BVR Logo October 20, 2021 | Issue #229-3

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

Experts in landmark ESOP valuation case give the inside story

For over a decade, the Department of Labor has not lost a major ESOP case on a valuation issue, but its winning streak ended with Walsh v. Bowers. The case involves many key valuation issues, and BVR will have two of the experts on the case conduct a webinar on November 2.

Ken Pia (Marcum LLP) and Ian Rusk (Rusk O’Brien Gido + Partners LLC) were expert witnesses for the defense in the case, which involved the ESOP company Bowers + Kubota (an architecture and engineering firm). The DOL had alleged that the ESOP paid more than fair market value for stock of the sponsor company. Valuation experts have long maintained that the DOL has been playing by its own valuation rules—rules that are not consistent with accepted valuation standards. But the DOL had a long track record of success using its own rules. In a stunning rebuke, the district court ruled against the DOL, stressing that the agency failed to follow standard valuation practices.

Pia and Rusk will walk you through the entire case from start to finish. If you do (or plan to do) any ESOP work, this event is an absolute must. To register, click here. If you are a BVR Training Passport holder, this event is already included in your subscription.

The case is Walsh v. Bowers, 2021 U.S. Dist. LEXIS 177184 (Sept. 17, 2021), and a copy of the opinion is available on the BVLaw platform.

Can’t answer a question with a simple yes or no in court?

It is always very interesting to hear what judges have to say about giving expert testimony. At the recent New Jersey CPA Society’s Business Valuation and Litigation Services Conference, retired judge Charles M. Rand, who presided in New Jersey Superior Court, was asked a question: What should the expert do if he or she cannot answer yes or no to a question from opposing counsel? Some judges have said that the witness can turn to the judge and ask to expand on their answer. Some judges may not welcome that, so Judge Rand offers an alternative strategy. The witness should respond, “I can’t answer yes or no to that question.” If the opposing counsel keeps pushing you, then you simply have to give an answer. But the attorney on your side should, on redirect, ask you to explain why you couldn’t answer yes or no.

Full coverage of all of the sessions at the conference will be in the November issue of Business Valuation Update.

Justifying hockey-stick projections

Valuation experts frequently receive from management what may appear to be an unrealistic forecast that starts off modestly but shoots up in future years as if by magic. These hockey-stick projections may be perfectly valid, but it’s up to the analyst to scrutinize them. If the valuation ends up in litigation, the analyst will surely be questioned about them.

In a blog post, Chris Mercer (Mercer Capital) recalls having a hockey-stick projection from a bank that currently had low earnings. It appeared that the bank could not possibly achieve that level of performance found in the bank’s own current capital plan for the next five years, which had been prepared for regulatory review in the normal course of business. Mercer was accused of unrealistically relying on the bank’s capital plan.

In response, Mercer referred the attorney to an exhibit in the valuation report that compared the previous five years’ performance with the earnings and returns of the capital plan. “There, it was clear that the projected returns (on assets and equity) were within the levels achieved by the bank in the previous few years, and below the current level of the bank’s peer group,” Mercer writes. “Value today is a function of expectations for future performance—and the expectations used were in line with past performance, management’s stated plans, management’s business plan, and the performance of similar banks.”

This situation illustrates the importance of professional skepticism, especially when reviewing management’s prospective financial information (PFI). Common procedures include, but are not limited to, a comparison of prior forecasts to actual results, comparison of PFI to industry expectations, checking the PFI against other internally prepared financial information for consistency, a comparison of entity PFI to historical trends, an understanding of who prepared the PFI and how often it is prepared, and math and logic checks.

D&P/Kroll updates multiples in healthcare services

The S&P Healthcare Services Index declined by 0.6% in August, compared to the S&P 500 Index, which increased 2.9% over the same period, according to the August 2021 “Healthcare Services Sector Update” from Duff & Phelps, a Kroll Business. The best performing sectors were healthcare staffing (up 15.5%), specialty managed care (up 10.7%), and healthcare information technology (up 9.5%). The poorest performing sectors were behavioral health (down 18%), consumer-directed health/wellness (down 12.9%), and providers—other (down 11.1%). The current average LTM revenue and LTM EBITDA multiples for the healthcare services industry overall are 3.63x and 15.2x, respectively.

Citizens completes acquisition of Willamette

Citizens Financial Group Inc. has completed its acquisition of Willamette Management Associates, a leading valuation consulting and forensic analysis firm with offices in Chicago, Atlanta, and Portland, Ore. This acquisition will significantly expand Citizens’ valuation services division and put it “among the top valuation services providers in the country,” according to a press release. Citizens also says that it will accelerate the build-out of its corporate financial advisory capabilities, which includes the 2019 acquisition of Bowstring Advisors and the 2020 acquisition of Trinity Capital Partners. Terms of the transaction were not disclosed.

iiBV updates on-demand global BV core courses

BVR and the International Institute of Business Valuers (iiBV) have completed the current updates of their core Advanced Business Valuation course. The five e-learning modules qualify for iiBV 210, 211, 212, 213, and 214 credits, which align with the current International Valuation Standards from IVSC. The five modules are: Valuing Intangible Assets, Valuing Early-Stage Companies, Valuing Minority Interests, International Cost of Capital, and Black-Scholes Option Modeling.

Preview of the November 2021 issue of Business Valuation Update

Here’s what you’ll see:

  • ‘Survey Says’ for FMV of Physician Compensation Is on Its Last Legs” (BVR Editor). The use of compensation surveys to determine the fair market value of physician compensation is seriously flawed, a position well-known expert Mark Dietrich has long maintained. Plus, recent government regulations confirm his position, and he offers an alternate methodology.
  • Statistical Methodologies for Analyzing Active and Passive Appreciation” (BVR Editor). A rundown of the existing quantitative models that have been developed that separates the active and passive appreciation of a closely held business involved in a marital dissolution case. The models seek to statistically identify market forces that reasonably cause changes in the value of assets.
  • Benchmark Data on Contract-Based Intangible Assets and Remaining Useful Lives” (BVR Editor). Many contract-based relationships represent identifiable intangible assets that require valuation apart from goodwill. The data here are from the third edition of Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations, which includes data from almost 16,000 purchase price allocations.

The issue also includes:

  • A full 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”; and
  • BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the November 2021 issue of Business Valuation Update.

BV movers . . .

People: Carla Nunes, managing director in the Office of Professional Practice (OPP) of Duff & Phelps, based in the Philadelphia office, and a Kroll Institute Fellow, has been elected as practitioner director of the Financial Management Association (FMA); part of her role will involve contributing to the FMA’s objective of finding ways to translate academic research in the field of finance into practical, usable finance concepts by practitioners … Vincent Baumer, Sebastian Elzein, and Thomas Kasierski have joined Memphis-based Mercer Capital as financial analysts and will provide business valuation and financial consulting services to public and private companies and financial institutions across the nation; Zac Lange, CPA, has also joined the firm as a financial analyst (in its Dallas office) and will provide valuation and forensics services for family law, gift and estate planning, commercial litigation, transactions (M&A), and other matters.

Firms: Woodbury, N.Y.-based Gettry Marcus CPA is adding Melville, N.Y.-based Wagner & Zwerman LLP, a firm that provides a wide range of tax, accounting, and consulting services to individuals, small and midsized businesses, real estate management firms, investment firms, not-for-profits, labor unions, and funds … Great Bend, Kan.-based Adams Brown is adding Fortner & Short LLC of Wichita, Kan., which will strengthen its services in the construction industry and for small businesses … Evansville, Ind.-based Kemper CPA Group LLP is adding Spinardi & Jones Accountancy Corp. of Merced, Calif., a firm that provides tax, accounting, and consulting services to individuals and businesses in a variety of industries in Merced and Mariposa counties … Chicago-based Crowe LLP is expanding its Salesforce consulting group by acquiring Syracuse, N.Y.-based technology and services firm SparkOrange … Chicago-based BDO USA has expanded its BDO Wealth Advisors division by acquiring investment consulting firm Lowery Asset Consulting LLC of Chicago.

Please send your professional and firm news to us at

CPE events

This is one of the hottest topics in business valuation today. This session will explore the theoretical basis for including a company-specific equity risk premium (CSRP) and also how to develop and defend it in a litigation context.

This is an overview of the valuation of early-stage companies and their equity securities using the Black-Scholes-Merton option pricing model. There will also be examples of how to best reflect dividend and participation rights in the model and how to conduct a delta partition analysis to estimate the volatility of specific classes/series of equity interests in the company.

AICPA 2021 FVS Conference

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) at:


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