An exclusive BVR survey collected data concerning research sources valuation experts rely on most when preparing a defensible valuation report. Experts indicated their preferences for sources of transaction data, risk premiums, discounts (marketability, control, and liquidity), guideline public company analyses, compensation, valuation-related case law, and other information required to support a valuation.
The survey results chronicle the changing scene in research sources. In some cases, favored sources of data have fluctuated, with one source gaining favor over another. An example of this can be found in industry-specific data.
Industry data: Sources for industry-specific data and risk have increased over the years as appraisers recognize how important—and conclusive—a thorough analysis can be. While RMA continues to be a widely used industry research source (used by 48% of respondents), IBISWorld has emerged as the most cited source in this year’s survey. Used by 57% of respondents, the service is pricey, but it gives you an assessment of three dimensions of risk: industry (structural), performance (growth), and economic forces (sensitivity) risk. IBIS uses a measuring system that assigns weights and comes up with a mathematical computation to determine whether the company has low, medium, or high risk.
The survey finds, however, that a good number of appraisers do not use commercially available industry research databases. Instead, they rely on materials from trade associations, their own experience, or other sources, such as 10-K filings, analysts' reports, and academic studies.
About 170 BV firms, sole practitioners, CPA firms, and other entities with business valuation practices responded to BVR’s Firm Economics Survey conducted this past summer. The survey examines BV firm performance, compensation, billing rates, marketing and practice development, and more. Responses are being analyzed, and a full report will be available soon.
More survey results will be available in the October issue of Business Valuation Update.