BVWire is just back from the 21st Annual Current Topics in Business Valuation conference presented by the New York City chapter of the ASA—a very fine event with excellent speakers. Here are a few key takeaways:
Fair value is on hold at the FASB, observes Adam Smith (FASB), due to concerns over the BV profession. Up to now, the FASB has been a proponent of fair value in financial statements. This trend will not continue, according to Smith, because of the fragmented nature of the profession and lack of a unified set of standards. Why should the FASB spend all this time on fair value if investors have no faith in the numbers?
DLOM toolkit now in beta testing, announced Jim Hitchner (Financial Valuation Advisors). The toolkit is designed to develop a supportable DLOM using existing research studies, databases, and models. But it’s “not a black box,” he says. You can drill down and see exactly how it all works. He developed it with Jim Alerding and Josh Angell.
Using an option model to value startups is the subject of a paper presented by John Finnerty (Alix Partners). His new model expresses the value of an emerging growth firm’s common stock as a call option on the firm’s assets struck at the cost of the future investment to make the product viable plus the cost of retiring the debt that’s needed. While the model could use some simplification, he demonstrated it with several real-life examples and urged users to “try it out and improve on it.” For a copy of his paper, click here.
The biggest problem with MPEEM valuations is the failure to take into account an inventory step-up, says Damien Hughes (PwC). Another common problem he sees is not using the appropriate margin when applying the “distributor method” for valuing customer relationships. And selecting the proper discount rate is “always a concern.”
More opportunities for fund valuations are on the horizon, says Craig Ter Boss (Eisner Amper). He says the ongoing scrutiny on fund valuations by the PCAOB and SEC will trigger increased use of third-party valuation experts by fund managers.
More on the conference in an upcoming issue of Business Valuation Update.
Our thanks to Scott Nammacher and Bill Johnston (both Empire Valuation Consultants), co-chairs of this excellent event. Plan to attend next year!
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