Valuations have always been a crucial element in bankruptcies. A new niche subchapter of the Bankruptcy Code creates an easier and less expensive path for small businesses to reorganize and survive—a welcome lifeline during the pandemic. While the number of the new Subchapter V filings started off slowly, there has been a slow but steady increase in each month this year, according to Michael D. Pakter, a managing member at Gould & Pakter Associates LLC in Chicago. It’s safe to assume that many more cases will be filed, especially as Paycheck Protection Program funds are depleted.

The Small Business Reorganization Act (SBRA) was enacted in August 2019 and went into effect in February 2020. The SBRA adds Subchapter V to Chapter 11 of the Bankruptcy Act, which changes or eliminates some of the Chapter 11 requirements, making it more debtor-friendly. As enacted, Subchapter V put a cap of $2,725,625 on the amount of debt (noncontingent, secured, and unsecured debt) a business can have to qualify. But, on March 27, 2020, the CARES Act temporarily increased the cap to $7,500,000 for one year (or longer if Congress extends it), making many more businesses eligible for Subchapter V.

In the upcoming December issue of Business Valuation Update, Pakter explains what the new Subchapter V means to practitioners who do valuations for bankruptcies.

FASB probes fair value of restricted
equity securities

The FASB has a project in initial deliberations, titled Effect of Underwriter Restrictions on Fair Value Measurements. The objective of this project is “to reduce diversity in practice on measuring the fair value of equity securities that are subject to an underwriter lockup restriction.” The FASB also decided to add a project to its research agenda to evaluate the effects of other types of sale restrictions on fair value measurements.

AICPA proposes new standard on financial instrument valuation

The AICPA’s Auditing Standards Board (ASB) has proposed a standard designed to provide practitioners with more guidance on auditing management’s estimates of the fair value of financial instruments, including on the use of pricing services. The proposed standard provides guidance:

• When management has used the work of a specialist in making accounting estimates, as well as other proposed amendments to enhance guidance when evaluating the work of the management’s specialist;

• On the use of pricing information from pricing services when evaluating management’s estimates related to the fair value of financial instruments; and

• When using the work of an auditor’s specialist.

The Proposed Statement on Auditing Standards (SAS), Amendments to AU-C Sections 501, 540, and 620 Related to the Use of Specialists and the Use of Pricing Information Obtained From External Information Sources, has a comment that ends Feb. 4, 2021. Please send comments to CommentLetters@aicpa-cima.com.

Would you like to showcase your
valuation expertise?

BVR is planning an exciting slate of training events for 2021, and we’re looking for valuation practitioners to act as presenters. We’re developing a series of “master classes” on these specific topics: company-specific risk, forecasting, and the guideline public company method. The master classes are envisioned as a four-hour virtual event, each with multiple speakers, so, if you would like to be involved, send an email to our training director, Jared Waters, at jaredw@bvresources.com. If those particular topics are not up your alley, send Jared a note suggesting a different topic that would be of interest to our audience of valuation practitioners, attorneys, forensic experts, and transaction advisors.

How Virginia CPA firms are weathering the storm

One-fifth of Virginia CPAs expect their business to expand in 2021 despite the pandemic, according to the Virginia Society of CPAs sixth annual Economic Expectations Survey in partnership with Virginia Business magazine. Among the other findings from the 162 respondents in the survey:

• Most respondents have been investing in technology during the pandemic, and 40% plan to make even bigger investments in technology assets in the coming year;

• The safety and health of employees was the top concern for 73% of respondents, with most working remotely or taking other precautions due to the pandemic since back in mid-March; and

• Amid the crisis, about a quarter of respondents were able to begin offering new services to their clients.

The VSCPA sponsors an annual two-day business valuation, fraud, and litigation services conference. A recap of this year’s conference can be found in the November 2020 issue of Business Valuation Update.

LEI up but U.S. economy losing steam, reports BVR’s EOU

In September, the U.S. Leading Economic Index (LEI) improved 0.7%, to 107.2 points, reports the Economic Outlook Update (EOU) published by Business Valuation Resources (BVR). The report noted that, despite the rise, downside risks to the economic recovery may be increasing amid rising new cases of COVID-19 and continued labor market weakness. This suggests that the U.S. economy could be losing momentum heading into the final months of 2020.

The LEI is a leading American economic indicator intended to forecast future activity. The LEI is calculated by the Conference Board, a nongovernmental organization, from the values of 10 key variables, such as manufacturers’ new orders (consumer goods and materials), building permits (new private housing units), interest rate spread (10-year Treasury bonds less federal funds), average consumer expectations for business conditions, and other variables.

The 52-page August 2020 Economic Outlook Update contains expansive research from leading authoritative resources, which you can use in your valuation reports as long as you give proper attribution. To learn more, visit bvresources.com/eou.

Senior healthcare M&A hits new low in 3Q20,
per Levin

The number of publicly announced seniors housing and care acquisitions in the third quarter of 2020 fell to a new recent low, with 58 deals announced, based on new acquisition data from Irving Levin Associates. This represents a 3% decline from the 60 transactions in the previous quarter, but a 44% drop from the 104 deals made public in the third quarter of 2019. However, the $1.48 billion spent on the third-quarter transactions surpassed the previous quarter’s total of $1.36 billion by 9%, based on publicly disclosed prices. But, compared with the third quarter of 2019, which saw $5.74 billion spent, dollar volume was 74% lower. “The pandemic continues to stymie deal making in the seniors housing and care sector,” says Ben Swett, editor of The SeniorCare Investor. “Difficulty in obtaining acquisition financing, third-party approvals and property inspections, along with serious questions about how the time it will take for occupancy and operations to recover has caused many buyers to either delay or hit the pause button on deal making right now.”

New Control Premium Study platform makes
its debut

BVR subscribers have expressed a great deal of interest in invested capital premiums, which explains why many of them attended the free webinar on enhancements to the FactSet Mergerstat/BVR Control Premium Study. One exciting addition is the move to a new platform that features enhanced search/filter capabilities, customized display and Excel downloads, the ability to save searches, and more. Also, the new platform features a day pass purchase option instead of the previous single-search purchase option. Now, instead of just purchasing the data for an individual industry, you can access the full data set for an entire 24-hour period. The architects of the new platform covered the basics of the control premium study and its data, the move to the new platform, and how to use it to get the data you need. The webinar is free and can be accessed if you click here.

Global intangible asset value hits all-time high

Total intangible asset value has risen to an all-time high of $65.7 trillion, representing 54% of overall listed global value, according to the 2020 Global Intangible Finance Tracker (GIFT) study from Brand Finance. The report analyzes global value composition as of Jan. 1, 2020, April 1, 2020, and Sept. 1, 2020. Total intangible value is comprised of both disclosed intangibles and undisclosed intangibles. Within disclosed intangibles, the most valuable asset class continues to be goodwill, which represents approximately 8% of global value at $8.8 trillion as of Sept. 1, 2020. The United States retains its crown as the most intangible country based on listed entities, says the report.

Mark your calendar for these conferences

The International Association of Certified Valuation Specialists (IACVS) will host its annual conference on the “Art and Science of Business Valuation,” December 7-8 (7 a.m.-10 a.m. EST). More information will be forthcoming on the IACVS website.

The Saudi Authority for Accredited Valuers (TAQUEEM), the regulator for the valuation profession in Saudi Arabia, announced that its 12th International Valuation Conference will be held September 2021 in Riyadh, Saudi Arabia. The IACVS is joining other leading professional associations around the globe to promote the valuation profession to governments, businesses, public, private, and financial institutions. TAQEEM’s website is located here.

BV movers . . .

People: Brian Trampe, CPA, ABV, CFF, has joined Houston-based Weaver as a director in the firm’s forensics and litigation services practice; he has more than 15 years of experience in litigation support, business valuation, due diligence, and audit services with a focus in family law … Keith Gordon, CPA, CFF, CVA, has joined Lancaster, Pa.-based Trout CPA as valuation, forensics, and litigation services manager; he frequently provides expert witness testimony in shareholder dispute matters, marital dissolution, and alimony/support matters.

Firms: CliftonLarsonAllen LLP has acquired Atlanta-based Global Strategic Accountants LLC, a telecommunications consulting firm … Sweeney Conrad of Kirkland, Wash., has moved into new office space located in the Plaza at Yarrow Bay in Kirkland … Los Angeles-based SingerLewak is adding Salem, Ore.-based Boldt Carlisle + Smith, a firm that specializes in tax services, trust and estate planning, business consulting, and financial and assurance services … New Philadelphia, Ohio-based Rea & Associates has added Wooster, Ohio-based Dyer Roche & Co.; the deal adds 15 new team members to the firm … San Francisco-based BPM LLP expands into Los Angeles county with the acquisition of Rossi LLP of Long Beach, Calif. … In Canada, Calgary, Alberta-based MNP is adding Port Moody, British Columbia-based firm The Newport Group, which focuses on industries ranging from construction and manufacturing to transportation and logistics.

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

CPE events

• School of Probability: The Use of Monte Carlo in Valuation. November 13, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Oksana Westerbeke (Grant Thornton) and Keith Konen (Grant Thornton).

The level of uncertainty has hit unprecedented levels, so more analysts are turning to Monte Carlo to build credible and reliable valuations.

• Side Effect of COVID-19: Beta Changes Impacting Business Valuations. November 24, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Clifford Ang (Compass Lexecon) and Andrew Roper (Catalyst Economic Consulting LLC).

Learn about new research and available data you may need to consider when determining whether the COVID-19 pandemic is impacting company valuations because of changes in risk.