BVR Logo October 27, 2021 | Issue #229-4

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

COVID-19 and BV: Hitchner gives an update

In the opening session of the Virginia Society of CPAs’ Forensic and Valuation Services Virtual Conference, James Hitchner (Valuation Products and Services) gave a current perspective about the many challenges the pandemic has presented for business valuations.

Hitchner hasn’t changed his opinion about the “magic date” of Feb. 24, 2020, in terms of when the pandemic was known or knowable. “Dates matter” he said, but there is no single date that everyone can use for determining when the virus was known or knowable—it depends on the facts and circumstances of your subject company. For example, a company with all local customers and suppliers would be in a different situation than, say, a company that depends on a supply chain in another part of the world. That’s why it’s important to consider timelines in your analysis. Hitchner’s timeline (that he generously makes available to everyone) is a very helpful tool that includes significant events, including the pandemic’s effect on the U.S. stock market.

Some of his other observations include:

  • If a pre-COVID-19 valuation does not serve the purpose, consider using a “hypothetical situation” to do two valuations as of the same date (one with COVID-19 and one without)—this complies with SSVS and USPAP;
  • Company-specific risk became the “great equalizer” in his valuations during the pandemic—the extra risk is reflected there (otherwise the discount rate would be lower than before the pandemic, given standard data inputs);
  • He has never spent so much time on economic and industry research (he relied heavily on McKinsey’s free information); and
  • He has “changed his mind” about the work of Aswath Damodaran (New York University Stern School of Business), such as his implied ERP—he currently doesn’t use Damodaran’s data but is reconsidering it.

Read more: More coverage of the conference is in the November issue of Business Valuation Update.

CFAs support annual testing for
goodwill impairment

Global standard-setters, such as the Financial Accounting Standards Board (FASB) in the U.S., are revisiting the issue of annual impairment testing versus amortization of goodwill. During a recent webinar, Sandra Peters, head of financial reporting at the CFA Institute, previewed a forthcoming survey of institute members that found broad support for regular testing of goodwill for impairment and skepticism about amortization. She agreed with the majority of the members: “Amortization over a straight-line period tells you nothing. Impairment … says that something you acquired didn’t turn out, and users of financial statements should ask more questions.”

Peters added that, in practice, many investors perform their own impairment analysis with much less information than the companies have, suggesting it is valuable to them and may not be as onerous and costly as proponents of amortization suggest. Finally, Peters noted that international standard-setters appear to be moving away from the idea of amortizing goodwill, so a U.S. move that embraces the approach would create headaches for users of financial statements.

The webinar, What’s New in Goodwill, featured a panel discussion with Peters along with VRC co-CEO PJ Patel and Calcbench CEO Pranav Ghai. You can access a replay if you click here.

Trugman talks about his new book at the
ASA confab

If you visited the BVR booth at the American Society of Appraisers International Conference in Las Vegas, you would have had the chance to chat with Gary Trugman (Trugman Valuation), who was taking a break from working on the new, sixth edition of his book Understanding Business Valuation. Heexplained that the entire book is being revised, but some of the notable revisions include an expanded section on personal goodwill. Also, he will add much more material on report writing that will include tips on how to write good rebuttal reports. The new edition will be published by BVR and will also include a special access link to court cases from the BVLaw platform as well as a companion website with supplemental and bonus materials that will be revised regularly.

At the BVR booth, preorders were taken for the book, which will have an early 2022 release (you can preorder if you click here).

Extra: At the conference, Trugman received the highest honor the ASA bestows—he is now a member of the ASA College of Fellows (FASA).

Business owners have many misconceptions about value

Many private-business owners overestimate the value of their business, says an article on Axial by Al Danto,Business Valuation Misconceptions.” This is a particular problem when the owner wants to sell. The sellers, of course, want the highest valuation possible when they sell, but their misconceptions about value makes a successful sale less likely. For example, business owners think that other companies in their industry with similar sales and revenue averages will have the same valuation. Of course, valuers know this is simply not true! The averages can be the same, but what about trends? A company with downward trends will have a different value than one with upward trends. Knowing how a buyer values a business and what drives a valuation up or down is, therefore, critical for an owner to understand. The article gives a good summary of how buyers evaluate acquisition targets.

Latest issue of the ASA BVReview now in BVRPro

The BVResearch Pro platform contains the full archive of BVReview (going back to 1982!), the business valuation journal of the American Society of Appraisers. The latest issue (Summer 2021) has been added to the platform, and it has these articles:

  • “A Current View of the Restricted Stock Studies and Restricted Stock Discounts” (Z. Christopher Mercer, Mercer Capital). Restricted stock studies can be helpful for marketability discount determinations, but too many valuation analysts continue to rely on simplistic comparisons with averages of restricted stock discounts from dated studies.
  • “When Averaging Multiples, the Arithmetic Mean Is Inferior to the Harmonic Mean” (Gilbert E. Matthews, Sutter Securities). A multiple is an inverted ratio with price in the numerator. The harmonic mean is a statistically sound method for averaging inverted ratios. It should be used as a measure of central tendency for multiples, along with the median.
  • “Attrition Analysis, Midperiod Convention, and Customer Retirement Forecasts” (Richard K. Ellsworth). Valuation practitioners that develop an attrition analysis founded on a midperiod retirement convention should not then apply an end-of-period convention when forecasting customer retirements.
  • “Business Valuation: An Integrated Theory.” This is a review by William H. Frazier of the recently published third edition of Business Valuation: An Integrated Theory (BVIT) by Z. Christopher Mercer and Travis W. Harms.

If you are not a subscriber to the BVResearch Pro platform, you can do a stand-alone subscription to the ASA’s BVReview if you click here.

Most large firms suffer major impact from
illicit activity

Kroll’s Global Fraud and Risk Report reveals that 57% of respondents at companies with a turnover of more than $15 billion reported a very significant impact of illicit activity, such as fraud, corruption, and money laundering, on their organization, with a further quarter (25%) describing the impact as somewhat significant. This trend continued for firms with an annual revenue of between $10 million and $15 billion, with 48% of respondents saying their organization had been very significantly impacted and 44% reporting the impact was somewhat significant.

BV movers . . .

People: Taylor Rosanova, CFA, ASA, has been promoted to partner at New York City-based Marcum LLP; he is a principal in advisory services in the firm’s Philadelphia office and provides valuations for financial reporting purposes as well as for mergers and acquisitions, litigation support, strategic planning, and tax reporting … At Los Angeles-based B. Riley Advisory Services, Dave Bookbinder, ASA, CEIV, has joined as a managing director and brings extensive experience in corporate finance, financial advisory, and intellectual property valuation (he is based in the greater Philadelphia area); Quinn Shearer, ASA, has joined as a director and specializes in the valuation of privately held businesses, intangible assets, and complex capital structures involving stock options and warrants (he is based in Atlanta).

Firms: J.S. Held (Jericho, N.Y.) has acquired Kotzin Valuation Partners, a financial advisory firm based in Phoenix that provides business valuation, intangible asset, and intellectual property valuation, litigation support consulting, forensic accounting, and other specialized financial services … Princeton, N.J.-based Withum is adding Maffei Masiello & Co. PA (MM&Co.) of Mendham, N.J., a firm that offers accounting and audit services, tax and estate planning, management advisory services, and M&A consulting … New York City-based CohnReznick LLP broadens its northeast footprint by adding Boston-based Kevin P. Martin & Associates PC (KPM); the deal adds about 100 KPM staffers to CohnReznick’s team.

Please send your professional and firm news to us at

CPE events

An overview of the valuation of early-stage companies and their equity securities using the Black-Scholes-Merton option pricing model (BSM OPM), including examples of how to value preferred stock, common stock, and convertible bonds. Also discussed will be how to best reflect dividend and participation rights in the model and how to conduct a delta partition analysis.

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 two of the experts on the case will walk the audience through them.

AICPA 2021 FVS Conference

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


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