying that, given the potential tax benefits derived from the ESOP structure, “ESOPs may become more popular next year if the Democrats hit the trifecta and raise the capital gain rates to 39 percent.”

But, if you believe some ESOP professionals, the opposite may also happen. There won’t be enough experts to work on ESOPs as, increasingly, companies and individuals are abandoning the field for fear of becoming entangled in costly litigation with the DOL.

At this point, the future prospects for ESOPs are anyone’s guess.

Digests and the various court opinions for Pizzella v. Vinoskey and Brundle v. Wilmington Trust N.A. are available at BVLaw.

Hitchner debuts monthly Hardball publication

James Hitchner (Valuation Products and Services) has released the first issue of Hardball With Hitchner. One point he makes in the premier issue is about the reliability of valuations of firms impacted by COVID-19. He disagrees with some analysts who say that valuations may be less reliable than those prepared pre-COVID-19. “I believe that valuations under COVID are more difficult, but they are not less reliable,” he writes. Analysts strive to make sure valuations are as reliable as possible regardless of the environment or nature of the economy. The problem now is not different from, for example, valuing early-stage companies whose future performance is not predictable. Of course, there may be times when the difficulties may not be manageable. “If you do not believe you can prepare a reliable valuation under COVID, you should not take the engagement,” he stresses. Hardball With Hitchner is a monthly publication. For subscription information, click here.

RICS opens consultation regarding rules
of conduct

“Time to Reinforce Our Core Values” is the title of an opinion piece by Michael Zuriff, head of regulation, Americas, for the Royal Institution of Chartered Surveyors (RICS). RICS is a global valuation professional organization (VPO) whose members are appraisers in various disciplines, including business valuation. “The pandemic and the subsequent economic slowdown place a greater emphasis on the need to trust the work of professionals,” he says. RICS has opened a consultation on proposed revisions to its Rules of Conduct, which have been in place since 2007. The consultation is available if you click here, and comments are due by December 7. There will also be a free webinar on November 13 explaining the proposed changes.

Ups and downs in healthcare M&A, per
Levin data

Different sectors in healthcare experienced different levels of mergers and acquisitions activity in the third quarter of 2020, according to new acquisition data from Irving Levin Associates.

E-health up: COVID-19 is not fazing investors in e-health, with 58 transactions reported in 3Q20, a 17% increase compared with the previous quarter’s 51 deals. Twenty-seven deals disclosed a price in the third quarter, totaling $20.8 billion, which eclipses the $606 million in announced spending for the second quarter. The largest deal in the sector was Teladoc Health Inc.’s merger with Livongo Health Inc., valued at $18.5 billion. “Changes made to delivering health care since March have boosted interest in areas such as telehealth and remote patient monitoring,” says Lisa E. Phillips, editor of the Health Care M&A Report, which publishes the data.

Hospitals down: On the other hand, hospital M&A activity fell sharply in the third quarter of 2020, with only 10 transactions reported in the third quarter, a 55% drop compared with the previous quarter’s 22 deals. Deal volume was down 66% compared with the third quarter of 2019, when 29 transactions were announced. Only one deal disclosed a price in the third quarter, totaling $207 million. That figure is 66% lower than the previous quarter’s $601.8 million reported deal value and 96% below the $5.3 billion recorded in the third quarter of 2019. “The 10 deals that made it to the definitive agreement stage in the third quarter involved only 11 hospitals,” says Phillips. “A year earlier, we saw 79 hospitals trade hands in 29 deals.”

Willamette’s autumn 2020 Insights focuses on transaction services

Transaction-related board advisory services are the focus of the spring 2020 Insights from Willamette Management Associates. The issue contains a number of articles. A few of them are:

  • “How Solvency Opinions May Reduce the Risk of Fraudulent Transfer Exposure in Leveraged Transactions” (Michael F. Holbein, Esq.);
  • “The Roles of the Investment Banker and the Valuation Analyst in M&A Transactions and Litigation” (Samuel S. Nicholls);
  • “Financial Adviser Due Diligence Related to Financial Information Used in a Fairness Opinion Analysis” (Timothy J. Meinhart); and
  • “Litigation Insights from Ryan, a Shareholder Oppression Decision” (Kevin M. Zanni).

There are other articles as well. The editors for this issue are Meinhart and Zanni. To download the articles, click here.

BVWire to cover AICPA FVS conference November 9-11

BVWire is looking forward to the AICPA’s Forensic and Valuation Services Conference live online November 9-11. The theme is “Envisioning the Way Forward,” and there will be more than 50 sessions covering a wide range of topics including the latest thinking on the impact of COVID-19 on valuations, new financial crime schemes, and regulatory updates. Watch for our coverage in future issues!

Free webinar tomorrow on new Control Premium Study platform

Take a first look at BVR’s new Control Premium Study platform during a free webinar tomorrow, November 5. The architects of the new platform will cover the basics of the control premium study, discuss the basics of the data, the move to the new platform, and how to use it to get the data you need. The webinar is free and qualifies for one CPE credit. For more information and to register, click here.

IASB extends comment deadline on
goodwill paper

The International Accounting Standards Board (IASB) has extended the comment period on its discussion paper, Business Combinations—Disclosures, Goodwill and Impairment, to December 31. The paper discusses possible improvements to the information companies report about acquisitions of businesses to help investors assess how successful those acquisitions have been. The board is also seeking feedback on how companies should account for goodwill arising from such transactions.

BV movers . . .

People: Elliott Jeter, CFA, CPA, ABV, has joined Houston-based Weaver as managing director to expand the firm’s national healthcare valuation practice; he has nearly two decades of experience in healthcare valuation and transaction advisory services.

Firms: Chicago-based BDO USA LLP is adding Owings Mills, Md.-based Hertzbach & Co., which specializes in construction, real estate, healthcare, government contracting, manufacturing, nonprofit, and financial services; the deal adds 135 partners and professionals to the BDO team Duff & Phelps was ranked as a leader in the recent portfolio valuations ranking by Leaders League, an international media and rating agency for top executives … In Canada, Calgary, Alberta-based MNP is adding Dieppe, New Brunswick-based Boudreau Albert Savoie & Associates to help bolster its presence in the Atlantic Canada region and strengthen its coast-to-coast reach … Bethlehem, Pa.-based Concannon Miller & Co. is adding Abraham Borda Corvino Butz LaValva & Co. of Easton, Pa., a firm with clients in manufacturing, construction, restaurants, real estate, technology, professional service firms, and nonprofits.

Please send your professional and firm news to us at

CPE events

This webinar discusses today’s volatile environment in which many small businesses are worth more in liquidation than as a going concern.

  • Take Control of Your Premiums (Free Webinar). November 5, 10:00 a.m.-10:50 a.m. PT/1:00 p.m.-1:50 p.m. ET. Featuring: Adam Manson (Business Valuation Resources), Oday Merhi (Business Valuation Resources), and Gaelan Duncan (Business Valuation Resources).

The architects of BVR’s new Control Premium Study platform will cover the Control Premium Study, the basics of the data, the move to the new platform, and how to use it to get the data you need.

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


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