Protecting client information when using AI

Artificial intelligence was a popular topic at the recent ASA International Appraisers Conference in Portland, Ore. One of the big worries is using an AI tool such as ChatGPT with confidential client information. Does the information become public if it’s uploaded to an AI tool? Not with ChatGPT, if you turn off the sharing feature, but it may with other tools, a panel advised.

What to do: Check the AI tool’s terms and conditions to see whether uploaded information will be shared and become public. Also, it’s “very important” to do a recheck when the AI tool gets updated because the terms and conditions may change. Updates will be very frequent because the speed of AI development is “unprecedential,” noted the panel, which included Greg Endicott (Strategic Value Group LLC), Kevin Couillard (FairValue Advisors LLC), and Andrew Couillard (FairValue Advisors LLC).

This is one of the many tips we heard at the conference, and more coverage on this and other sessions will be in the November issue of Business Valuation Update.

Expert accused of cherry-picking comps

In a New York case, a shareholder accused his partner of freezing him out, and he sued for damages. The company, Trap Karaoke, offers a fan-centered concert experience where fledgling singers can perform with surprise celebrity guests in front of a live audience.

Comp analysis: To measure damages, the plaintiff shareholder’s expert did a DCF for the relevant damages period. The company did not have projections, so the expert used historical data from two comparable companies to project growth in the subject company’s revenue. The expert was able to get data and metrics directly from the founders of the two comparables in order to do his estimated projections, which he combined with the subject company’s expense and other financial data to do the DCF. In doing his analysis, he also used testimony from the defendant partner, who launched a Daubert challenge, claiming, among other things, that the expert cherry-picked the comparable companies (he did not challenge the DCF methodology).

The court said that “any selection of comparable companies is inherently the product of expert judgment,” and the record did not indicate that the expert’s judgment was biased or otherwise flawed, citing a 2022 New York case, Manbro Energy Corp. v. Chatterjee Advisors, LLC. The expert was allowed to testify, and any challenges to the expert’s work can be made at trial.

The case is Yador v. Mowatt, 2024 U.S. Dist. LEXIS 163727, and a case digest and full opinion are available on the BVLaw platform.

Extra: The BVResearch Pro platform has several resources on the cherry-picking problem, including a 2021 article by Richard Claywell, “Eliminating Outliers in Financial Data Without Cherry-Picking.”

A ‘terrific read’ on supply chain troubles

If a company is at the mercy of its supply chain, it can have a significant impact on its value. At the recent Forensic and Valuation Conference held by the Virginia Society of CPAs (VSCPA), Jeffrey Lewis (The Azimuth Group) gave an economic update and mentioned a new book he says is a “terrific read”: How the World Ran Out of Everything: Inside the Global Supply Chain, by Peter S. Goodman, an award-winning economics journalist. The book “reveals the fascinating inner workings of our supply chain and the factors that have led to its constant, dangerous vulnerability,” he said. Check it out!

New fast tracks emerge for the CPA and CVA

Comments are due December 6 on an AICPA exposure draft that would ease the “150-hour rule” required to become a CPA. At least one study found that the rule materially reduced the number of new CPAs because of the time and financial burden. Under the existing rule, 30 more credit hours are required over and above the 120 hours awarded for a bachelor’s degree. To get those extra credits, candidates must earn a master’s degree or take some other coursework. Under the new proposal, the extra 30 hours could be earned through work experience, thus clearing a clog in the pipeline of new CPAs. To read the exposure draft and to submit comments, click here.

Meanwhile, the National Association of Certified Valuators and Analysts (NACVA) announced a new fast track for members of the American Society of Appraisers to get its Certified Valuation Analyst (CVA) credential. For holders of the ASA credential, NACVA will waive the CVA exam fee ($625 value), waive the requirement to submit a valuation report, and will provide a free CVA exam study guide ($395 value). There is a scheduled deadline of October 31 to apply. For more details and an application form, click here.

What marketing technique works best for you?

This year, what has been your most effective marketing strategy? Social networking? A website redesign? Time-tested face-to-face meetings? Let us know in this month’s “Two-Minute Practice Builder” survey. Please take just a few minutes to give us your observations—click here to take a fast survey. The survey deadline is October 25, and we’ll share the results in the October 30 issue. Thanks for participating!

CCPro now includes industry debt, unlevered betas

This past Monday, BVR went live with two enhancements to its Cost of Capital Professional (CCPro) platform, which are:

• Industry debt percentages. The platform now includes industry debt percentages that can be used when determining a weighted average cost of capital (WACC). Users have the flexibility to enter any inputs from outside the platform, and it includes a “notes” box to add documentation about that input.

• Unlevered betas. CCPro currently provides levered industry betas that users can use to calculate an industry risk premium (IRP) for use in the buildup method (BUM). The new enhancement now provides access to unlevered industry betas, which allows the user to relever using the Hamada formula at their selected debt-to-equity ratio, for use in the capital asset pricing model (CAPM).

For more details on the platform, go to the CCPro webpage.

Tomorrow! ASA webinar on DealStats

“Know your data” is a maxim for all valuation specialists. BVR’s chief data officer, Adam Manson, will conduct a one-hour webinar to explain the ins and outs of the DealStats transactions database for the American Society of Appraisers tomorrow, October 10. He will talk about the latest enhancements to the platform and will do a demo. Whether or not you use DealStats, you’ll learn something new. Bring your questions! To register, click here.

Looking to buy or sell a BVFLS practice? Check out this new platform

Many business valuation, forensics, and litigation support (BVFLS) practices are at a crossroads: Some practitioners are looking to exit, and others are experiencing growing pains. Organic growth can be a challenge, especially with the shortage of good job candidates in this profession. The alternative is a strategy of growth through an acquisition or a merger. Where can you find help with this process?

New platform: Whether you are looking to buy a practice or sell your practice, a new platform can help you: BVFLS Transitions. This is a matchmaking service that provides a confidential listing service for sellers looking to exit and buyers wanting to expand. The platform was recently launched by John Schlegel, who has been in the executive search business since 1999, with a primary focus in the BVFLS arena, and Rod Burkert, veteran practitioner who now devotes his time to helping BVFLS professionals build their practices.

They will act as an intermediary to provide introductions to professionals on the other side of your table. Check out their new website by clicking here.

AICPA FVS conference in Dallas, October 28-30

At the end of this month, BVWire will head to Dallas for the second of the “big three” valuation conferences, the AICPA & CIMA Forensic & Valuation Services Conference, October 28-30. There will be over 50 sessions in the main conference and several preconference workshops on October 27 for on-site attendees. (Note: The full-day workshop on fair value has sold out.) The agenda has something for everyone, and you can attend on-site or online. Can’t attend the full conference? Use the “select 7” option to choose any seven sessions from the main conference agenda, which is available if you click here.

Industry multiples decreased in Latin America in 2Q2024

Median EV/EBITDA multiples in Latin America have generally decreased across all sectors in the second quarter of 2024, according to the seventh edition of Kroll’s “Industry Multiples in Latin America” quarterly report. Notable declines were observed in certain industries such as capital goods (decrease to 6.5x in the second quarter compared to 8.3x in the first quarter) and materials (decrease to 6.0x in the second quarter compared to 7.3x in the first quarter). On the other hand, for information technology companies, the median multiple increased to 14.0x in the second quarter from 11.0x in the first quarter.

Intro guide to BV by academics and practitioners

A new book, The Valuation Book, is by four authors who are academics and also practitioners. They are Professor Mark Aleksanyan (University of Glasgow), Dr. Kenneth Lee (Loughborough Business School, UK), Professor Dr. Matthias Meitner (VALUESQUE, Germany), and Neil Pande, a freelance financial training consultant based in Canary Wharf in London. The book is designed around the authors’ experience of teaching thousands of people about valuation principles over the last two decades. In addition to the basics, it has chapters on integrating ESG into valuations, valuing immature companies, identifying flaws in valuation models, valuation for mergers and acquisitions, and more.

BV movers . . .

People: Jennifer Cohen, CFA, and Ajay Mishra have been named partners in the forensic, litigation, and valuation services practice at New York City-based Citrin Cooperman; Cohen provides valuation consulting services for a variety of purposes, including litigation support (e.g., shareholder and matrimonial disputes), corporate planning, estate and gift tax planning, mergers and acquisitions, and financial reporting; Mishra’s focus is on portfolio valuation for clients in the alternative asset management space, as well as transaction-related valuations … The National Association of Certified Valuators and Analysts (NACVA) has named its outstanding members for the second quarter of 2024: Michael A. Perlmutter, JD, CPA, CVA, ABAR (Perlmutter Law and Valuation Inc.), formerly with the IRS in the valuation area who moved into private practice in 2018, and Michele M. Laws, CDFA, CVA, MAFF, president of Turning Point Financial Group and Divorce Dollars & Sense Corp., who has a specialty in divorce matters.

Firms: Chicago-based Prosperity Partners, an accounting business backed by private equity firm Unity Partners, has acquired Wiener and Garg of Rockville, Md., a firm that offers tax and consulting services, including business valuations for estate/gift tax purposes … Arlington Va.-based Ascend, an accounting platform backed by private equity firm Alpine Investors, has acquired Pasadena, Calif.-based Lucas Horsfall, an accounting and financial advisory firm with 15 partners and about 125 professionals … Chicago-based Baker Tilly has acquired Alirrium, a leader in robotic process automation (RPA) advisory and implementation services, a deal that strengthens the firm’s capabilities in RPA, artificial intelligence (AI), and machine learning.

Please send your professional and firm news to us at editor@bvresources.com.

CPE events

Divorce Power Panel: Trends and Issues in Family Law, October 11, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Michelle F. Gallagher (Adamy Valuation), Andrew Z. Soshnick (Faegre Drinker Biddle & Reath LLP), Jay E. Fishman (Stout), and Laura Belleau (Karp & Weiss). CPE credits: 2.0.

The Divorce Power Panel webinar series will continue quarterly, and we will update the agenda of topics to address the most current issues and hot topics facing financial experts and attorneys in the family law space.

Navigating ESG: The Evolving Landscape and Its Impact on Business Value, October 15, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Carla Nunes (Kroll) and Nene G Gianfala (Chaffe & Associates Inc.). CPE credits: 2.0.

A discussion of how ESG impacts the inputs to the business valuation equation, including the influence on projected cash flows, cost of debt, and cost of capital. Also, how the new International Valuation Standards (IVS) effective January 2025 will address the integration of ESG factors into business valuations.