BVWire Issue #169-3 | October 19, 2016

Identifiable intangibles garner bigger share of PPAs

More value is being allocated to identifiable intangible assets, while goodwill is holding steady, according to the latest report from Houlihan Lokey on purchase price allocations. The analysis examines 563 transactions in which the acquiring company was based in the United States and publicly held. The study uses “purchase consideration,” which is the sum of the purchase price paid and liabilities assumed in connection with a business combination.

Increasing share: The percentage of the purchase consideration allocated to intangible assets increased to 34% on average in 2015, up from 30% in 2014. The percentage of purchase consideration allocated to goodwill is 38% on average in 2015, the same percentage reported for 2014. Contingent consideration (earnouts) represented 21% of purchase consideration (up from 20% in 2014).

The categories of intangible assets acquirers most commonly identified all show percentage increases in terms of frequency of identification: customer-related intangibles, cited in 69% of deals (up from 59% in 2014); trademarks and trade names, 50% (up from 45%); developed technology, 44% (up from 40%); and in-process research and development, 10% (up from 7%). Other intangible assets typically included were noncompete agreements, licenses, permits, and other contracts or agreements.

If you want to see how others assign remaining useful lives to these intangibles, take a look at Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations, available here from BVR.

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Comments stream in to fight Sec. 2704 regs

Almost 200 comments have been submitted to the IRS about the controversial proposed Section 2704 regs designed to rein in estate tax valuations. It is hoped that many more will come in before the comment due date of November 2. A public hearing is scheduled for December 1. You can view the comments and submit your own if you click here. See last week’s BVWire for some talking points and a letter template issued by the ASA that can help you craft some comments.

Call for delay: Many of the comments so far are from family business owners because the impact to family businesses could be devastating, observers agree. In its comment letter, the Family Business Coalition requests that the comment period be extended 90 days to give constituents (several million firms) more time to understand the complex proposal. We hope this will fly, but the IRS seems bent on getting some form of these regs through before the new administration is in place.

BVR recently presented a webinar on the proposed regs with Curtis Kimball (Willamette Management Associates) and Z. Christopher Mercer (Mercer Capital). Attendees had many questions for the speakers, and we offer a transcript of the ones the speakers addressed as a complimentary download if you click here. Keep in mind that the proposed regs are complex and continue to be studied, so interpretations are subject to change.

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Recap of the IACVA/SECBA Atlanta conference

The Southeast Chapter of Business Appraisers (SECBA) and the International Association of Consultants, Valuators and Analysts (IACVA) co-sponsored Business Valuation in an Upside Down World in Atlanta. BVWire attended this excellent two-day event, and here are a few takeaways.

In an economic update, John Robertson of the Atlanta Federal Reserve Bank noted that the U.S. has had solid growth in the overall workforce but not a corresponding growth in productivity. Possible reasons: a weak pace of capital spending, new hires that are less productive, or there’s a “statistical mirage,” meaning the output is now hard to measure.

The most common error in valuing an international firm is mixing and matching currencies—using one currency for cash flow and another for the discount rate, according to Kevin Madden (Duff & Phelps).

An exposure draft on peer review for valuation firms is in the works by IACVA, according to Bill Hanlin, the organization’s president.

Mark Zyla (Acuitas) gave a fascinating presentation on social media valuation and told attendees that you can calculate the value of a “like” by plugging in a few metrics at

Bill Johnston (Empire Valuation Consultants), who is head of the ASA BV committee, gave an update on the Fair Value Quality Initiative. He noted that some of the commenters are concerned about the 3,000 hours of fair value work experience needed to qualify for the new credential. He pointed out that this amount of time can represent any type of work on fair value, not just billable hours, over a five-year period.

We’ll have more coverage of this event in a future issue.

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Find out what DLOM methods are used the most

It’s easy to lose count of all of the different methods for determining a discount for lack of marketability (DLOM), arguably one of the most debated topics in business valuation. Is there a consensus on the method to use or are the sands still shifting? Find out by taking a short survey designed to narrow down the methods most frequently applied. We will compare it to the last surveys we did on this and will publish the results in coming weeks. To take the survey, click here.

Don’t miss our special four-hour DLOM Day: An Advanced Workshop on December 8.

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New movie brings to mind the ‘Mafia discount’

In The Accountant, Ben Affleck plays a small-town CPA who secretly keeps the books for some of the world’s most dangerous criminal organizations. Well, how about a sequel called The Appraiser? It could be about putting a value to these criminal enterprises. Of course, you’d have to include a “Mafia discount,” a concept that could have implications when valuing any minority interest, not just ones owned by unsavory characters.

Offer you can’t refuse: During a recent BVR webinar, Lance Hall (FMV Opinions) says he was once asked to value a one-third interest in a landfill in New York City. But this was not your everyday client. He was an alleged senior member of a crime family, and the feds were targeting him under RICO. The government claimed that this gentleman used the strong arm of the Mafia to buy his interest at an unbelievably low price. Hall took the engagement (who would refuse?).

One of the ways he supported the low valuation was to research articles written over a 20-year period about the specific landfill and its mob ownership. “As a hypothetical willing buyer, you know that the other shareholders of this landfill are all high-up individuals connected with the mob,” he points out. “Do you really want to be that shareholder?” The Department of Justice did not challenge the valuation or the Mafia discount.

What to do: Look to the other shareholders when valuing an interest under the hypothetical willing buyer, hypothetical willing seller standard. Of course, you won’t always find underworld characters involved, but there could be some related issue that could have an impact on your valuation.

Hall’s webinar, Discounts: Beyond DLOC and DLOM, is available here.

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Global BV News
IVSC gives update on IVS 2017

The International Valuation Standards Council (IVSC) has released its annual report that includes an update by the IVSC Standards Board. The board’s main focus during 2016 has been drafting IVS 2017, according to board chairman Steven Sherman. The exposure drafts triggered almost 100 comment letters, and a final version is tentatively scheduled to be released in January 2017, with mandatory adoption on July 1, 2017 (also tentative).

“The IVSC’s objectives continue to be to unite and bring credibility to the global valuation profession,” says Sir David Tweedie, IVSC chairman, in the report.

Extra: Tweedie will present the keynote address at Duff & Phelps’ Eighth Annual European Alternative Investments Conference in London on November 8. Sessions include updates on valuation, debt markets, and the future of regulation. For more information, click here.

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Preview of the November issue of Business Valuation Update

Here’s what you’ll see:

  • “Exclusive Survey Reveals BV Research Sources of Choice” (BVR Editor). Preliminary results from BVR’s Firm Economics Survey conducted during June and July of this year. Experts indicated their preferences for sources of transaction data, risk premiums, discounts (marketability, control, and liquidity), guideline public company analyses, compensation, valuation-related case law, and other information required to support a valuation.
  • “Groundswell Builds as IRC Sec. 2704 Regs Sink In” (BVR Editor). Continuing coverage of the controversial proposed regs for estate tax valuations.
  • “IRS Reasonable Compensation Job Aid: Healthcare Perspective” (Mark O. Dietrich). The first significant published view on the issue of reasonable compensation from the IRS is examined from the perspective of the healthcare industry.
  • “Coping With the Challenges of Valuing a Cannabis-Related Firm” (BVR Editor). Jim Marty and Ron Seigneur, both of whom are valuation practitioners in Colorado (one of the first states to legalize adult recreational cannabis), share their insights.
  • “Pitfalls for Expert Witnesses Doing a Valuation Report Review” (BVR Editor). Tips from one of the highlights of the recent ASA Advanced Business Valuation Conference in Florida. It shows how skilled opposing counsel can put even the most experienced valuation expert on the hot seat.

The issue also includes:

  • Regular features: “BV News At-a-Glance,” “Ask the Experts,” “Tip of the Month.”
  • BV data spotlight: Pratt’s Stats 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, see the November issue of Business Valuation Update.  

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BV movers . . .

People: Shelley A. Brown has been named principal in the Forensic, Litigation and Valuation group of New York firm PKF O’Connor Davies … Marina Gentile has joined WithumSmith+Brown of Princeton, N.J., as senior manager of the International Services Group and the Forensic and Valuation Services Group … Brad Kussow has returned to the Milwaukee firm Schenck SC to lead its transaction advisory services as managing director … Margery Piercey has joined Marcum’s Boston office as the partner-in-charge and will also serve as a member of the firm’s executive committee … Linda Trugman, principal at Trugman Valuation Associates, has been appointed to the Business Valuation Resource Panel of The Appraisal Foundation.

Firms: Expanding into the New England market, the Texas-based HSSK has merged with the Livermore Consulting Group, a full-service valuation and litigation support group based in Bedford, N.H. … Reinsel Kuntz Lesher, one of Pennsylvania's leading regional accounting firms, has acquired GTM Risk Management of Radnor, Pa., and now will operate under the name RKL Risk Management LLC … The Houston Business Journal honored Sikich LLP as one the best places to work … Milwaukee-based Wipfli, one of the leading firms in the USA, has joined the Chamber of Digital Commerce, the globe’s largest trade association representing the digital asset and currency industries with the mission to promote the acceptance and use of digital assets and blockchain-based technologies.

Please send your professional and firm news to us at

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Upcoming CPE events

Projecting But-For Profits (October 20), with Stacey Udell (Gold Gerstein Group). Part 6 of BVR's Special Series presented by The Comprehensive Guide to Economic Damages.

Fair Value Valuation: Takeaways from SEC Comment Letters (November 1), with Lisa Swanson (Blue Abaco Consulting Inc.). This is Part 6 of BVR's Special Series on Fair Value.

Hospitality Valuation: Check In Time (November 10), with Scott Brush (Brush & Co.) and Art Marshall (BerryDunn).

Using Guideline Public Company Data for Private Company Valuation (November 17), with Linda Trugman (Trugman Valuation Associates Inc.) and Robert Schlegel (Houlihan Valuation Advisors).

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist

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

New PPA study



DLOM survey

Mafia discount

Global BV news

BVU preview

BV movers

CPE events

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