BVWire Issue #193-3  | October 17, 2018


Congressional members accuse DOL of undermining ESOPs

As reported by the ESOP Association, in a letter to the White House dated October 1, 27 members of Congress (including one who identified as a CPA) have voiced serious concerns about the DOL’s “investigatory and enforcement policies toward Employee Stock Ownership Plans (ESOPs).” The signors ask the president to intervene in a show of support for American businesses and workers.

The letter notes the important role employee-owned companies have played in the American economy and the role ESOPs have played in enabling employee ownership. Research has shown that employee ownership firms coped with the past two recessions better than conventionally owned companies, the letter says. It claims that, pre- and post-recession, ESOP-owned companies have performed better than private U.S. firms generally. It also maintains that DOL filings show that companies contribute substantially more to ESOPs than non-ESOP companies contribute to 401(k) retirement plans.

The concern is over the DOL’s enforcement policies, which the signors say, undermine ESOPs. The congressional members accuse the DOL of not providing substantive guidance on valuation and other important issues and of taking inconsistent positions on legal issues. Although it is the DOL’s place to go after bad actors, the department’s investigatory approach “is having a destabilizing effect,” the signors say. The fear is that no one will want to serve as a plan fiduciary.

The letter relates anecdotes that it claims show the DOL’s overstepping its mandate by threatening ESOP companies with extended investigations and lawsuits. According to the letter, these “tactics” began under the former administration but have continued under the present government. They are taking a toll on small businesses, the letter warns.

The signors ask the president to assist in persuading the DOL to work with the ESOP community to develop guidance on valuation and other key issues and to make the DOL halt its current “controversial oversight practices.”

Criticism of the DOL position vis-a-vis ESOPs has come from other corners as well. As we recently reported in connection with the pending appeal of the Brundle case, the American Society of Appraisers (ASA) also expressed strong opposition to the DOL’s ESOP-focused enforcement projects. In its amicus brief on behalf of the ESOP trustee, the ASA says the DOL policy has given rise to lawsuits “in which a plaintiff submits a blanket accusation, without factual knowledge, that ESOP fiduciaries breached their duties … and violated prohibited transaction rules because they relied upon an appraisal that allegedly resulted in the ESOP’s overpayment for the shares it purchased.” The ASA expressed unequivocal support for the Brundle ESOP trustee and ESOP appraiser.

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Last chance to participate in the BVFLS study

It’s just a few days to the deadline for taking part in the most comprehensive analysis of best practices in the business valuation and forensic litigation services (BVFLS) profession, BVR’s Firm Economics Study. Those who participate will receive a free Executive Summary of survey results, plus a special offer to purchase the full report for $99 (regular price is $299) and a chance to win a free year of BVResearch Pro (a $1,595 value). The deadline for responses is October 19. Click here to participate now.

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Management pressure on fair values

A new research paper documents several tactics management employs to inflate its fair value measurements based on in-depth interviews of Norwegian audit partners and company valuation specialists. The paper also provides evidence on how audit teams interact with company specialists and how company specialists view the work of auditors and auditor specialists. “The findings indicate that auditors’ lack of valuation knowledge and auditor specialists’ lack of asset-specific expertise lead to deficiencies in their understanding of how assumptions used in FVMs are interrelated and result in auditors focusing on the minutia of the individual assumptions at the expense of a ‘big picture’ view,” the paper states.

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EOU: Small biz optimism at record high

Small-business optimism reported at a record high of 108.8 points, according to the August 2018 Economic Outlook Update (EOU). Consumer confidence is also high—it rose to 133.4 points, its highest level in 18 years. Other highlights from this edition: The Leading Economic Index increased 0.4%, to 111.2 points; housing starts surged 9.2% in August and are 9.4% higher than one year ago; PMI increased 3.2 percentage points, to 61.3 points, recording the highest score since May 2004; and the Producer Price Index declined 0.1%, marking the first decline in a year and a half. The Economic Outlook Update is issued monthly and quarterly. You receive permission to use the material and data it reports in your valuation reports (with proper attribution).

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Partner valuation issues in MLPs

An article by Jim Hanson, managing director in the transaction opinions practice at Duff & Phelps, looks at the relationship between general partner and limited partner interests in master limited partnerships (MLPs). “While there are many ways to look at the relative valuation of an MLP’s GP and LP, from simple to complex, it is important to be aware of the dynamics when evaluating MLP transactions,” the article states.

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ASA Advanced BV conference

Last week, BVWire attended the Joint ASA 2018 Advanced Business Valuation and International Appraisers Conference in Anaheim, Calif., and the sessions and networking events were excellent. Ray Rath (Globalview Advisors) chaired the BV portion of the conference, and ASA international president Bob Morrison (Morrison Valuation & Forensic Services LLC) welcomed the crowd. He thanked veteran appraiser Lee Hackett for serving as interim CEO while a search is underway for someone to fill the post permanently.

Jeff Tarbell (Houlihan Lokey), the chair of the ASA’s BV Committee, gave an update on the committee, which is a group of appraisers who share a common interest in advancing the BV profession. The committee consists of industry leaders who volunteer their time toward several primary efforts. One is the development and delivery of best-in-class business valuation education. Another effort is the advancement of the profession through the establishment and endorsement of professional standards such as the ASA Business Valuation Standards, USPAP, and IVS (the global standards from the International Valuation Standards Council). This reflects the move toward serving the large and growing international marketplace of BV professionals with high-quality and timely education. We noticed that the conference was well-attended by professionals across the globe, including Saudi Arabia, Romania, Japan, China, and other countries.

In next week’s issue, we’ll have some takeaways from some of the sessions we attended.

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Global BV News

Revised standards for mineral valuations

The International Mineral Valuation Committee (IMVAL) has released the third edition of its standards for minerals, including oil and gas. IMVAL's history goes back to discussions in Brisbane in April 2012 to harmonize the mineral valuation codes, such as VALMIN (Oceania), SAMVAL (South Africa), and CIMVal (Canada). It also looked to include, where appropriate, International Valuation Standards (IVS) and the U.S. Uniform Standards of Professional Appraisal Practice (USPAP), as they contain valuation standards of general application to mineral property valuation.

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BV movers . . .

People: Brienne Shepski has joined Valuation Services Inc. (Arlington, Va.) as a manager … Gary Wallace has been named the new managing partner at Glen Allen, Va.-based Keiter effective Jan. 1, 2019; he succeeds L. Michael Gracik Jr., who has served in that post since 2014 … Gil Enos, a principal at Mazars USA LLP, is the new Healthcare Consulting Group Leader at the firm … Elaine Leggett, founder and principal of Leggett PLLC, has joined Jacobs Capital as manager of business valuation services; she will be based in Wilmington, N.C., and will continue to serve her existing clients.

Firms: Willamette Management Associates celebrates its 50th anniversary year; the firm has regional offices in Portland, Ore.; Chicago; and Atlanta and is known for its valuation analysis, damages analysis, and transfer price analysis services … Dubuque, Iowa-based Honkamp Krueger & Co. has acquired Short & Co. CPA of Waukee, Iowa, which is in the Des Moines area … Baldwin CPAs is expanding its presence in Louisville, Ky., with the acquisition of Lindemeyer, CPA in Crestwood effective October 29; Baldwin CPAs has five office locations throughout Kentucky, and this acquisition will add 13 new employees to its team, including two partners … St. Cloud, Minn.-based BerganKDV is expanding its Midwest footprint in a merger with HSMC Orizon on November 1, adding six new partners and 45 employees to the firm … Clark Schaefer Hackett, based in Cincinnati, has acquired Definity Partners, a workforce development, training, and technology firm in West Chester, Ohio … Grant Thornton has acquired TayganPoint Consulting Group of Washington Crossing, Pa., a life sciences consulting firm based in the Philadelphia area … Charlotte, N.C.-based McClure CPA has joined Greensboro, N.C.-based Bernard Robinson & Co.; BRC now has more than 160 employees and six locations in North Carolina … King Tripp & Henry of Phoenix will join Fargo, N.D.-based Eide Bailly effective October 29; the union will bring two partners and four staff to Eide Bailly … Pensacola, Fla.-based Saltmarsh Cleaveland & Gund, with four offices in Florida and one in Nashville, Tenn., announced that Banc Compliance Group has merged with the firm.

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CPE events

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In this issue:


BVFLS study

FV pressures

Economic update

MLP issues

ASA BV conference

Global news

BV movers . . .

CPE events

LinkedIn discussions



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