BVR Logo October 14, 2020 | Issue #217-2

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:

Analyst develops a COVID-19
marketability discount

Valuation analysts have several ways to reflect the extra risk of COVID-19 on businesses, such as adjusting the cash forecast and tweaking the company-specific risk premium (CSRP). But very small businesses are not likely to have forecasts and some analysts may not want to go the CSRP route.

Alternative method: In a new article, an analyst reports that he has been using a “COVID-19 marketability discount” on control interests to make the extra risk adjustment. “In many situations, I favor the methodology of showing a separate COVID-19 marketability discount,” says Greg Caruso (Harvest Business Advisors), “because it clearly shows the valuator’s thought process and the actual discount being applied for the current high level of uncertainty.” His methodology is based on the weighing of factors such as those used in Mandelbaum and the IRS DLOM Job Aid but with categories modified to fit the current situation.

Caruso first developed this technique to use in a valuation for an SBA loan. The company was temporarily shut down and appeared to be fully recovered on a monthly cash-flow basis for the two months after reopening. Yet, there was still risk of another shutdown and customers would have economic issues if a recession hit, so Caruso’s basic capitalization rate was a buildup for “normal times,” which included a normal company-specific risk that he further discounted by the COVID-19 marketability discount.

Caruso explains his methodology and presents a case study with a sample analysis in the November 2020 issue of Business Valuation Update.

Extra: Caruso is the author of a new book, The Art of Business Valuation: Accurately Valuing a Small Business, which focuses on valuing closely held firms with revenues below $10 million.

ASA, supporting Vinoskey ESOP appeal, aims to correct BV ‘misstatements’

The ASA recently filed an amicus brief in support of the Vinoskey appeal, in which it claims the district court, in ruling against the ESOP trustee and the owner and selling shareholder, Adam Vinoskey, made numerous valuation-related misstatements that required correction. As the “largest multi-disciplinary organization devoted to the appraisal and valuation profession,” the ASA says it has a significant interest in correcting the court’s misstatements “so they are not repeated in other court cases or otherwise cited as precedent.”

The case focused on a 2010 transaction in which Vinoskey and his late wife sold the remaining 52% of stock in their successful company to an ESOP that already owned 48% of the company’s stock. An independent ESOP trustee represented the interests of the ESOP, working with an independent valuation advisor to determine the range of fair market value for the company’s stock. The purchase price was $406 per share. A 2009 appraisal valued the stock at $285 per share; earlier appraisals valued the stock at less than that. The Department of Labor alleged the ESOP overpaid for company stock.

As reported earlier, the district court sided with the DOL on liability and, to a large extent, on damages. The court found the trustee caused the ESOP to pay more than fair market value for the company stock. And it said Vinoskey was liable because he knew or should have known the price paid to him exceeded FMV.

CCF vs. DCF: The ASA’s brief finds particularly problematic the district court’s statements related to valuation methodology. For example, the district court, in rejecting the ESOP appraiser’s valuation based on the capitalization of cash flow (CCF) method and accepting the DOL expert’s discounted cash flow (DCF) approach, called the DCF “a more widely-used methodology for evaluating the fair market value of closely-held stock” and said this was the more “commonly used and reliable method.”

These are “wholly inaccurate” conclusions, the ASA brief says. Both methods are the “primary and generally accepted” methods that appraisers use under an income approach. Citing Shannon Pratt and other luminaries of the BV world, the brief explains how the models are similar and how they differ. Which model to use is a judgment call the valuation expert has to make, the brief says. It notes that “an analysis of the historical period as well as the likelihood of changes in any key assumption are the key factors to making the judgment, which is squarely in the purview of the appraiser.”

The brief says that, in assessing whether a fair market value determination is sound, it is critical to look at the assumptions an analyst uses instead of at the model he or she uses. Consistent assumptions result in consistent value results no matter what model the analyst uses. There may be circumstances in which the DCF is more appropriate (companies with more volatile performance in the earlier projected years), the brief acknowledges. However, the district court’s “blanket statement” that the DCF is more reliable is “incorrect.” There also is no empirical data to show the DCF is more widely used than the CCF in valuing closely held companies, the brief notes.

‘Total and unfettered control’: The brief says the district incorrectly stated the DCF “is, by default, calculated on a controlling-interest basis,” necessitating the use of additional discounts to account “for the actual degree of control” the buyer is getting. “Given the frequency in which this method is used to value closely-held business interests, the seriousness of this concern cannot be overstated,” the brief says.

The brief takes issue with the court’s requirement that the ESOP must have “total and unfettered” control of the company to justify an appraisal of a 100% ESOP-owned company on a controlling-interest basis. The court, incorrectly, looked at the issue of control as “black or white—that there is either ‘full and unfettered control,’ or there is none,” the brief says. Here, the ESOP acquired 100% of company stock. Even if the control were not total and unfettered, a BV analyst would want to consider and quantify the elements of control the ESOP gained when valuing the company stock.

The brief says the district court’s treatment of control needs to be corrected to prevent future litigants (or other courts) from asserting that, when a valuation states it was done on a controlling-interest basis, “the appraiser must have assumed the interest being appraised had ‘total and unfettered’ control of the subject company.”

Stay tuned for the government’s response.

Digests of the district court’s 2019 decision in Pizzella v. Vinoskey (earlier Acosta v. Vinoskey), 2019 U.S. Dist. LEXIS 129579 (Aug. 2, 2019), and Pizzella v. Vinoskey (II), 2020 U.S. Dist. LEXIS 15464; 2020 WL 476669 (Jan. 29, 2020), as well as the court opinions are available to subscribers of BVLaw.

AICPA addresses fair value of digital assets

The AICPA has added 13 questions and answers to its practice aid, Accounting for and Auditing of Digital Assets. The nonauthoritative guidance focuses on how investment companies and broker-dealers should account for digital assets, in addition to providing answers on topics such as fair value and stable coins. The guidance, based on professional literature and experience from members of the AICPA Digital Assets Working Group and AICPA staff, is divided into the following five key areas:

  1. Meeting the definition of an investment company when engaging in digital asset activities;
  2. Accounting by an investment company for digital assets it holds as an investment;
  3. Recognition, measurement, and presentation of digital assets specific to broker-dealers;
  4. Considerations for crypto assets that require fair value measurement; and
  5. Accounting for stable coin holdings.

Comments wanted on third draft of
2022-23 USPAP

The third exposure draft of proposed changes to the 2022-23 edition of USPAP is available for review if you click here. The Appraisal Standards Board is now accepting all public comments, which are due November 18. Instructions on how to submit comments are in the exposure draft. Also, there will be a webinar to discuss the proposed changes in this draft on October 22 at 1:00 p.m. ET (10:00 a.m. PT). To register for the webinar, click here.

ASA announces 2020 award winners

During this week’s American Society of Appraisers 2020 International Conference, the organization announced the winners of the 2020 ASA Annual Awards. Winners are from the various appraisal disciplines, including business valuation, appraisal review and management, real and personal property, machinery and technical specialties and gems and jewelry. The winners are:

  • Chapter Member of the Year: Lloyd Werner (LDW Appraisals);
  • Chapter Education Event Award: Houston Chapter;
  • Chapter Outreach Program Award: Chicago Chapter;
  • Chapter of the Year Award: Houston Chapter;
  • Rising Stars Award: Laurie-Leigh White (BVA Group), Muath Alkhalaf (Public Investment Fund of Saudi Arabia), Joshua George (F.N.B. Equipment Finance), Syed M. Zaidi (Ascend by Cirium), Debrah Dunner (Aesthetica Art Services LLC), Allan Wes McBrayer (CBRE), and Kennon Young (Vermont Gemological Laboratory);
  • Examiner of the Year: Raymond Rath (Globalview Advisors LLC);
  • NAIFA Appraiser of the Year Award: Michael Lange Jr. (ASA Chapter VP);
  • NAIFA Paul Wetzel Award: David Doering (Missouri Property Appraisal Inc.);
  • Jerry Larkins Volunteer Service Award: Paul Cogley (recently retired from Banc of America Leasing);
  • Susan Wade Olsen Award of Merit: Sharlyne Tsai (ASA), Fran Tucker (ASA), and Gregory Reinfeld (ASA);
  • Woman Appraiser of the Year Award: Melanie Modica (Modica Fine Art); and
  • Lifetime Achievement Award: Jay E. Fishman (Financial Research Associates) and Paul Roberts (International Appraisal Co.).

To see the full list and more details, click here.

Free podcasts available of BVR-sponsored
IVSC webinars

BVR sponsored a series of webinars this month bringing together panels of leading international experts to discuss the major trends and issues shaping the valuation, business, and investment worlds. The webinars are part of the Virtual Annual General Meeting of the International Valuation Standards Council (IVSC), which is making free podcasts available of the series, and two are accessible now. They are:

  • The Big Picture: Economic and Market Outlook, with Alistair Darling (IVSC), Sir Paul Tucker (Systemic Risk Council; National Institute for Economic and Social Research), Kathleen Casey (U.S. Financial Reporting Foundation), and Andrew Tilton (Goldman Sachs); and
  • Unlocking the Value of ESG, with Ethiopis Tafara (World Bank Multilateral Investment Guarantee Agency), Saskia Slomp (European Financial Reporting Advisory Group), Richard Stewart (PwC Australia), and Kevin Prall (BDO).

Preview of the November 2020 issue of Business Valuation Update

Here’s what you’ll see:

  • COVID-19 to Trigger More Requests for ‘Risky’ Calculation Reports, Expert Says” (BVR Editors). It’s a settled matter about whether calculation reports “can” be used, but “should” they be used is another issue. Veteran valuation expert Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos PC) explores this concern in a session at the recent BVFLS conference sponsored by the Virginia Society of CPAs (VSCPA).
  • Sink or Swim: The New World of Virtual Testimony” (BVR Editors). Most people do not realize how different it is appearing in court through virtual technology compared to being there in person. Fortunately, some attorneys and valuation experts have gone through this experience, and they share their advice on how to make the best of it.
  • Company or Damage Valuation in a Mediation Context” (Charles Markowicz, Costmasters Center for Dispute Resolution, Belgium). The number of online mediations has soared due to the pandemic. This article outlines the standard phases of a valuator-assisted mediation and the concept of the best alternative to a negotiated agreement (BATNA) and includes some real-world case studies.

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/EBITDA Trends,” “Stout Restricted Stock Study and DLOM Calculator,” “Economic Outlook for the Month,” and the “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 2020 issue of Business Valuation Update.

BV movers . . .

People: Enrique C. Brito, CFA, CVA, CM&AA, will lead the new investment bank launched by Newport News, Va.-based PBMares LLP; the new operation, PBMares Capital Markets, will provide M&A, capital formation, and financial restructuring services to businesses generating up to $150 million in revenues … San Francisco-based Andersen has admitted Daniel Provencio, ASA, RICS, as a managing director in its Los Angeles valuation practice; he was previously a partner/principal at Deloitte.

Firms: Chicago-based BDO USA has acquired Chicago insurance claim and valuation consulting outfit Quantum Global Advisors to expand its forensic investigations and litigation support practice; the deal will bring 28 professionals from Quantum to BDO Edelstein & Co. LLP (Boston) has acquired R.J. Gold & Co. of Burlington, Mass., expanding the firm’s Boston-area presence and its growing healthcare practice; the firm now boasts a team of nearly 130 professionals and 16 partners … San Francisco-based BPM LLP has acquired San Francisco company Caravel Partners to expand its technology solutions team; Caravel is a NetSuite implementation firm … Windham Brannon LLC (Atlanta) is rolling out a new AI-based application designed to recognize vulnerabilities in the revenue cycles of hospitals and healthcare organizations.

Please send your professional and firm news to us at

CPE events

The webinar provides a deep dive into problematic areas of actual small-business valuation cases, with multiple case studies, audience questions, and succinct opinions welcomed.

Learn the sources, context, and usefulness of control premiums and discounts and the best practices for determining when they should be used in valuation.

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


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