Huge turnout for the AICPA FVS conference

At 800 attendees, the AICPA & CIMA Forensic and Valuation Services Conference in Las Vegas was the largest event we’ve been to this year. Most (500) of the attendees were on-site at Caesar’s Palace, a welcome sight after so many virtual-only events. With over 60 sessions to choose from, there was something for everybody, and here are some interesting bits of information we picked up:

• The FVS section unveiled its five-year plan, which includes increased efforts to build a global community, expand training and education, and launch awareness campaigns to strengthen the name recognition of the ABV and CFF credentials;

• The keynote speaker, John Carreyrou, was the WSJ investigative reporter who exposed the Theranos scam—the audience was stunned to hear that none of the sophisticated investors who backed the startup ever asked to see audited financials;

• Kroll has switched its stance on the risk-free rate, advising analysts to use its recommended normalized rate or the spot rate, whichever is higher;

• If using the MUM for goodwill, consider using the “simplified” version that eliminates the elaborate scoring (see this 2016 article from Business Valuation Update);

• It’s “not that hard” to get into valuations for bankruptcy—practitioners are already doing a lot of similar work in other contexts;

• When doing valuations for damages, opposing counsel will try to trick you into opining on causation and then try to disqualify you (causation is the attorney’s job);

• PE activity has been weak since the middle of 2022—both investing and exiting activity—down 40% in deal and dollar volume;

• Don’t use tables when trying to present data in reports, but, if you must, color code them or use a heat map to make your point;

• Thought leaders are bullish on the BV profession, but the biggest problem is finding and growing staff;

• Working remotely has traditionally hurt someone’s chance for partnership, but that is gradually changing;

• Some firms are moving to a qualitative approach to adjusting market multiples—telling a story versus using a formula;

• If you list restricted stock studies in the DLOM section of your report, make sure you’ve read them; and

• Start your assessment of specific company risk by asking management this question: “What keeps you up at night?”

There will be a detailed recap of the conference in the January 2023 issue of Business Valuation Update.

Valuing a minority interest with no information on the subject company

In a Maryland divorce case, neither valuation expert had any documents or financial information from the husband’s ambulatory surgical center (ASC) in which he owned a small interest. The wife’s expert based his valuation on a recent sale of a controlling interest in the ASC to get an equivalent value for the husband’s remaining share, which amounted to $332,000. The expert for the husband used his Form K-1 and a buy-sell agreement in the operating agreement and came up with a value of $45,000, after revising his opinion along the way. The trial court sided with the wife’s expert, saying his analysis was “more persuasive.” The husband appealed, but the appellate court affirmed the trial court’s ruling, saying that, as long as the court’s decision was “reasonable, logical and explained in detail,” the court was not “clearly erroneous” in choosing the wife’s expert over the husband’s expert.

The case is Goicochea v. Goicochea, 2022 Md. App. LEXIS 729; 2022 WL 5113852, and a case analysis and full opinion can be found on the BVLaw platform.

2022 Johnson/Park DLOM study is now available

The Johnson/Park empirical method to estimate a discount for lack of marketability (DLOM) is one of the most popular methods business appraisers use for this purpose, according to a BVR survey. The method highlights the relation of the DLOM to the return on the investment and quantitatively measures the impact of the rate of return as a function of the DLOM. This methodology has been used in several tax court cases, including the first family limited partnership (FLP) case to go to trial. The “2022 Discount for Lack of Marketability Study” provides objective rate-of-return measures to implement the Johnson/Park empirical method and includes a thorough explanation and example on how to apply these data.

Private firms pay a median $30,000 in board retainers

To support adjustments for reasonable compensation when doing private-company valuations, comparable data are necessary. One source for private-company board member compensation is the “Private Company Board Compensation and Governance Survey,” conducted by Compensation Advisory Partners (CAP) and Family Business and Private Company Director magazines. The new 2022 third edition of the survey contains over 1,200 responses, an increase of about 300 participants from the prior full version of the survey in 2020.

Board retainers are highly correlated with company size, the survey says, ranging from a median of $20,000 at firms with less than $10 million in revenue to $65,000 at firms with greater than $1 billion in revenue. In addition to retainers, other elements of cash compensation for private-company directors are annual travel reimbursements and in-person meeting fees, provided by about half of the respondents.

A summary of the survey is available if you click here. Full results are available only to survey participants.

Early-bird discount ends today for NACVA’s conference December 14-16

There is a $100 discount if you register by November 30 to attend the NACVA “super” conference that will be December 14-16 in-person from two locations: Park City, Utah, and Fort Lauderdale, Fla. BVWire attended NACVA’s last conference this past August (see some takeaways here), and we see some interesting topics and top speakers in the featured sessions for December (click here).

Results of the first student BV Challenge in Canada

The CBV Institute has announced the winners of its inaugural Business Valuation Challenge, a national case competition for undergraduate students from top business schools across Canada. The competition saw 19 teams test their business valuation skills, and in first place was the team from Haskayne School of Business—University of Calgary (Katherine Borger, Lizelle Jansen Van Vuuren, Emily Chen, and Jerry Qin). In second place was the team from Rotman School of Management—University of Toronto (Andrew Koh and Jesse Wang), and in third place was the UBC Sauder School of Business (Tony Liaw, Ayush Malhorta, and Matthew Stuart). A total of 59 students participated. The top three teams received cash awards, and the members of the first-place team will receive complimentary enrollment to Level 1 in the CBV Program of Studies. “With demand for CBVs at an all-time high, the BV Challenge is an excellent opportunity to introduce undergraduate business students to our rapidly expanding and evolving profession,” said Dr. Christine Sawchuk, president and CEO of the CBV Institute. More details on the competition are available if you click here.

Valuations of German and European banks

The decline in market capitalizations coupled with a positive earnings outlook has led to record levels of the implied cost of equity of 14.8% for European banks and 17.8% for German banks, according to the latest edition of the Alvarez & Marsal’s “Germany Valuation Insights.” The high levels of return on equity have been driven by cost savings and moderate loan losses. Download the full November 2022 report by clicking here.

BV movers . . .

People: Ray Rath, FASA, CFA, CEIV, has joined Chicago-based Baker Tilly US LLP as a managing director in the firm’s Business Advisory Services Practice; he is a recognized thought leader in the business valuation profession, most notably in financial reporting requirements for business and intangible asset valuations as well as appraisal review … Michael Andrews, CPA, ABV, has joined Bloomington, Minn.-based Boeckermann Grafstrom & Mayer as principal and leader of the firm’s Estate and Trust Services Group.

Firms: Richmond, Va.-based Cherry Bekaert will sell its wealth management entity, Cherry Bekaert Wealth Management (CBWM), to Chicago-based investment adviser Choreo LLC, with which it will form a strategic partnership going forward … Lansing, Mich.-based Maner Costerisan adds business valuation services by acquiring Hall & Romkema PLC of East Lansing, Mich., a firm that provides accounting, financial, and wealth management services to individuals and businesses in a variety of industries … Chicago-based Baker Tilly US LLP has acquired tax consultancy firm ACG LLP (ACG) of Pleasanton, Calif.; ACG has 50 professionals who provide high-end tax services to a wide variety of clients, with a particular focus on the technology and global transportation sectors … Troy, Mich.-based Rehmann LLC is adding Rivertown Finance of Grand Rapids, Mich., which primarily works with high-net-worth individuals and nonprofit and for-profit entities, providing an array of services, including daily financial management and financial reporting … Farmington Hills, Mich.-based UHY LLP is adding PHB CPAs of Franklin, Tenn., a firm in the Nashville region with 38 team members who provide business, individual, and nonprofit accounting services and specializes in tax preparation and planning, as well as bookkeeping and audits … Naperville, Ill.-based Sikich LLP has made two acquisitions: Chicago-based consulting firm Accelerated Growth, which has about 50 employees in the U.S. and 70 in India and helps optimize and execute accounting, finance, and technology infrastructure for clients in various stages of growth, and O’Malley & Kwit LLC, a specialized tax firm based in Chicago … Albany, N.Y.-based BST & Co. is adding fellow Albany firm O’Connor & O’Connor CPAs, which has clients that include small businesses, professional service firms, professional athletes, medical practices, real estate agencies, and individuals … Calgary-based MNP is adding Québec City-based Malenfant Dallaire S.E.N.C.R.L., which has approximately 30 team members and nine partners.

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

CPE events

• New Tool in the BV Toolbox—Incorporating Company Specific Risk in Option Pricing Models, November 30, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Faisal Lakhani (KNAV) and Gary Schurman (Applied Business Economics). CPE credits: 2.0.

This webinar deals with how to account for company-specific risk by adjusting cash flows using a quant-based rather than a judgment-based methodology.

• Estate and Gift Tax, Business Valuation and the IRS—What’s Next and What You Need to Know (A BVR Workshop), December 1, 10:00 a.m.-1:10 p.m. PT/1:00 p.m.-4:10 p.m. ET. Featuring: Michael Gregory (Michael Gregory Consulting). CPE credits: 3.5.

Practical advice on how to avoid an IRS audit and recommendations for responding to an audit is given.