BVWire Issue #193-4  | October 24, 2018

BVR to launch new platform for estimating the cost of capital

Business valuation experts will soon have an additional option for estimating the cost of equity. In early November, BVR will release an additional resource for the profession: a new cost of capital platform that will initially be available for free to all practitioners. The new platform supports the build-up method and CAPM calculations for any valuation date. BVR’s intent is to provide a simple, independent service to augment each appraiser’s own judgment and their other cost of capital research.

Back to basics: Business Valuation Update interviewed two of the individuals involved in the development of the new platform. Dr. Michael Crain has been a practitioner for over 30 years and is also a faculty member at Florida Atlantic University and director of FAU’s Center for Forensic Accounting. Ronald L. Seigneur is a veteran valuation expert and is managing partner of Seigneur Gustafson LLP CPAs, based in Lakewood, Colo. In the interview, they explain that the process of estimating the cost of equity has become too much of a complex “black box” of applied mathematics, which gives an “illusion of precision” that moves experts away from using professional judgment and common sense.

The new platform uses a time-tested fundamental approach steeped in academics that does not steer the expert into “using the opinions of the provider which may not have any independent academic basis.” In addition to Crain and Seigneur, an advisory board of independent professionals experienced in the cost of capital will oversee the new platform. The full interview is available as a free download and is available if you click here.

Free trial: BVR is looking for user feedback during the free launch period (using CRSP market return data up to Sept. 30, 2018) that will start in early November. Later, the platform will be available with a subscription and will contain FY2018 data and beyond. New data will be added in March 2019.

In the coming months, BVWire will provide more information on the details of the new platform and the thinking behind it. In the meantime, BVR has set up a special webpage with more information and how to sign up for the free trial at

BVR will also host a free webinar on November 20. You can register now.

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Florida Supreme Court negates legislature’s adoption of Daubert

In 2013, the Florida legislature amended the Florida code, section 90.702, dealing with expert testimony, to incorporate the Daubert standard in the state’s rules of evidence. In a recent ruling, the state’s Supreme Court found the legislature had overstepped its authority, declared the amendment unconstitutional, and reinstated the Frye standard.

The validity of the Daubert standard arose in the context of a personal injury case in which the plaintiff claimed the defendants’ products exposed him to asbestos that caused his illness. Following a Daubert hearing, the trial court admitted the plaintiff’s experts testifying regarding causation. A jury awarded the plaintiff $8 million in damages. The appeals court struck the award, finding the trial court did not properly exercise its gatekeeping role when it allowed the expert testimony into evidence.

The plaintiff petitioned the state Supreme Court for a determination of whether the 2013 legislative change on expert testimony infringed on the high court’s rule-making authority. The Supreme Court said it did.

The high court explained that the state constitution prohibited one branch of government from infringing on the authority of the other branches. The court explained that generally the Florida legislature has authority to make substantive law, but the Supreme Court has the power to make procedural law. Section 90.702 as amended in 2013 was not substantive in that it did not create or regulate a right, the state high court explained. Importantly, the high court explained, the recent legislative amendment also conflicted with the existing approach for determining the admissibility of expert testimony.

Frye and Daubert are competing methods for a trial judge to determine the reliability of expert testimony before allowing it to be admitted into evidence,” the high court said. It explained that Frye relied on the scientific community to assess reliability, whereas Daubert “relies on the scientific savvy of trial judges to determine the significance of the methodology used.”

“With our decision today, we reaffirm that Frye, not Daubert, is the appropriate test in Florida courts,” the court’s majority said, sending the instant case back to the appeals court for reinstatement of the final judgment.

In a concurring opinion, one judge noted that Daubert limited access to courts. Where Frye only applied to testimony based on a new or novel scientific theory, Daubert applied to all expert testimony. More litigants risked having their expert testimony excluded under Daubert, the concurring judge said. Also, Daubert saddled trial judges, “who typically do not possess the requisite training or experience in the expert’s field,” with the responsibility of assessing admissibility, the concurrent opinion observed.

Three judges dissented on technical grounds.

The case is DeLisle v. Crane Co., 2018 Fla. LEXIS 1883 (Oct. 15, 2018).

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AICPA Council nixes request to suspend ABV change

At a meeting of the AICPA’s governing Council, members voted in favor of continuing to implement an earlier decision to expand eligibility for the Accredited in Business Valuation (ABV) credential to non-CPAs, according to a report in the Journal of Accountancy. A number of prominent CPA/ABVs attended the meeting to persuade the Council to take action that addresses their concerns and criticisms (spelled out in an Open Letter to the AICPA). Critics wanted the Council to: (1) suspend the change to the ABV criteria; (2) consider input from stakeholders and have the Council revote; and (3) if the AICPA still wants to issue a valuation credential to non-CPAs, a second credential should be created separate from the ABV. Following a panel discussion that included participants both in favor of and against the change, Council members voted against suspending the decision and re-examining the issue. This clears the way for other qualified professionals who are not CPAs to be allowed to qualify for the ABV credential.

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Takeaways from the ASA Advanced BV conference

BVWire attended the Joint ASA 2018 Advanced Business Valuation and International Appraisers Conference in Anaheim, Calif., and the sessions and networking events were excellent. Here are a few takeaways from just some of the sessions we attended:

  • The Big Four firms are holding off on the new CEIV credential for fair value for financial reporting pending the resolution of quality control issues regarding the inspection process;
  • When testifying in court, you face a number of preconceived notions, including the strong perception of being a “hired gun,” so make it absolutely clear you’re being an advocate for your opinion, not an advocate for the client;
  • Valuation experts can’t be all things to all people, so specialize either in an industry or area of valuation (e.g., estate and gift, ESOPs, intangibles, etc.);
  • At the start of a purchase price allocation engagement, talk with company management about what it sees as the overall value drivers of the firm;
  • When doing a valuation of a company that rents space, spend time examining the lease, particularly the lease term, renewal options, and leases with related parties; to get market rent, some states require a broker’s price opinion;
  • Pay particular attention to control issues in ESOP valuations—did the ESOP actually get the control it paid for? (DOL doesn’t like the term “control premium”);
  • The major concern of the move to “retail health” is the effect on brand value;
  • Startups are looking more to Hong Kong for funds—the listing rules have changed there concerning prerevenue companies; and
  • Prospective financial information (PFI) deserves much more scrutiny than it has been given.

We’ll have more takeaways in future issues.

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The 2018 BV Challenge has started!

The Business Valuation Challenge, now in its sixth year, is underway. Created by Professor Herbert Kierulff of Seattle Pacific University, this year’s Challenge is being hosted by Georgia State University (GSU). This is a unique opportunity and learning experience for the students— a “real world” competition during which teams of students value a private company and present their results. The AICPA is a sponsor of the event and so is Business Valuation Resources, which provides complimentary data, resources, and other materials for the Challenge, and GSU is working with the AICPA to coordinate industry mentors for each of the teams. This year, there are 14 teams from 18 schools, including a team from Bangalore—the first time the BV Challenge has had a team from outside of the U.S. The competition will take place November 17 with a welcome dinner to be held November 16 at the Buckhead Club in Atlanta.

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Willamette’s Insights looks at fair value

The Fall 2018 issue of Insights from Willamette Management Associates is titled “Thought Leadership in Valuation for Fair Value Measurement Purposes” and is edited by Terry G. Whitehead. Some of the articles are: “The Valuation and Reporting of Contingent Consideration in Business Combinations” (Charles A. Wilhoite and Lisa H. Tran), “The Market Participant Acquisition Premium for Fair Value Measurement” (Timothy J. Meinhart), “Fair Value Valuation of Identifiable Intangible Assets in the Acquisition Accounting of a Business Combination” (Robert F. Reilly), and more.

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Access to capital improves for small firms

According to the Pepperdine Graziadio Business School and Dun & Bradstreet Q3 2018 Private Capital Access Index, small businesses are finding it easier to acquire capital. Just over half (53%) of the small businesses surveyed said they were successful in securing a loan in the past three months. “Small businesses, especially Main Street businesses, have turned a corner and banks have taken notice,” said Nalanda Matia, lead economist at Dun & Bradstreet, in a release. “Funding is flowing to smaller enterprises who are in growth mode.” The report also found that 75% of businesses expect their business to perform better in 2018 compared to 2017 and 84% are confident their business will grow. However, small businesses are now facing a new challenge in attracting and retaining a quality workforce. You can access Pepperdine’s reports if you click here.

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Global BV News

Global intangible value soars; most undisclosed

Global intangible value has surpassed $50 trillion for the first time in history, reaching $57.3 trillion at the beginning of the current financial year, according to the latest “Brand Finance Global Intangible Finance Tracker” report. This constitutes 52% of the overall enterprise value of all publicly traded companies worldwide, which now amounts to an equally record-breaking $109.3 trillion, exceeding the US$100 trillion mark also for the first time.

The report reveals that 76% of the world’s intangible value ($43.7 trillion) remains unaccounted for on balance sheets. Undisclosed intangible value has grown by a whopping 25% year on year (it was at $35.0 trillion last year). This rate is five times faster than the value of disclosed intangible assets (up 5%), and it has outpaced by far the overall global enterprise value growth (up 18%).

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Preview of the November 2018 issue of Business Valuation Update

Here’s what you’ll see:

  • BVR to Launch New Platform for Estimating the Cost of Capital (BVR Editor). The time is right for a simple, independent service to augment each appraiser’s own professional judgment and his or her other research when estimating the cost of capital. A free trial period begins in November, and feedback is requested.
  • Available Remedies for Trade Secret Damages” (Richard F. Bero, CPA/ABV, CVA, CLP, and Jon Margolies, J.D.). An excerpt from the recently released Comprehensive Guide to Economic Damages, 5th edition (Nancy Fannon and Jonathan Dunitz, editors).

The issue also includes:

  • An expanded section of “BV News and Trends/Global BV News and Trends.”
  • Regular features: “Ask the Experts,” and “Tip of the Month.”
  • BV data spotlight: “DealStats MVIC/Revenue Trends,” “Stout Restricted Stock Study and DLOM Calculator,” “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, check out the November issue of Business Valuation Update.

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BV movers . . .

People: Daniel J. Chen, a senior financial analyst at Healthcare Capital Consultants (St. Louis, Mo.), has successfully completed the certification process through the National Association of Certified Valuators and Analysts (NACVA) to earn his Certified Valuation Analyst (CVA) credential … Nancy M. Czaplinski, managing director in the Valuation Advisory Services practice at Duff & Phelps, has been appointed to the board of directors of the International Institute of Business Valuers (iiBV)Pete Sinsky has joined Vrakas CPAs + Advisors (Brookfield, Wisc.) to head up the firm’s second office, which will open in Kenosha … Julie Eslinger, a manager at Kruggel Lawton CPAs, South Bend, Ind., completed all the requirements of the National Association of Certified Valuators and Analysts (NACVA) to become a Certified Valuation Analyst (CVA).

Firms: TrueNorth Capital Partners LLC (Stamford, Conn.) has formed an independent valuation arm, Scout Valuations LLC, with Mark Campbell, who joins the firm as managing director … Seattle-based Moss Adams will combine with BPW&C of Albuquerque, N.M., on November 1; this will add 21 professionals, including one partner and two directors … Milwaukee-based Wipfli LLP has joined the NormShield partner program to expand its current cybersecurity solutions … Houston-based Grossbard Advisors is now a member of PrimeGlobal, an international association of independent accounting firms.

Please send your professional and firm news to us at

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CPE events

  • Minimizing HIPAA Risk for Solo and Small-Firm Business Appraisers (October 24), with Darcy Devine (Buckhead FMV) and John Mamon (mPoweredIT). This is part of BVR’s Special Series presented by the BVR/AHLA Guide to Healthcare Industry Finance and Valuation.

    Business appraisers working with healthcare organizations face exposure to tough rules under the Health Insurance Portability and Accountability Act (HIPAA) of 1996—and the penalties for violations are severe. This session will show you how to manage and reduce your liability.
  • How to Value Equity and Debt Securities Using Advanced Lattice Modeling (October 25), with John Sawyer (Alvarez & Marsal) and David Dufendach (Alvarez & Marsal). This is part of BVR’s Special Series on Advanced Modeling and Methodologies.

    Presented will be several approaches to valuing complex equity and debt securities, including the identification of a security’s features and payoffs that require a lattice model instead of a closed-form solution.

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New and Trending
LinkedIn Discussions

Is a Merger Causing a Culture Clash in Your Organization?

OPM Backsolve and Convertible Debt Financing

ABV Boycott Starts; State CPA Societies Join the Fray

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, Esq. (Executive Legal Editor) at:
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In this issue:

Cost of capital

Florida nixes Daubert

ABV change

ASA takeaways

BV Challenge

FV insights

Small biz capital

Global news

BVU preview

BV movers . . .

CPE events

LinkedIn discussions



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