BVR Logo Novemberr 3, 2021 | Issue #230-1

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



ASA conference hits the jackpot in Vegas

About 600 attendees converged—both on-site and virtually—for the American Society of Appraisers’ International Conference in Las Vegas October 24-26. It was great seeing many people at a live event after all these many months so there was a lot of catching up to do! Here are just a few items of interest—just the tip of the iceberg—from the sessions and the many networking opportunities (full coverage will be in the December issue of Business Valuation Update):

  • Johnnie White, the ASA’s CEO, has great things planned for the organization, including new headquarters, a new website, a systems overhaul, and a new PR campaign to raise awareness;
  • Activity on the Vegas Strip has bounced back in strong form—which was confirmed by a session Ray Moran (FON Valuation Services) moderated covering M&A and valuation issues in the gaming industry;
  • BV recruiter John Borrowman (Borrowman Baker) told us some alarming news: From May 2021 to October 2021, 63 professionals have left the business valuation, forensics, and litigation services profession;
  • Gary Trugman (Trugman Valuation) was at the BVR booth in the exhibit hall, where preorders were being taken for the new sixth edition of his book, Understanding Business Valuation (due out early 2022);
  • Duff & Phelps would like some feedback on its development of a company-level beta module for its Cost of Capital Navigator;
  • A sports team’s current win-loss record doesn’t always have an impact on value, according to Drew Dorweiler (IJW & Co.);
  • BV pioneer and elder statesman Shannon Pratt appeared (on video) to trumpet the upcoming sixth edition of his book, Valuing a Business (due out March 2022);
  • The traditional relief from royalty method for valuing patents has serious shortcomings, one being that it doesn’t capture the value of a defensive patent portfolio, says Brian Dies (Hoffman Alvary & Co. LLC);
  • Closed-end fund data and expanded economic data are now available on the Tagnifi platform of guideline public-company data (it was a platinum sponsor of the conference); and
  • In their session, Ron Seigneur (Seigneur Gustafson LLP) and Nicholas Parseghian (Marcum LLP) said the pandemic has had some very positive effects on the cannabis industry—and much of it will stick going forward (Seigneur is a co-author of the Cannabis Industry Accounting and Appraisal
    Guide
    ).

Kudos to the ASA and its conference staff for an amazing event! Next year’s conference will be in Fort Lauderdale, Fla. See you there!

Valuation experts spar over fraudulent transfer matter

In the bankruptcy court, two valuation experts squared off in a case where the trustee argued that a cash transfer by the debtor was a constructively fraudulent transfer under the bankruptcy code. The expert for the trustee was not able to show that the debtor was insolvent at the date of the transfer or became insolvent as a result of the transfer. The expert did not perform a balance sheet insolvency test but noted that, while total assets were about $20 million greater than liabilities, the bulk of the assets consisted of goodwill and was likely significantly overstated. The defendant’s expert did perform a balance sheet test and opined that the company was solvent at the date of the transaction. He valued the business as a going concern, which includes goodwill, and he offered credible evidence that the goodwill represented the results of a competitive market transaction.

The case is Yaquinto v. Thompson St. Capital Partners (In re Stone Panels, Inc.), 2021 Bankr. LEXIS 2635; 2021 WL 4436166 (Sept. 27, 2021). A case digest and full court opinion are available on the BVLaw platform.

IRS sending agents to NACVA’s BV training

The IRS is sending 79 agents to business valuation training provided by the National Association of Certified Valuators and Analysts (NACVA), according to former IRS manager Michael Gregory (Michael Gregory Consulting LLC). At his session at the ASA International Conference in Las Vegas, he noted that the past few years have been tough for the IRS. The government shutdown, budget cutbacks, and the pandemic have created a staff shortage, so the agency now has much fewer agents doing valuation work—about half of what it had back during the 2008 economic downturn. The IRS must meet quantity goals in terms of audits, but, with less staff, the quality of the audits will suffer. Auditors will target low-hanging fruit—the No. 1 target is the discount for lack of marketability (DLOM), especially if DLOMs are being increased without adequate explanation. Also on the agency’s radar are reasonable compensation and tax affecting pass-through entities. Gregory worked for the IRS for almost 30 years (much of the time dealing with valuation matters) and he is now in private practice. He is the author of several books, including Business Valuations and the IRS: Five Books in One.

Extra: Today, November 3, Gregory gives his 25 “golden” suggestions to business valuers the IRS is auditing in a webinar—click here
to register.

Audax PE invests in Stout

Audax Private Equity has agreed to make an investment in Stout, a firm that provides advisory services in corporate finance, valuation, financial disputes, and investigations. The transaction is expected to close in the fourth quarter of 2021, according to an announcement. This is a continuation of the recent push by PE firms into accounting and valuation firms. Last month, Citizens Financial Group Inc. acquired Willamette Management Associates, a leading valuation consulting and forensic analysis firm.

Valuation experts are familiar with the Stout Restricted Stock Study and DLOM Calculator for quantifying a discount for lack of marketability (DLOM). In a recent BVR survey, nine out of 10 respondents say they use restricted stock studies for DLOM, with the Stout study being the front-runner (75% say they use the Stout study).

Damodaran on proposed billionaire tax

“A boon for appraisers and accountants,” but it is one of the worst tax proposals ever, says Aswath Damodaran (New York University Stern School of Business), in an appearance on CNBC. He’s referring to the Democratic proposal to tax the unrealized capital gains of people with either $1 billion or more in assets or three consecutive years of income of at least $100 million. Under current law, such assets are subject to tax only when they’re sold. The proposal meets all of Damodaran’s requirements for “really bad tax law,” namely that it targets very few people (and those who can fight back), it is tied to a volatile measure (capital gains), it is very difficult to compute (unrealized gains), and it may possibly cannibalize taxes already being collected from other sources. Plus, some billionaires would escape the tax if, say, the billion dollars they have does not grow—so it singles out successful entrepreneurs. “It’s almost perverse,” says Damodaran. There are better alternatives, he says, such as eliminating the free step-up in basis for inherited assets and raising rates.

Update on the pandemic’s impact on the gaming industry

While at the ASA International Conference in Las Vegas, we reached out to industry research provider Vertical IQ to give us an update on the impact of the pandemic on the gaming industry. They tell us that experts say that the increasing number of organizations requiring proof of vaccination to enter Nevada entertainment venues will put pressure on casinos to do the same. Experts say that Las Vegas Raiders games at Allegiant Stadium could provide a blueprint for how events will function. The team has contracted with tech company Clear for use of its Health Pass app to verify vaccination status. The team’s rule is succinct: no vaccination, no entry. Clear’s digital Health Pass requires the user to scan a state-issued ID or passport and upload pictures of his or her face and CDC vaccination card. The health pass, which is a QR code, expires after 12 to 24 hours. To access it again, the user provides a new photo that is matched to the original using facial recognition technology. The user must also answer a short health-screening questionnaire.

The Vertical IQ platform is geared to business valuation experts and provides details of industry trends, financial metrics, operations, risks, and financial challenges inherent in more than 500 industries. Learn more about the platform during a free webinar on November 18—click here to register.

Mock trial event this Friday, November 5

At the ASA International Conference in Las Vegas, BVWire chatted with the folks from the Houston ASA Chapter, who are having a full-day mock trail event this Friday, November 5. This event is for all appraisal disciplines and features three mock trial sessions on testifying in trial, depositions, and arbitration—and it will take place in an actual courtroom. The program is available in-person, virtually online, and as a post-event recording. The event offers eight CPE credits. For more details and to register,
click here.

Note: ASA members get 50% off the admission price, but BVWire has arranged for CPA/ABV and CVA holders to also get the 50% discount. If you want to attend in person, you’ll need to sign up by Wednesday morning (today); to attend online, you must register by the end of the day Thursday (November 4). If you have any problem registering, please contact Pamela Bensoussan at artappraisers@comcast.net or at 619-997-7782.

Latest issue of OIV Journal available

The spring 2021 issue of the journal of the Organismo Italiano di Valutazione (OIV), the valuation standards-setter in Italy, contains the following articles:

  • “Cross-Border DCF Valuation in a Nutshell” (Andreas Schueler);
  • “Level 3 Reporting Quality: Trend Analysis of Derivative Instruments’ Restatements” (Joel M. DiCicco, Richard S. Gendler, Uliana Filatova, and Teodora Minkova); and
  • “Business Valuation and Fundamental Analysis” (Mauro Bini).

To download the journal, click here.

BV movers . . .

People: William H. Frazier, ASA, has joined Houston-based Weaver in its Dallas office as a managing director in valuation services; he has more than four decades of experience in valuation and litigation advisory services, and his background includes assignments for estate and gift taxation, fairness and solvency opinions, bankruptcy and reorganization, disputes related to business transactions and shareholder disputes, family law matters, merger and acquisition advisory, employee stock ownership plans (ESOP), equity compensation, financial reporting, and other corporate matters … Jeffrey Parrish has joined the new Dallas office of Valuation Research Corp. (VRC) as vice president in the firm’s financial reporting group; he specializes in valuations for public and private companies for M&A transactions, tax advisory, and financial reporting purposes.

Firms: New York City-based Citrin Cooperman & Co. has enhanced its business advisory services by acquiring The DB Group of Temecula, Calif., a financial planning and analysis advisory firm … Lancaster, Pa.-based RKL LLP is expanding its Pennsylvania footprint, adding Allentown, Pa.-based Stoudt Associates LLC, a firm that provides tax, accounting, and consulting services to construction, healthcare, real estate, retail, and professional services companies in the Lehigh Valley … Camp Hill, Pa.-based Brown Schultz Sheridan & Fritz (BSSF) has moved its Lancaster office to a new location at 454 New Holland Ave., also in Lancaster … Roanoke, Va.-based Brown Edwards is adding Richmond, Va.-based firm Mitchell Wiggins, a firm that provides tax and accounting services to nonprofit organizations and closely held businesses in a variety of industries; the deal brings six new partners and an additional 47 new team members to the firm.

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

CPE events

Former IRS manager explains some major IRS initiatives in business valuation and offers 25 “golden rules” to help in resolving issues valuers may have with the agency.

The presentation covers royalty damages fundamentals, navigates patent damages case law, and provides insightful concepts and considerations frequently missed or overlooked in royalty analyses.





We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) at: info@bvresources.com.

 


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