New York’s out-of-step position with respect to the discount for lack of marketability in fair value proceedings is a hotly debated issue—and it’s getting even hotter. A “new note” in the debate was sounded in an article in the January issue of Business Valuation Update, according to a blog post by attorney Peter Mahler (Farrell Fritz) in the New York Business Divorce blog.
Stands alone: In the article, “NY’s Unfair Application of Shareholder-Level Marketability Discounts,” Gil Matthews (Sutter Securities) writes that New York “stands alone in that it favors (and some lower courts believe requires) the imposition of a marketability discount on dissenting shareholders in fair value determinations. There is broad consensus that DLOMs should seldom, if ever, be permitted in appraisal or oppression cases.” Matthews points out that New York is out of line with both the Model Business Corporation Act (MBCA) and the American Law Institute (ALI) “as well as the widely accepted view in other states and in legal literature.”
Mahler gives his perspective on the issue and says that it “would be nice if the business valuation community could speak with one, clear voice on the issue, which would then facilitate consideration by legislators or, should they defer to the courts, appellate judges, of any needed changes to New York’s policy toward DLOM in fair value proceedings.”
Each month, BVWire includes trademark comparable data provided by Markables, which has a database of over 6,500 trademark valuations published in financial reporting documents of listed companies from all over the world. The database reports value solely for the use of trademarks (not bundled with other rights). This month’s data snapshot is for full service and fast food restaurants (fully owned and operated restaurants only, not franchised operations). Some of the larger restaurant brands in the sample are LongHorn Steakhouse, The Capital Grille, O’Charley’s, Yard House, Roman’s Macaroni Grill, Mimi’s Café, and Einstein Bros. Bagels, among others.
Two key points: The analysis reveals two noteworthy issues. First, restaurant brand value multiples depend on the price positioning of a particular brand. Full service, sit-down restaurants generate a higher brand value premium than fast food restaurants. The same observation can be made within each group. Second, pure play trademark royalty rates must not be confounded with franchise royalty rates, which are most often in the area of 4% to 6% on revenues. As a rule of thumb, the value of the trademark makes up for approximately 50% of the franchise, with the remainder for the operating system, recipes, and trade secrets.
Trademark royalty rates range from 1.5% to 5% on revenues, with median rates of 2.3% for full service and 2.0% for fast food restaurants. The trademark accounts for about 25% of enterprise value of full service restaurants and 35% for fast food restaurants. Average enterprise value multiples for the sector are 0.85x revenues for full service and 0.75x for fast food restaurants.
For more information and a chart of the data analysis, please click here.
Analysts at Houlihan Lokey recently released the 2014 Purchase Price Allocation Study, which examines key data points of purchase price allocations recorded by U.S. public registrants. The study analyzes 536 transactions completed in 2014, comparing the data to certain transactions in prior years. Overall, intangible assets average 30% of the purchase consideration (PC) and goodwill averages 38% of the PC, the study says. PC is defined as the sum of the purchase price paid and the liabilities assumed in connection with a business combination.
Deeper dive: Based on an analysis of over 6,000 purchase price allocations, the ratio of intangible assets to total assets is 72%. This is according to the second edition of Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations. Data analyzed for this study are contained in the Public Stats and Pratt’s Stats databases, and they are particularly focused on useful lives of intangible assets. They also include a review of intangible asset categories complete with detailed descriptions of valuation approaches and checklists of factors to consider. The statistics are presented by type of intangible and are also categorized by industry. For example, patents show an average useful life of 8.3 years, ranging from 4.6 years in the software industry to 10.7 years in the pharmaceutical industry.
The International Association of Consultants, Valuators and Analysts (IACVA) and the Middle East Charter (together with Business Valuation Resources and the China Appraisal Society) held a busy conference at the Al Murooj Rotana hotel in beautiful Dubai on Dec. 13 and 14, 2015. IACVA presented the Honorary Member status to Elvin Fernandez of Malaysia for his many years of contribution to the valuation profession.
In addition, the newest charter member of IACVA (from Malaysia) was announced and introduced at this conference. This new charter was started entirely by Malaysian real estate appraisers who see that business valuation skills have become indispensable in the economic crossroads of Malaysia and the four ASEAN countries.
Bill Hanlin and Jim Horvath (IACVA president and chairman, respectively) welcomed the delegates and shared how business valuation is now practiced worldwide using the same fundamentals and theory. The days of each practitioner using his or her own individual methods developed over his or her career is past, as the global markets in M&A and financial reporting demand transparency and adherence to common practices. From there, Dr. Assem Safieddine (president of IACVA Middle East) introduced practitioners from each represented country. Each spent a few minutes discussing valuation issues and trends within their geographic regions.
Madam Liu Ping, vice chair of IACVA, addressed the group about the rapid evolution of China’s capital markets, where they are going, current valuation practices, and the continued push for transparency within the China market. The interest was high in the room, and the questions pushed the presentation right to lunch where discussion continued on the sunny patio.
A few words on the alliance with Business Valuation Resources (BVR), and discussion of available products, data, webinars, and the need to receive local transactional data, welcomed everyone back to the conference after lunch. Attendees were quite excited about the new alliance with BVR!
A short address was made by Dr. Lim Yuan, chairman of the World Association of Valuation Organizations. Dr. Lim praised the growth of IACVA and welcomed all new members of IACVA to the international society of valuation professionals
Ziad Awad discussed the challenges of valuing family businesses in the Middle East. He punctuated the presentation with examples of pitfalls as well as achievements. An interesting presentation by Dr. Kim Young-gi of Korea presented the use of big data rather than detailed analysis and best practices to value businesses. The research is not quite finished, but the results seem to indicate that the big data approach provides a reasonable valuation result that is extremely similar to value developed using detailed analysis and best practices.
The first day was closed out with a discussion of business valuation standards, from the IVSC, IACVA, ASA, CICBV, and AICPA.
Jim Horvath and Jim Catty spent significant time discussing various issues involved with building a business valuation practice, from a single practitioner to a multianalyst office. The class was able to ask questions and receive real-world answers from the pair of experienced professionals.
Bill Hanlin then completed the morning with a give-and-take session relating his experiences on engagement management matters. Issues such as how to say “no” to clients on a variety of matters, from “this is the answer I want” to “I need the answer tomorrow.” He provided real-world experiences with his clients and from his colleagues. This class was busy with questions and concerns.
After another excellent lunch buffet at the Al Murooj Rotana hotel, the group was directed to common errors seen by the IACVA trainers in valuation reports worldwide. Again, items such as transparency, full disclosure, and usage of reports for specifically disallowed (by the author/valuator) purposes. Bob Brackett commented that these are the same common errors he saw 20 years ago. The only new item is the recent focus on public perception, the need to ensure our projects make every effort to not diminish the public perception of valuators.
The conference concluded with a session focused on looking at the valuation engagement from the perspective of the stakeholders, rather than just the valuator. This brought up discussions of transparency, lack of understanding of our terms and distinctions (e.g., fair value, fair market value, market value, valuation date, report date) and the ongoing need to provide education to stakeholders on the need and usefulness of the valuation expert.
The site and date for the 2016 International IACVA Conference were announced. This important international event will be in Kuala Lumpur in mid-September 2016.
For more information on business valuation in an international setting, visit BVR’s Global BV Resource Centre.
A new study by the National Association of Certified Valuators and Analysts (NACVA) and Hinge Marketing suggests that a valuation firm’s “visible expertise” is the most important single factor in generating referrals. Visible expertise is developed by conducting activities that promote thought leadership, such as speaking and writing frequently on topics of interest to your target audience. This can raise your industry profile; as more people recognize and trust your expertise, you will receive more referrals.
Other factors that can help trigger more referrals, the study found, include professional and social relationships, reciprocity, attending networking events, directly asking for referrals, social responsibility (charitable contributions), and sponsorships.
What to do: BVR has opportunities for valuation experts to contribute articles and book chapters, conduct webinars, and provide content for special reports and publications. If you’re interested, please contact the BVWire editor.
Over 1,100 attendees at the AICPA Forensic and Valuation Services Conference 2015 in Las Vegas heard some outstanding speakers and topics. BVWire provides some key takeaways from the event. AICPA senior technical manager Eva Simpson gave an update of the new credentials to be issued for fair value. The new credential for fair value related to business and intangibles will roll out in spring 2016, and the new credential for financial instruments will launch in fall 2016. A draft of the mandatory performance framework will be issued for exposure in early 2016. The AICPA, ASA, and RICS will issue this new credential under a common framework, but the individual will be bound by the issuing group’s professional and ethics standards. It is unclear whether the new credential will be a new set of letters or some special mark added to a person’s existing BV credential, such as an asterisk or other symbol.
An impressive lineup of speakers will be at the fourth OIV Business Valuation International Conference at Bocconi University (Aula Magna) in Milan, Italy, on November 30. The theme of the conference is Fairness Opinion’s Value: Legal Protection or Deal Improvement? There is no admission fee for the conference, which is presented by the Organismo Italiano di Valutazione (OIV), the Italian business valuation standard setter. Here’s the agenda:
- Mario Massari (OIV)
- 9.30am – 10.30am Fairness opinions and Italian Valuation Standards (PIV), Mauro Bini – OIV
- 10.30am – 11.30am How can fairness opinions provide value to shareholders?, Jay Fishman – Financial Research Associates
- 11.30am – 11.45am Coffee Break
- 11.45am – 12.45pm Fairness opinion and conflicts of interest, Jim Wolf – Ernst & Young (retired)
- 12.45pm – 2.00pm Lunch Time
- 2.00pm – 3.00pm The different role of fairness opinions in different types of deal, Jeff Tarbell – Houlihan Lokey
- 3.00pm – 4.00pm Valuation methods in fairness opinion, Gil Matthews – Sutter Securities
- 4.00pm – 5.00pm Dual fairness opinions and the role of valuation firm, Jeff K. Davis – Mercer Capital
There will be simultaneous translation provided in both English and Italian. While there is no charge for attendance, you must register on the OIV website. You can find the link on BVR’s Global Business Valuation Resource Centre if you click here.
The best young CPAs in the areas of forensic accounting and business valuation were honored at the AICPA FVS 2015 conference in Las Vegas. The 32 CPAs are 40 years old or younger and are the first honorees in the new annual Standing Ovation Recognition Program, which recognizes outstanding professional achievement in various specialty credential areas. The honorees are (listed alphabetically):
- Jamila Abston – U.S. SEC, Atlanta, GA
- Travis Armstrong – Hemming Morse, LLP, San Francisco, CA
- Tim Bryan – Crowe Horwath, LLP, Sacramento, CA
- Jeffrey Buchakjian – EisnerAmper, Philadelphia, PA
- Brian Chmiel – Crowe Horwath, LLP, Chicago, IL
- Anna Cicirello – KPMG, LLP, Toronto, Ontario
- Jonathan Couchman – Veris Consulting, Inc., Reston, VA
- Timothy Cowley – Puckett, Clement and Schellenberg, P.C., Troy, MI
- Randie Dial – CliftonLarsonAllen, Indianapolis, IN
- Michael Fahlman – Berkely Research Group, Phoenix, AZ
- Nathan Fan – Hemming Morse, LLP, Los Angeles, CA
- Rachel Flaskey – Baker Tilly, Minneapolis, MN
- Carleen Gaskin – WithumSmith+Brown, PC, Paramus, NJ
- Luke Houston – Rocky Mountain Advisory, Salt Lake City, UT
- Robert King, Jr. – The Koerber Company, P.A., Hattiesburg, MS
- David Kirk – Baker Tilly, Dallas, TX
- Adam Lang – BerkowitzPollackBrant, Miami, FL
- Ethan Lee – Pacific Business Valuation, Honolulu, HI
- Nicole Lyons – WithumSmith+Brown, PC, Princeton, NJ
- Jason MacMorran – Postlewaite & Netterville, Baton Rouge, LA
- Shaun Maloney – EisnerAmper, Frelin, NJ
- Robert Mundy – Pershing Yoakley & Associates, Atlanta, GA
- Phillip Nathan – FTI Consulting, Washington, D.C.
- Natasha Novikov – FBI, Maitland, FL
- Jennifer Prager – Morones Analytics, LLC, Portland, OR
- Jack Schwager – FTI Consulting, Chicago, IL
- Amanda Sexton – Albrecht, Viggiano, Zureck and Co., Hauppauge, NY
- Tatyana Shtyrkova – Hemming Morse, LLP, San Francisco, CA
- Sameera Totagamuwa – CliftonLarson Allen, West DesMoines, IA
- Paul Weisinger – Walthall CPAs, Cleveland, OH
- Nicole Wells – FTI Consulting, Chicago, IL
- Jason Woon – KPMG, LLP, Seattle, WA
More coverage of the AICPA FVS 2015 conference will appear in BVWire (free registration).
A reminder that BV is an international profession: Today is the concluding day of the Saudi Arabian The Reality and Future of Business Valuation in KSA business valuation conference in Rhiyad. The conference is organized by TAQEEM, the Saudi Authority for Accredited Valuers.
Some highlights of the conference:
- Soltan Al Jorais (pictured) covered the draft regulations for the profession in Saudi Arabia and much of the Arab-speaking world, including the levels of membership, the education and practical experience requirements;
- Mary Jane Andrews covered the International Valuation Standards, both technical standards and professional standards (TAQEEM has translated the IVS into Arabic as an IVSC member service); and
- Michael Badham provided an overview of the content of the courses jointly provided by TAQEEM and IIBV.
TAQEEM has the attention of the Saudi government—this high-level attention is evident in the Ministry presentation included in this Youtube clip in Arabic. They’re doing a great job of collaborating with IIBV and others to develop the “business valuation ecology” necessary to support strong professional practices and standards.
BVWire includes a report from Las Vegas and the annual Advanced Business Valuation conference of the American Society of Appraisers (ASA). Linda Trugman (Trugman Valuation Associates, Inc.), the international president of the ASA, welcomed the 750 attendees to the event, which was actually two conferences—one for business valuators and the other for appraisers of real estate, gems, art, and antiques. Total attendance was up from two years ago (the last time these appraiser groups got together). Of the total attendees, about 425 were business valuation experts, which is 20% more than last time.
“This is not your father’s ASA,” Bill Johnston (Empire Valuation Consultants), chair of the BV committee, said in his update on what’s going on at the organization. He was referring to current modernization efforts. For example, the ASA is updating many education courses and will have all of its BV certification training online next year. It also has a new technical committee that will put out several papers on technical issues by the end of the year. These are not large papers such as those put out by The Appraisal Foundation or AICPA but smaller ones on niche topics that may be considered controversial. The ASA also has some free webinar forums coming up for members in an ask-the-experts format, the next one being on S corps. Johnston also mentioned the new credential that’s in the works for fair value measurement for public companies in the U.S. The ASA, along with AICPA, RICS, and other stakeholders, are part of the effort by the valuation profession to work together to develop a common set of standards and practices with respect to these new credentials.
Here are some takeaways from some of the early sessions:
- Keynote speaker G. Scott Clemons (Brown Brothers Harriman) pointed out that current U.S. monetary policy and low interest rates are coming to an end as the Fed mulls a move back to more normal monetary policy.
- The lack of a clear explanation in a valuation report is a big red flag for IRS agents looking to pull estate and gift tax returns for audit, says Theresa Melchiorre, who is with the IRS Office of the Associate Chief Counsel.
- If you have questionable management forecasts for an ESOP valuation, ask the trustee to get a quality of earnings report, advises attorney Ted Becker (Drinker Biddle & Reath LLP).
- Using decision tree modeling instead of traditional probability weighting results in a 20% higher calculation of IP damages, according to a case study presented by John Taylor and Yuka Itami, both with Houlihan Lokey.
For more from the ASA conference, see BVWire (free registration required).