BVWire Issue #156-3 | September 23, 2015


Experts give views on growth areas in valuation practice

Members of the editorial advisory board of Business Valuation Update recently reflected upon a number of valuation issues, including their views on potential growth areas:

Going up: “The divorce area is booming, and I expect that to continue,” says James Alerding (Alerding Consulting LLC), adding that, due to the aging baby-boomer population, assisting in the sale of businesses should see growth over the next 15 years. “Litigation-related valuation is a growth area,” says Michael A. Crain (The Financial Valuation Group), a view several others echoed. “Litigation is always good,” says Gary Trugman (Trugman Valuation Associates). “Litigation-related work continues to boom for us,” says Ron Seigneur (Seigneur Gustafson), “as does work in M&A-type engagements, especially as values have recovered, along with many of the traditional sources of capital to fund deals.”

Rod Burkert (Burkert Valuation Advisors LLC) agrees about growth in litigation and points to a few more areas. “I see growth in intellectual property valuation and litigation,” he says. “Also in exit planning, although there are a lot of people jumping on the bandwagon. To be successful in this area, I believe professionals will need to be good appraisers and coaches (for the business owner).” Likewise, Ted Israel (Israel Frey Group LLP) singles out “non-litigation consulting-based valuations, such as succession planning.” Kevin Yeanoplos (Brueggeman & Johnson Yeanoplos PC) also mentioned consulting work. “Possibly management planning,” he says. “There also seems to be an increasing need for forensic services, plus marijuana consulting offers a fertile ground.”

More thoughts: For more perspectives—and some differing views—see the October issue of Business Valuation Update (subscription required). This is a special 20th anniversary issue, which is loaded with advice and reflections from many well-known valuation professionals. Last week’s BVWire contained a rundown of the articles in the issue.

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Chancery gives high marks to financial advisor’s merger work

In sharp contrast to some of its earlier decisions reprimanding financial advisors for generating outcome-driven valuations, the Delaware Court of Chancery recently extolled the conduct of the financial advisor in a highly contested take-private merger. It noted the firm’s “thorough and balanced work product” but added the firm’s “heroic efforts” at producing a reliable valuation ultimately were trumped by the defendants’ fraud.

Two-step plan: The dissenting shareholders, pursuing an appraisal arbitrage strategy, sued the defendants, claiming breach of fiduciary duty, and asked the court to determine the fair value of their shares. The defendants were David H. Murdock and C. Michael Carter. At the time of the merger, Murdock owned about 40% of Dole, where he was, by his own testimony, “the boss.” Carter was president, COO, and general counsel. His primary role, the Chancery said, was “to carry out Murdock’s plans, and he did so effectively, even ruthlessly.”

The merger was the second step in Murdock’s strategy to reacquire complete control of the company after it went public in 2009. The first step was a 2012 spinoff in which Dole sold its Asia division to a Japanese company for about $1.7 billion in cash. This transaction generated liquidity and was expected to result in about $50 million in cost savings by the end of 2013. Plus, it would enable Dole to buy farms in Latin America with which to produce additional income by capturing the growers’ share of profits.

After the market reacted favorably to the spinoff, Carter took steps to depress the share price, including issuing press releases that adjusted earnings for the year downward and predicted cost savings only in the $20 million range. The announcements came just when the internal discussions about the freeze-out were heating up, the court found. Finally, in June 2013, Murdock offered to pay $12 per share. To secure independent financial advice, the board formed a committee that retained a financial firm that had not done business with Murdock or Dole in the past to provide advice on the offer. Ultimately, Murdock and the committee settled on a $13.50-per-share price. Based on its DCF analysis, the financial advisor believed the price was fair.

‘Meat cleaver’ to the projections: The court found the defendants’ fraud made a detailed analysis as to fair dealing unnecessary. When the committee asked Carter for updated forecasts reflecting management’s most current best view of the company’s prospects, he constructed projections with “falsely low numbers.” Instead of Dole’s usual bottom-up approach, under his guidance, management produced projections from the top down. At trial a representative of the financial advisor said “management had taken a meat cleaver to the projections in a way that it would be difficult, if not inappropriate, for a committee to weight these projections as the basis for determining the adequacy of a price.”

Aware that the projections did not reflect the value of Dole, the committee and the financial advisor created their own projections. They succeeded in producing “the most credible and reliable projection in the case” for areas of the business for which they obtained complete and accurate information from management, the court found. But they did not know about the anticipated cost savings or the anticipated value resulting from Dole’s farm purchases.

According to the court, the fraud “tainted both the negotiation process and [the financial advisor’s] work product.” Modifying the advisor’s DCF to account for the withheld information, the court arrived at a per-share price of $16.24. In total, the defendants were liable to the plaintiffs for nearly $148.2 million, the court ruled.

Find an extended discussion of In re Dole Food Co., 2015 Del. Ch. LEXIS 223 (Aug. 27, 2015) in the November issue of Business Valuation Update; the court’s opinion will appear soon at BVLaw.

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Healthcare valuers keep an eye on a new proposal

It’s difficult to think of another industry that has as many layers of regulations as healthcare, especially in the era of health reform. Many of these rules impact valuation because they can significantly affect future revenue of healthcare providers.

One to watch: During a recent BVR webinar, the speakers mentioned a proposal to keep an eye on for 2016: the Comprehensive Care for Joint Replacement (CCJR), a model proposed by the Centers for Medicare & Medicaid Services (CMS). The proposal would force healthcare providers in certain areas into a bundled payments model for procedures including hip and knee replacements.

Under bundled payments, a single payment is made for all providers who render services during a patient’s entire “episode of care” for certain medical conditions. The payment is then split up among the providers. This is designed to increase the quality of care and reduce healthcare costs.

The proposal would apply only to providers in 75 selected metropolitan statistical areas (MSAs). However, the speakers pointed out, some providers in these areas are already in a bundled payments program.

Carol Carden and Robert Mundy, both with Pershing Yoakley & Associates, conducted the webinar, Forecasting Cost of Capital in Healthcare Valuations.

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Special combo price for USPAP 2016-17

The 2016-17 edition of the Uniform Standards of Professional Appraisal Practice (USPAP) is available. It includes revisions to the Record Keeping Rule, Standard 3, Reporting Standards, and the Confidentiality section of the Ethics Rule. This new edition also includes revisions to several advisory opinions and the list of 319 frequently asked questions.

Special combo offer: You can purchase both a print and electronic version of the 2016-17 USPAP for $99. This special combo offer is valid until December 31 and available via online order only. To order, click here.

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PwC issues fair value guide

PwC has issued Fair value measurements—2015 global edition, which describes the key concepts and requirements of the accounting standards (under both U.S. GAAP and IFRS) related to fair value measurements. The guide includes specific discussion of the impact of the fair value measurement requirements in significant accounting areas such as investments, impairments, business combinations, and credit risk.

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Valuation as a craft

In a recent BVWire, we reported that Professor Aswath Damodaran (New York University Stern School of Business) recently wrote in his blog that he tells his students that he considers valuation to be neither art nor science, but a craft.

Rings a bell: This same point was made in an article in the winter 2008 edition of the ASA’s Business Valuation Review, “From the Practitioner’s Perspective: Valuation as Craft,” written by Warren D. Miller (Beckmill Research LLC). In the article, Miller offered eight steps the valuation membership organizations should take to elevate the credential. He wrote: “These suggestions have one goal only: to protect clients by raising the probability that the valuation professional they retain will be competent and knowledgeable. If we don’t do that, the federal government will step in and make matters far worse.”

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Global BV news:

Canadian perspective on rules of thumb

The potential pitfalls of using rules of thumb in valuation are explored in a new white paper posted on the website of the Canadian Institute of Chartered Business Valuators (CICBV).

Court review: The white paper also reviews a number of cases that reveal how the courts in Canada have assessed rules of thumb and their application in a business valuation context. “In general, we found that the courts have been circumspect in their acceptance of estimates of value based on rules of thumb and have cited many of the pitfalls/issues we noted above with respect to rules of thumb as reasons to disallow or limit their use in a valuation context,” the paper states.

Tara K. Singh, a senior associate with Cohen Hamilton Steger & Co., a leading Canadian boutique firm specializing in damages quantification, business valuation, and forensic accounting, wrote the white paper.

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Advice for U.S. valuers looking to do business with China

In a recent interview with Liying Han of the China Appraisal Society, Ray Moran (MG Valuation LLC) pointed out that Chinese firms have been increasing their investment in the United States. He asked Han for advice as to how U.S. valuation experts can do business with Chinese buyers.

Just the start:As you said, China’s overseas investment has been constantly expanding in recent years. However, it is just the beginning stages for Chinese firms to go global,” says Han. “Therefore, Chinese investors are not very familiar with foreign policies, economic conditions, laws and regulations, and the foreign culture. They know little about the process of overseas investment and are unable to anticipate and control the risks in a full matter. Hence, valuers are supposed to help clients to analyze the macroeconomic environment and the status quo and the trends of the targeted profession so as to grasp market features and investment opportunities, discover investment value, expose investment risks and proposed investment strategies.”

The full interview is posted on the website of the International Institute of Business Valuers.

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Pratt’s Stats surpasses 24,000 private-company transactions

Pratt’s Stats, the private-company transaction database from Business Valuation Resources, now contains details of more than 24,000 private-company transactions. However, more important than the number of transactions is the continuing quality and breadth of the data. Thanks to Pratt’s Stats users, BVR continues to improve the product and introduce it to valuation stakeholders beyond the business appraisal market.

Pratt comments: In a recent interview, Shannon Pratt (Shannon Pratt Valuations) reflected on how the database came about back in 1996. “Back then, there was no data for privately held companies, so I started collecting the data from business brokers,” he recalls. “It’s not perfect, but it has more data points than any database of its kind. And it has survived and prospered. I’m very proud of that—it’s been very useful to a lot of people. I tried to put in everything you’d find in a public-company database.” The full interview with Pratt is in the October issue of Business Valuation Update (subscription required).

To learn more about Pratt’s Stats, click here.

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BV movers . . .

People: Joshua Brummett was named a partner in the LBMC Valuation and Litigation Services practice and focuses exclusively in healthcare, and Andrew Eckstein has joined LBMC Transaction Advisory Services (TAS) as a senior manager. Both are based in the firm’s Nashville office … Lisa Cribben, a partner in valuation, M&A, and transaction services in the Green Bay, Wisc., office of Wipfli, was appointed to the AICPA’s forensic and valuation services executive committee for the 2015-2016 year … Mike Loritz, a shareholder in the Kansas City, Kans., firm Mayer Hoffman McCann, was promoted to the firm’s executive committee.

Firms: Acuitas Inc., a leading forensic accounting, litigation consulting, and valuation services firm based in Atlanta, is celebrating its 20th anniversary. Congratulations to the entire team for reaching this milestone! … The Michigan Business & Professional Association voted Clayton & McKervey as one of metropolitan Detroit’s “101 Best and Brightest” companies … The national firm Sikich LLP has acquired the audit, accounting, and tax practice firm Jannsen + Co., based in Milwaukee.

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Upcoming CPE events

SPECIAL 4-HOUR WORKSHOP: Don’t miss your chance to learn how Monte Carlo simulations stand up under courtroom and boardroom scrutiny, along with strategies to handle any question you encounter for this methodology. Join us for our Advanced Workshop on Monte Carlo: From Classroom to Boardroom to Courtroom, on September 29 featuring Michael Pellegrino (Pellegrino & Associates LLC) and Dave MacAdam (Novelis). Click here for LinkedIn discussion with the presenters.

Working Capital and Value: Gone But Not Forgotten? (October 6), with Glen Birnbaum (Heinold Banwart Ltd.) and Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos PC).

Why You Need to Use Local Market Rates for FMV in Physician Compensation and How to Calculate Them (October 8), with Mark O. Dietrich (Mark O. Dietrich, CPA, PC) and Timothy Smith (Ankura Consulting Group LLC). This is Part 5 of BVR's 2015 Special Series on Healthcare Valuation.

Valuing Full-Service Restaurants (October 15), with Lynton Kotzin (Kotzin Valuation Partners).

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist

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We welcome your feedback and comments. Contact the editor, Andy Dzamba at: or (503) 291-7963 ext. 133
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In this issue:

BV growth areas

Chancery lauds advisor

Healthcare proposal

USPAP 2016-17

Fair value guide

Valuation as a craft

Global BV news

Pratt's Stats hits 24k

BV movers

CPE events












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