BVWire Issue #180-2 | September 20, 2017


Latest transaction multiples from Pratt’s Stats (3Q2017)

Private companies in the wholesale trade have the highest median MVIC/SDE multiple (3.80), according to the latest quarterly Pratt’s Stats Private Deal Update (available with a subscription to the Pratt’s Stats deal database). But this industry group does not rank the highest in terms of MVIC/net sales (0.45) or MVIC/EBITDA (3.85). The chart below presents median valuation multiples based on major industry groups, as identified by SIC code. MVIC is market value of invested capital (selling price); SDE is seller’s discretionary earnings.

The Pratt’s Stats Private Deal Update is a quarterly publication analyzing private-company acquisitions by private buyers in the Pratt’s Stats database. Pratt’s Stats features nearly 28,000 private-company transactions, covering acquisitions in 835 SIC and 915 NAICS codes.

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Details start to emerge on new CVFI credential

In an interview with Business Valuation Update, Jeff High, AICPA senior manager—fair value measurements, gave some details on the recently announced Certified in Valuation of Financial Instruments (CVFI) credential the AICPA will launch. One question asked was about the education and training process and requirements. According to High, to obtain the CVFI credential one must:

  • Have three years of experience in the field of financial instrument valuation;
  • Complete the AICPA-approved education (roughly 35 hours of online-delivered education);
  • Pass the CVFI exam delivered by the AICPA;
  • Maintain the credential with eight hours of continuing education per year;
  • Be a member or associate member of the AICPA; and
  • Abide by the AICPA Code of Professional Conduct.

The full interview is in the October 2017 issue of Business Valuation Update.

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Mercer offers insights on valuing RIAs

A number of issues arise when valuing registered investment advisors, according to a new white paper from Mercer Capital. These issues include:

  • How to normalize cash flow to determine the profitability of an RIA;
  • How to compare different investment management firms to determine what risk-adjusted valuation multiples to apply;
  • How to evaluate the growth potential of one firm relative to the industry or relative to other firms;
  • What public company multiples say about how a private RIA is valued; and
  • Are industry transaction multiples a useful benchmark in valuing an investment management firm?

The white paper, “Valuing RIAs,” written by Mercer’s Matthew R. Crow and Brooks K. Hamner, gives an overview of these issues. The authors will conduct a webinar with more details on October 3 that is free to partners and staff of investment management firms.

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New study released on appraisal claims

The Harvard Law School Forum on Corporate Governance and Financial Regulation has posted a paper by Matthew Schoenfeld, The High Cost of Fewer Appraisal Claims in 2017: Premia Down, Agency Costs Up,” which considers the preliminary results of an ongoing effort to discourage appraisal litigation. During the first half of 2017, the number of deals challenged fell by 33%, and the year-to-date average U.S. target premium of 22.4% is the lowest of any year in recent history.

Extra: The Delaware Chancery Court has selected Lowenstein Sandler LLP as lead attorneys and consolidated class demands for a stock appraisal from shareholders seeking a higher payout from the $2.2 billion sale of Stillwater Mining Co. The court also clarified rights and responsibilities of law firms collaborating in class appraisal proceedings, according to Law360.

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Paper examines valuation of domain names

A new paper gives some fundamentals on the valuation of internet domain names and considers the impact of internet traffic and the revenue models that transform traffic and visitors into cash profits. The paper, “Domain Name Valuation: Internet Traffic Monetization and IT Portfolio Bundling,” is by Roberto Moro Visconti, who is a professor of corporate finance at the Università Cattolica del Sacro Cuore (Milano, Italy) and is also an IP valuation consultant. Some drivers of value the paper points out include: a good top-level domain, short length, capacity to pass the “radio” test (easy to understand), correct spelling, and meaningful keywords.

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USPAP 2018-19 is in the wings

The 2018-19 version of the Uniform Standards of Professional Appraisal Practice (USPAP) will be available soon with enhanced features available in both print and electronic versions. The enhanced print version includes cross-references to applicable FAQs. Additionally, the electronic version includes hyperlinks to FAQs and other relevant references throughout the document, as well as a hyperlinked table of contents, footnotes, and index.

Extra: The Appraisal Foundation’s Appraisal Standards Board invites you to its upcoming Public Meeting on October 13 in Washington, D.C., where input will be solicited on the future presentation of USPAP.

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FAQs updated on FASB’s new credit losses standard

The FASB’s accounting standards update for credit losses (ASU No. 2016-13) will replace the current incurred loss model with an expected loss model, one of the most significant changes in the history of bank accounting. The Federal Reserve, FDIC, NCUA, and OCC have issued 14 FAQs on the new standard, which become effective in 2020. For more information, see the press release and FAQs on the OCC’s website.

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Free webinars: Step-by-step guidance on cost of capital

Today and tomorrow BVR has two free webinars that will take you through case studies of estimating the cost of capital. The Duff & Phelps team that produces the Valuation Handbook series will conduct the webinars. It will demonstrate how to develop defensible cost of capital estimates and how to incorporate industry data into your estimates to make them even more supportable. Today’s webinar covers a U.S. case study, and tomorrow’s webinar will develop cost of capital estimates for the same subject company as though it were located in a different country—an emerging market—by quantifying the incremental country risk using three distinct models. Join us for this very practical two-day session—they both start at 10:00 a.m. (PT)/1:00 p.m. (ET) and last an hour and a quarter.

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Global BV News

Disclosure problems under IFRS

A study for the Institute of Chartered Accountants of England and Wales (ICAEW) reviewed the financial statements of 527 firms domiciled in 15 countries that report under IFRS. The study found that, particularly in a few countries, disclosure is insufficient to understand and compare financial statements on important topics that involve management judgment and discretion. Among other problems, many instances were found of:

  • Impairment charges mixed in with depreciation/amortization;
  • Impairment of PPE mixed in with that of other types of assets;
  • Impairments netted against reversals;
  • Capitalized development costs mixed with other intangible assets; and
  • Lack of disclosure of the year’s R&D expense.

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Valuation in international arbitration

A white paper by FTI Consulting sets out views on how experts and tribunals should approach the valuation question in international arbitration. The paper points out that the challenges of valuing a business or asset is heightened in the context of international arbitration. The paper’s authors are Andrew Wynn and Noel Matthews.

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Preview of the October 2017 issue of Business Valuation Update

Here’s what you’ll see:

  • SEC Settlement Over Fair Value Signals Shift of Focus” (BVR Editor). Until now, the SEC primarily targeted policies, procedures, and internal controls regarding fair value. But, in a recent settlement, the SEC set its sights on the actual valuation of assets.
  • Valuation of Dual Class Shares” (Gilbert E. Matthews, Sutter Securities Inc.) The high-profile class action lawsuit between minority shareholders and Hollywood icon Jeffrey Katzenberg over the additional consideration being paid to him in the sale of DreamWorks to Comcast puts the spotlight on “dual class” companies.
  • AICPA Fields Questions About New CVFI Credential” (BVR Editor). BVU interviews Jeff High, AICPA senior manager—fair value measurements, about the new credential the AICPA will launch: Certified in Valuation of Financial Instruments (CVFI).
  • How to Estimate WACC for a Cross-Border Valuation” (BVR Editor). A step-by-step example of estimating the cost of capital for an acquisition of a foreign firm by a U.S. company, using data from the Valuation Handbook: International Guide to Cost of Capital.

The issue also includes:

  • Regular features: “BV News At-a-Glance/Global Perspective,” “Ask the Experts,” and “Tip of the Month.”
  • BV data spotlight: “Pratt’s Stats MVIC/EBITDA Trends,” “ktMINE Royalty Rate Data,” “Economic Outlook for the Month,” and “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 October issue of Business Valuation Update.

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BV movers . . .

People: Apple Growth Partners (AGP) looks to grow its ESOP practice with the addition of Matthew Silla as senior manager of business valuation; he’s in the Cleveland office … Barry Melancon, president and CEO of the AICPA, heads the 2017 list of Accounting Today's 100 Most Influential People in Public Accounting … Chaffe & Associates Inc. announces that Nene Glenn Gianfala is one of the first in the state of Louisiana to receive the CEIV designation … New York City-based Marcum LLP has promoted several associates in the Advisory, Valuation & Litigation Support group to partner: Thomas Keane (Neptune, N.J.), Daniel Roche (New York City), and Gary Rosen (New York City) … Jimmy Pappas has joined Grant Thornton LLP as a Forensic Advisory Services partner within the firm’s Advisory Services practice; he’ll be based in Boston.

Firms: Glenn Burdette, a California accounting firm with offices in Santa Maria, Paso Robles, and San Luis Obispo, plans to combine with Radakovich, Shaw & Blythe, an accounting firm headquartered in San Luis Obispo; the combined firms will have more than 80 employees … Kutchins, Robbins & Diamond Ltd. has merged with Rockoff, Harlan, Rasof Ltd.; the dual offices in Schaumburg, Ill., and Chicago have nearly 80 employees … Atlanta-based Nichols, Cauley & Associates LLC has become a member of global accounting association BKR International; the firm has over 100 employees in Atlanta and eight other locations in Georgia … MarksNelson LLC (Kansas City, Mo.) has launched a national entrepreneurial services practice for small and medium-size firms; it includes consulting services … Smith Elliott Kearns & Company LLC, with multiple offices in Pennsylvania, was named as a national leader in INSIDE Public Accounting’s 27th annual ranking of the largest accounting firms in the nation, the IPA 200 … Schenck SC has formed a separate entity, Taureau Group LLC, to provide full-service merger and acquisition services to privately held, middle-market companies.

Please send your professional and firm news to us at

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CPE events

FREE WEBINAR: U.S. Case Studies using the Duff & Phelps Valuation Handbooks: Practical Application of the Valuation Profession’s Most Relied Upon Cost of Capital Resource (Day 1), (September 20), with James Harrington (Duff & Phelps).

FREE WEBINAR: International Case Studies using the Duff & Phelps Valuation Handbooks: Practical Application of the Valuation Profession’s Most Relied Upon Cost of Capital Resource (Day 2), (September 21), with James Harrington (Duff & Phelps) and Carla Nunes (Duff & Phelps).

Understanding Intangibles: Classification, Identification and Valuation—A BVR Web Workshop (September 27) with Michael Pellegrino (Pellegrino & Associates LLC), R. Christopher Rosenthal (Ellin & Tucker), Ron Laurie (Inflexion Point Strategy LLC), and Edgar Baum (Strata Insights).

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New and Trending
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AICPA Disclosure Framework

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

Private multiples

CVFI details

Valuing RIAs

Appraisal claims

Domain names

USPAP 2018-19

Credit losses

Cost of capital

Global news

BVU preview

BV movers …

CPE events

LinkedIn discussions


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