During his annual update webinar, Jim Hitchner (Valuation Products and Services) does a rundown of the new need-to-know BV concepts, data, models, and methods. Here are some highlights from his latest two-hour presentation.
Data: Hitchner covered several new developments with respect to data, the first being the July 2018 relaunch of Pratt’s Stats as DealStats. The relaunch came with new technology and a number of “pretty neat” enhancements and now includes over 34,000 transactions, including over 4,000 public sellers. The update includes detailed purchase price allocation information, including the useful lives of intangible assets, he noted. He also mentioned MergerShark, a new database for BV and M&A research that has over 15,000 public- and private-company transactions. Hitchner particularly likes that the database contains the prior fiscal year, current fiscal year, latest 12 months, next fiscal year, next fiscal year plus one, and next fiscal year plus two multiple time frames given.
Models: The big news here is the introduction of an alternative model for estimating the cost of capital, BVR’s Cost of Capital Professional. Hitchner, who is on the board of advisors, is “taking a good look at this” and recommends others to do so as well. The Cost of Capital Professional was available on a free trial basis and is being enhanced based on comments from users and the advisory board. He also discussed enhancements to the Duff & Phelps Cost of Capital Navigator, such as the inclusion of size tables, a new industry snapshot, an Excel add-in, and enhanced outputs.
Calculations: Hitchner also spent a good deal of time on the controversy over calculation engagements sparked by an article in Business Valuation Update. In that article, Michael Paschall (Banister Financial Inc.) says that the increasing use of calculation engagements “seriously compromises” historical valuation standards of reliability and independence. Hitchner, along with Jim Alerding (Alerding Consulting LLC) and Ed Dupke (Dupke Consulting LLC), wrote a rebuttal article giving what they say is the “real” story of calculation engagements. The two articles are available as a free download from BVR (both articles are contained in “Calculation Report Controversy,” Sept. 18, 2018).
Hitchner also did a summary of the impacts of the Tax Cuts and Jobs Act (TCJA) on valuation (“it affects most areas of BV, but not always by much”), whether the so-called S corp premium is gone (“under the TCJA, ‘yes’ for service businesses”), and some cross-examination tips from a conference session from the AICPA FVS conference conducted by Harold Martin
(Keiter). He also went through some new “best” practices for the income approach and whether the size premium really exists. Overall, a very interesting and informative webinar—an archive recording will be available soon.