BVR Logo September 16, 2020 | Issue #216-2

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

Beware of this loaded question about projections amid COVID-19

Projections have always attracted scrutiny, but the pandemic has intensified this attention. Here’s a question you are likely to get that seems innocuous enough but could invite trouble, especially if asked in a deposition or on the witness stand: “Are the projections in your valuation analysis less reliable now than they were before the pandemic?”

Be careful: Many people would think the answer is naturally “yes” because of today’s unprecedented and highly uncertain times. But that answer could explode into a barrage of follow-up questions designed to attack the reliability of your entire report. Therefore, the answer should be this: “The projections are more difficult to do now, but they are just as reliable as before.” Valuation analysts strive to make sure projections are as reliable as possible regardless of the environment or nature of the economy. The problem now is not different from, for example, valuing early-stage companies whose future performance is not predictable. During volatile times, the analyst will spend more time gathering and analyzing company- and industry-specific data, so the projections should be equally as reliable as before the pandemic.

This was one of the many interesting points covered during a session at the AAML/BVR Virtual Divorce Conference, which continues tomorrow, September 17, with a session titled Creative Settlements When Working With Distressed Businesses and Catastrophic Losses. Sessions are conducted by attorneys, valuation professionals, and industry experts, and special sessions are devoted to online one-on-one speed networking.

Maryland commits to Daubert for evaluating admissibility of expert testimony

In a critical move, Maryland’s highest court recently changed the standard for the admission of expert testimony when it abandoned the existing two-channel approach in favor of Daubert. The decision aligns Maryland with the majority of states that follow Daubert, but it reflects a split (4-3) court.

Effort to ‘streamline’ process: In 1923, the U.S. Supreme Court set out the Frye “general acceptance” test for the admissibility of expert testimony based on new or novel scientific principles. In 1978, Maryland’s Court of Appeals (state’s supreme court) adopted Frye in the Reed v. State decision. The test became known as the Frye-Reed standard. In 1993, the U.S. Supreme Court, in the Daubert case, held that Federal Rule of Evidence (FRE) 702 superseded Frye. For its part, Maryland adopted Rule 5-702, the counterpart to FRE 702, while holding onto Frye-Reed.

In theory, the relationship between the two standards is clear. Testimony that discusses novel scientific theories must meet the Frye-Reed standard and the Rule 5-702 requirements. Expert testimony dealing with nonscientific evidence must only meet the requirements of Rule 5-702. In practice, as the court’s majority in the recent opinion notes, “[T]he Frye-Reed standard—and its relationship to Maryland’s Rule 5-702—holds a confusing grip on Maryland bench and bar.” Since 1978, the Frye-Reed test “slowly morphed into a ‘Frye-Reed Plus’ standard, implicitly and explicitly relying on and adopting several Daubert principles,” the majority opinion states.

The court had an opportunity to move to Daubert in an involved tort case in which the plaintiff alleged physical, psychological, and economic harm from lead exposure while living in the defendant’s apartment building. At trial, the plaintiff offered medical expert testimony on causation, i.e., that she was poisoned in the defendant’s building and that the lead exposure caused her “cognitive deficits.” The defendant vigorously challenged the expert testimony, leading to four jury trials and several appeals and culminating in petitions from both sides to the Court of Appeals. The key question was whether the court should adopt the Daubert standard.

The defendant said yes and asked the court to apply Daubert to the present case and find the opposing expert’s causation opinion inadmissible under Maryland Rule 5-702. The plaintiff argued against Daubert but also claimed that, even under Daubert, the medical expert’s testimony would be admissible.

After a lengthy discussion of the existing approach, a majority of judges found it was appropriate to adopt Daubert. The current two-channel approach had led to a “duplicative analytical process” and had “muddied” the waters of admissibility, the majority said. “Instead of perpetuating a process wherein expert testimony must pass through Frye-Reed and Rule 5-702, we implement a single standard by which courts evaluate all expert testimony: Daubert.” Adopting Daubert will “streamline” the process and permit trial courts “to evaluate all expert testimony—scientific or otherwise—under Rule 5-702.” The majority opinion provides a list of 10 factors that are “persuasive in interpreting Rule 5-702,” five Daubert factors and five additional factors courts have used to determine whether expert testimony is sufficiently reliable. The court remanded for a new trial “consistent with this opinion.”

Dissent: This was not the “right case” to make the change, the three-judge dissent said, noting the issue of admissibility in this case consistently was decided under Rule 5-702, not Frye-Reed. The dissent also suggested the adoption of Daubert might benefit defendants and said any implementation of Daubert required at least a study of the impact of Daubert on minority groups and “people of limited financial means as potential litigants.” No such study was performed here.

A digest of Rochkind v. Stevenson, 2020 Md. LEXIS 414 (Aug. 28, 2020), and the court’s opinion will be available soon at BVLaw.

Top-notch tips for virtual court appearances

There’s a lot more to making a good appearance in court when you have to testify virtually. Not only is this true for court testimony, but in any virtual setting, be it a meeting or when you are conducting a video webinar or conference session.

Extra stress: Ken Pia (Marcum), who has testified virtually a number of times in various states, points out that testifying this way is much more exhausting than doing it in person. For one thing, there’s a lot more to worry about, such as the technical glitches that can happen—and almost always do. Also, judges are getting impatient with the technology because it often takes longer to do things due to connectivity issues or delays with audio and video.

Among the many tips he gave, Pia recommends that you have a practice session (or two) before the day of the hearing. Test your connectivity during the practice sessions and again on the morning of the hearing. Also, be sure to join the hearing at least 30 minutes prior to your scheduled time in case updates need to be performed before connection can occur. If you can, try to have IT troubleshooting backup in place during the hearing.

Pia also discussed adjusting your surroundings so that you give the best appearance possible on camera. All too often, we see bad camera angles and terrible lighting that can make anybody on camera look very bad. Pia recommends that you set yourself up so that your background has very simple (organized) décor or a blank wall. He also suggested that you position the camera so it is above you, not below you, with the light coming from the front. We agree with this but make the following additional points:

  • If you have the camera above you, don’t put it too high—and it’s OK to have it directly at eye level;
  • Your eyes should be one-third of the way down from the top of the frame (we often see the camera tilted too high so that the presenters look like they’re sitting in a hole);
  • Lighting from the front is the way to go, but that can create bad shadows, so try to have some “fill” light from different angles to reduce the shadows; and
  • If you’re wearing a jacket, sit on the end of it so it doesn’t ride up your neck (an old trick TV newscasters use).

Pia gave a good deal more advice during a session, New Reality: 2020 and the Life-Changing Impact on Attorneys, Financial Experts and Our Clients, during the AAML/BVR Virtual Divorce Conference. His co-presenters were valuation experts Stacy Collins (Financial Research Associates) and Jim Hitchner (Financial Valuation Advisors Inc.) along with attorneys Lisa Ann Sharpe (Lasher Holzapfel Sperry & Ebberson) and Adam John Wolff (Alter, Wolff & Foley LLP).

DealStats now lets nonsubscribers
search comparables

The DealStats public- and private-transaction database now allows a nonsubscriber to fully utilize the “Quick Search” and “Search” tabs to view limited information on the “Data” tab. A nonsubscriber may also download basic search result information to Excel using the “Only Displayed Fields” option on the “Download” tab and find helpful resources on the “User References” tab. To try a Guest Search, click here.

This is the latest in a series of enhancements to DealStats. Recently, the database added a weighted harmonic mean statistic to both the “Statistics” tab and the “Summary” tab. Another enhancement was made to the Download option for “Only Displayed Fields” and “All Available Fields,” which now includes a second worksheet, which contains the “Summary” tab information (so users have a record of their search criteria, their selected/deselected transaction IDs, and their summary statistics). Also, the new version of the MoneySoft Business Valuation Specialist software added a feature that allows users to import data from DealStats.

New edition of McKinsey valuation book now in BVR’s bookstore

The fully updated 7th edition of Valuation: Measuring and Managing the Value of Companies from McKinsey & Co. is now in BVR’s bookstore. This latest edition has been carefully revised and updated throughout and includes new insights on topics such as digital; environmental, social and governance (ESG); and long-term investing, as well as fresh case studies. The authors are David Wessels, Marc Goedhart, and Tim Koller.

Updated Finance and Accounting for Lawyers now available

An introductory text for attorneys working with accounting and the business valuation world has been revised. The 2nd edition of Finance and Accounting for Lawyers, by Brian Brinig, JD, CPA, serves as a textbook for a law school course of a similar title. Highlights of this expanded and updated text include:

  • Three chapters on damages covering definitions, legal concepts underlying damages analyses, and classifications of damages (general, special, economic, noneconomic, and punitive);
  • A chapter is devoted to personal economic loss calculations, and another focuses on commercial damages;
  • A chapter dedicated to determining personal income; and
  • A chapter on opinion evidence and expert testimony with consideration of the legal privileges applicable to experts and techniques for taking effective expert depositions and cross-examining experts at trial.
The author has been an adjunct professor of law at the University of San Diego School of Law for 25 years and is the managing director of CBIZ—Brinig Taylor Zimmer, a 20-person forensic accounting and business valuation firm that he formed in 1983 in San Diego.

Interesting agenda for IVSC Virtual AGM
October 6-15

An economic and market outlook, retail valuations, and internally generated intangibles are just some of the topics at this year’s Annual General Meeting (AGM) of the International Valuation Standards Council (IVSC). The AGM will be held via Zoom Webinar over the course of two weeks in October, and there will be panel sessions, public board meetings, meetings of the Advisory Forum, and the formal AGM. You can check out the agenda if you click here. “While it is obviously disappointing that we will not get a chance to come together in person, we are excited by the prospect of convening our members, sponsors and supporters from around the world through this online event,” the IVSC says in a statement.

Preview of the October 2020 issue of Business Valuation Update

Here’s what you’ll see:

  • The Valuation of Convertible Notes Using a Binomial Model (Anthony R. Banks, ASA and Taylor Rosanova, CFA, Marcum). The authors’ research reveals that there are numerous articles, chapters, and models with bad math, bad equations, notational errors, or undisclosed rounding in some equations. They present a version of the Goldman Sachs binomial model and suggest that valuators provide fully functional binomial models when requested so that reviewers can “look under the valuator’s hood.”
  • Pandemic Triggers Chances for Valuers in Exit Planning” (BVR Editor). Remarks from the AICPA ENGAGE conference on the timely opportunities for financial professionals in exit/succession planning. This article gives some basics on how valuation experts can leverage their experience into this type of consulting.
  • Back to Basics for Lost Profit Damages Calculations Amid COVID-19” (BVR Editor). Does the pandemic have an impact on the measurement of future lost profits, particularly where the underlying breach occurred before the pandemic arose? This is an area of law that could change as courts begin to face disputes in the context of a COVID-19 world. In the meantime, this article gives a primer on calculating lost profits damages.
  • From the Bench: 10 Warning Signals of Trouble With a Valuation Expert” (BVR Editor). It’s always very informative and helpful to listen to judges talk about the valuation cases they hear. At NACVA’s recent Business Valuation and Financial Litigation Super Conference, a panel of judges did just that—and they shared their views of when they detect potential problems with appraisers when they are on the witness stand.

The issue also includes:

  • An expanded 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,” “FactSet Mergerstat/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “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 2020 issue of Business Valuation Update.

BV movers . . .

People: Hubert Klein, CPA, ABV, CFF, CVA, CFE, CGMA, partner and practice leader for the financial advisory services group at EisnerAmper (Iselin, N.J.), was appointed to the American Institute of CPAs’ National Accreditation Commission for 2020-21 … Ethan Scott, CPA, FMVA, has joined Mile Marker Advisors LLC (Richardson, Texas) as an analyst; he was formerly with KPMG.

Firms: Lacey, Wash.-based Frost & Co. has acquired Armour & Associates of Olympia, Wash. … Cleveland-based CBIZ has acquired ARC Consulting LLC and ARC Placement Group LLC (ARC) of San Francisco; ARC provides specialized accounting and advisory services to high-growth companies in the San Francisco area … Woodland Hills, Calif.-based Duffy Kruspodin has joined forces with Boston-based financial planning firm Integrated Partners to form DK Wealth Management LLC … To accommodate staff growth, Withum has completed the relocation of 30 staff members to a new location in Center City Philadelphia; the firm ensured a safe moving process by having team members sign up for a time slot, limiting the number of people in the office to six at a time.

Please send your professional and firm news to us at

CPE events

  • NEW DATE: Case Studies in Contingent Consideration. September 16, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Antonella Puca (Alvarez & Marsal), Brett Hickey (Star Mountain Capital), and Shaun Maloney (Eisner Amper). This is part of BVR’s Special Series on Fair Value.

In today’s uncertain times, more deals will include contingent consideration. This is an overview of the valuation of contingent consideration, based on the guidance of The Appraisal Foundation in VFR No. 4 Valuation of Contingent Consideration, the AICPA Guide on the Valuation of Portfolio Investments of Venture Capital and Private Equity Funds and Other Investment Companies, and other best practices.

The increasing prevalence of joint ventures and other strategic affiliations in the current environment and the unique valuation considerations related to these arrangements are discussed.

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


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