Looking back: “2014 witnessed a growing skepticism of the capital asset pricing model in academia and elsewhere,” says Ted Israel (Eckhoff Accountancy Corp.). “It’s as if CAPM is cowering in the castle while the villagers assemble outside with torches and pitchforks.” However, he says nothing better has come along—yet. “Dohmeyer, Butler, et al. have offered up the implied private company pricing line, which is interesting but needs more vetting (and they invite it). All of this leaves the practitioner in a quandary over what to do.”
Speaking of cost of capital, the introduction of Duff & Phelps’s Valuation Handbook – Guide to Cost of Capital was major, according to Ron Seigneur (Seigneur Gustafson LLP CPAs). “While many thought we would have a gap with respect to cost of capital information, Duff & Phelps has more than filled that gap. It provides solid information and is very well organized.”
Seigneur also points out that the changes in estate tax limits have “resulted in less than 1% of U.S. taxpayers being exposed to estate tax.” As a result, he says the need for estate tax-related planning valuations has subsided, especially after the surge BV practitioners witnessed at the end of 2012 and into 2013. “Those who focus on this work see softness in their work flows.”
On the court scene, R. James Alerding (Alerding Consulting) tells us: “The number of new cases dealing with personal goodwill during 2014 shows the growing importance of this concept, especially in divorce cases, but also in tax cases.” Alerding says an important advance in 2014 was the memorandum of understanding (MOU) with the International Valuation Standards Council (IVSC) that was signed by the ASA, the CICBV, The China Appraisal Society, and the Royal Institution of Chartered Surveyors (RICS), which represents a commitment to comply with a single global set of standards. However, he pointed out the absence of the AICPA. “It is disappointing that the IVSC and these other organizations could not work out wording that is acceptable to the AICPA.”
Looking forward: “I see continued growth in the area of divorce valuation,” says Alerding. “An area of valuation and litigation that was for years looked on as a poor cousin is now front and center in the development of precedents in valuation.” He also sees the further development of new BV talent. “As more and more long-time BV experts reach retirement age, I see a continuation of firms trying to develop younger BV professionals for both valuation and litigation in order to service those needs in the future.”
Seigneur sees 2015 as busier than ever with litigation work and M&A engagements. “As long as the current ‘irrational exuberance’ in the stock market lasts, we will all be busy—or should be."
Israel advises: “I think we better arrive at some consensus about the cost of capital.”