In the opening session of the Virginia Society of CPAs’ Forensic and Valuation Services Virtual Conference, James Hitchner (Valuation Products and Services) gave a current perspective about the many challenges the pandemic has presented for business valuations.

Hitchner hasn’t changed his opinion about the “magic date” of Feb. 24, 2020, in terms of when the pandemic was known or knowable. “Dates matter” he said, but there is no single date that everyone can use for determining when the virus was known or knowable—it depends on the facts and circumstances of your subject company. For example, a company with all local customers and suppliers would be in a different situation than, say, a company that depends on a supply chain in another part of the world. That’s why it’s important to consider timelines in your analysis. Hitchner’s timeline (that he generously makes available to everyone) is a very helpful tool that includes significant events, including the pandemic’s effect on the U.S. stock market.

Some of his other observations include:

• If a pre-COVID-19 valuation does not serve the purpose, consider using a “hypothetical situation” to do two valuations as of the same date (one with COVID-19 and one without)—this complies with SSVS and USPAP;
• Company-specific risk became the “great equalizer” in his valuations during the pandemic—the extra risk is reflected there (otherwise the discount rate would be lower than before the pandemic, given standard data inputs);
• He has never spent so much time on economic and industry research (he relied heavily on McKinsey’s free information); and
• He has “changed his mind” about the work of Aswath Damodaran (New York University Stern School of Business), such as his implied ERP—he currently doesn’t use Damodaran’s data but is reconsidering it.

Read more: More coverage of the conference is in the November issue of Business Valuation Update.