BVWire Issue #181-2 | October 11, 2017


Reactions to the withdrawal of Sec. 2704 regs

When the news broke that the Treasury officially withdrew the controversial proposed Section 2704 regs, BVWire happened to be at the annual conference of the American Society of Appraisers in Houston. The ASA, along with the AICPA and NACVA as well as business groups, attorneys, wealth planners, and family business owners, all banded together to fight the proposed regs that sought to redefine fair market value and curb estate valuation discounts for minority interests.

Not a shocker: Individuals we spoke with were not surprised that the regs were withdrawn but were relieved that they are gone for good. The observations we got from ASA members Trey Stevens (Stevens & Greer LC) and Chris Treharne (Gibraltar Business Valuations), sum up the various remarks we received:

We're not surprised by the withdrawal of the proposed regs. The November presidential election outcome, the enforceability of the proposed redefinition of fair market value, and the pushback from the legal, valuation and business communities certainly provided significant obstacles to adoption. At best, the proposed regs were poorly crafted and added confusion. At worst, adoption may have had a significant adverse impact on the ability of closely held business owners to pass the American dream of business ownership on to their heirs.

The S Corporation Association issued this statement: “Today’s report marks the successful culmination of more than a year of advocacy on the part of the S Corporation Association and its allies in the business community. To fight these rules, we have drafted official comments, testified, organized coalitions, educated policymakers, and sponsored reports.”

Kevin Kester of the National Cattlemen’s Beef Association testified at the IRS public hearing on the regs back in December and issued this statement: "We’re grateful the Treasury has made good on their commitment to reduce complexity and lessen the burden of tax regulations, particularly for family farmers and ranchers."

You can read the full Treasury report here.

BVWire applauds the amazing efforts of the valuation community in coming together to speak in a strong and compelling voice on these controversial regs.

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Key takeaways from BVR’s intangibles workshop

Recently, BVR held a four-hour workshop on valuing intangible assets that was loaded with good insights and current trends related to brands, trademarks, patents, copyrights, and trade secrets. For example:

  • Over the past 18 months, internal brand valuations have reached 34% to 74% of firm value in a transaction context;
  • Software is an intangible asset, but it’s not intellectual property—a key distinction;
  • Significant changes in the substantive patent law have increased the challenge of discounting for legal risk;
  • Copyrights are the most litigated IP type, but it doesn’t seem that way because patents and trademarks grab the most headlines;
  • To forecast revenue for some copyrights, there’s a correlation between revenue and media hits;
  • In trade secret litigation, value can be impacted because the secret must be disclosed, so make sure it’s protected from disclosure, e.g., clear the courtroom during testimony, seal the record, etc.; and
  • FASB is mulling rules for recognizing internally generated intangible assets on the financial statements, but the rule-makers are mum on the details.

Speakers at the four-hour workshop were: Mike Pellegrino, founder and president of Pellegrino & Associates, a firm devoted to IP valuation; Christopher Rosenthal, a director and leader of Ellin & Tucker’s Disputes, Forensic and Valuation Services practice; Edgar Baum, co-founder, CEO, and chief brand economist for Strata Insights; and Ron Laurie, managing director of Inflexion Point Strategy, the first investment bank for intellectual property. A recording of the workshop, Understanding Intangibles: Classification, Identification and Valuation, is available here.

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Online tool values wealth management firms

Truelytics offers an online business intelligence and valuation tool for wealth management firms that is now available at a discount to members of the Financial Services Institute (FSI). The software digitizes information from industry consultants to provide an overall score of the firm's value, then grades the firm in three key areas: business stability, client stability, and market stability. It pinpoints specific areas of weakness that are dragging down a firm’s overall valuation and provides actionable steps advisors can take to improve their score. FSI members get a 20% discount off the regular annual fee of $1,075. One of the benefits touted in a news release is: “Save money while bypassing the need for expensive consultants.” Of course, this includes valuation experts.

What would you say to a wealth management firm that is thinking about using this software? Please share your thoughts with us!

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The Appraisal Foundation releases USPAP 2018-19

The 2018-19 version of the Uniform Standards of Professional Appraisal Practice (USPAP) is now available, and it has enhanced features available in both print and electronic versions. The enhanced print version includes cross-references to applicable FAQs. Additionally, the electronic version includes hyperlinks to FAQs and other relevant references throughout the document, as well as a hyperlinked table of contents, footnotes, and index.

If you’d like to give your input on the future presentation of USPAP, attend the Appraisal Standards Board’s Public Meeting on October 13 in Washington, D.C.

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Corporate debt maturities and capital structure

A paper, “Corporate Debt Maturity Profiles,” presents a framework to show that is an important dimension of a firm’s overall capital structure. There is a lack of evidence about this aspect of capital structure, but financial managers often suggest that avoiding so-called “maturity towers” (i.e., spreading debt maturity dates over time) is a key factor when firms choose debt maturities. The paper’s authors are Jaewon Choi (University of Illinois), Dirk Hackbarth (Boston University), and Josef Zechner (Vienna University of Economics and Business).

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U.S. Leading Economic Index hits record high

The Leading Economic Index increased 0.4%, reaching a record high of 128.8 points, according to BVR's Economic Outlook Update (August 2017 issue). There were large positive contributions from building permits, the yield spread, and consumer expectations for business conditions. However, these were more than offset by the large negative contribution from initial claims for unemployment insurance. These results are consistent with the expectations for continued growth in the U.S. economy in the second half of the year.

Other highlights:

  • The RSM Middle Market Business Index declined 6.4 points in the third quarter, to a reading of 125.7;
  • Existing-home sales declined 1.7% in August, marking three consecutive months of declines;
  • The Consumer Confidence Index improved, reaching its second highest reading in 16 years, at 122.9 points;
  • The Small Business Optimism Index increased 0.1 point, reaching a near record high at 105.3; and
  • Industrial production declined 0.9% in August, ending a six-month streak of increases.

In terms of the employment picture, 156,000 jobs were added in August; however, figures for jobs added in June and July were revised downward.

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Delaware no longer has friendliest lawsuit climate

The state of Delaware is no longer in the top spot in the latest survey on the business-friendly environment for lawsuits in state courts. The “2017 Lawsuit Climate Survey: Ranking the States” ranks South Dakota in the No. 1 position—Delaware has dropped to No. 11, having been at the top for the last 10 surveys. The survey was conducted for the U.S. Chamber Institute for Legal Reform to explore how U.S. businesses perceive the fairness and reasonableness of the states’ liability systems.

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Pratt’s Stats Hall of Fame for 2Q17

Pratt’s Stats now lists over 27,000 private-company M&A transactions thanks to business brokers and other intermediaries who contribute the data. Individuals who send in the most transactions are inducted into the Pratt’s Stats Hall of Fame. For the second quarter of 2017, they are:

  • Greg Kells, Sunbelt Business Advisors (Ottawa, Ontario);
  • Tex Garner, Sunbelt Business Brokers (Irving, Texas); and
  • Al Statz, Exit Strategies Group Inc. (Petaluma, Calif.).

BVR wishes to thank these individuals and all of the other brokers who help maintain Pratt’s Stats as the most reliable data source of its kind.

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Global BV News

CICBV launches proactive inspection program

Valuation work done in 2018 and thereafter will be subject to inspection under a new program at the Canadian Institute of Chartered Business Valuators (CICBV). This applies to any work product that is subject to the CICBV’s Practice Standards, and inspections will begin in 2019. This proactive approach is unlike the reactive approach of the AICPA, ASA, and NACVA, which conducts inspections on a triggering event, such as a complaint (an exception is the new CEIV credential, where everyone will go through an inspection). To address confidentiality of client information, the CICBV says members should advise clients that their work may be subject to selection for practice inspection and that they may be required to provide inspectors with access to their work product and supporting files.

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BV movers . . .

People: The American Society of Appraisers announced at its annual conference in Houston that Tony Aaron, formerly with Ernst & Young and now on the faculty at USC Leventhal School of Accounting, has the designation of Fellow (FASA); Bill Johnston (Empire Valuation Consultants LLC) received the Jerry F. Larkin Award for outstanding volunteer service … The Missouri Society of CPAs has named Adam J. Herman, partner and chief visionary officer at Mueller Prost CPAs + Business Advisors, the 2017 Outstanding Visionary … The Mercadien Group has promoted Joseph J. Maruca from director to managing director and also principal in Mercadien PC, CPAs; and Joseph Galdo has been promoted to manager of the firm’s Forensic and Litigation Support Services Group The Exit Planning Institute (EPI) has named Michael Trabert of Skoda Minotti, a national business advisory firm, as the Peter Christman Exit Planner of the Year.

Firms: Plante Moran is moving its Northwest Chicago office to a new space in Schaumburg especially designed to maximize efficiency and client service; 80 staffers will be there … LEA Global: The Leading Edge Alliance named New York-based Marcum 2017 Innovative Firm of the Year in recognition of continual innovation in all aspects of the firm’s operation Boyer & Ritter CPAs and Consultants is among the 100 companies highlighted in Best Places to Work in Pennsylvania … The California Society of CPAs (CalCPA) has ranked HMWC CPAs & Business Advisors 49th in its list of “Top 150 CPA firms” in terms of CalCPA membership.

Please send your professional and firm news to us at

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CPE events

Behind the Bench: Two Experts and a Judge on Valuation in the Courtroom (October 17), with Jay E. Fishman (Financial Research Associates), William Morrison (WithumSmith+Brown, PC), and Thomas Zampino (New Jersey Superior Court).

Two top valuation experts and a judge provide insights on how courts evaluate expert valuation testimony, which helps experts and lawyers prepare and present valuation testimony.

Dental Practice Valuation 2017: Drilling Into the Value Drivers (October 19), with Jim Andersen (Hemming Morse LLP) and Stephen Molinelli (Northern California Practice Sales)

An industry expert teams up with a valuation expert to share transaction experience and evolving market dynamics and what this means for dental practice valuations, including estimating goodwill.

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New and Trending
LinkedIn Discussions
Proposed Sec 2704 Regs Have Been Officially Withdrawn Per Treasury

Integrating Excel Data Into Microsoft Word

Keys to the Never Ending Search for Reasonable Valuation Compensation

Your discussion could be featured here—BVR's LinkedIn group is a place for valuation professionals to share, discuss, and learn about compelling BV topics. If you're not already a member, request to join:

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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:

2704 KO’d


Tool for WMAs

USPAP 2018-19

Debt maturities

Economy update

Delaware dips

Pratt’s Stats HOF

Global news

BV movers...

CPE events

LinkedIn discussions


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