Tips and takeaways from the NYSSCPA BV event

BVWireIssue #189-1
June 6, 2018

valuation profession news
goodwill, intellectual property, purchase price allocation, business valuation profession, fair value, monte carlo, NYSSCPA, discounted cash flow (DCF), economic damages & lost profits, partnership interest, cash flow projections

BVWire attended the annual business valuation conference of the New York State Society of CPAs (NYSSCPA) on May 21 in New York City. As usual, it was an excellent conference, and here are a few takeaways from the sessions:

  • Several speakers and attendees talked about developing “bolt-ons” to help with DCF valuations under the new tax law. Cash flow effects from long-term sunsetting provisions (such as bonus depreciation) are analyzed separately and then bolted on to the standard five-year DCF.
  • Too many business valuations are rigged—and the attorneys know it—says Jim Hitchner (Valuation Products and Services). Sometimes it’s the clients who rig them by manipulating projections that don’t get enough scrutiny by appraisers.
  • Goodwill averaged 35% of purchase consideration in 2016 per Houlihan Lokey’s Purchase Price Allocation study, says the firm’s Michael DeLuke.
  • Monte Carlo is one way to provide the sensitivity analysis the Tax Court now wants to see in BV reports, points out Toby Tatum (Alliance Business Appraisal).
  • When valuing a cash-intensive business for divorce, while you’re not required to ferret out unreported income, you should do a “smell test” for it, says Jean J. Han (Baker Tilly Virchow Krause). Comparing ratios to similar firms and a lifestyle analysis are a few techniques to use, says Stacy A. Statkus (MPI).
  • Under an expedited process, it can take just 18 to 24 months to develop IP to boost value in a firm targeted for M&A, say Nancy Edwards Cronin (ipCapital Group Inc.) and attorney Alozie N. Etufugh (Etufugh Law). It may not be worth it to seek global protection because patents can be expensive to obtain and tough to enforce in other countries, says Etufugh.
  • Stephani Mason (DePaul University) handed out a survey regarding research the University of Wisconsin is doing on fair value measurements. If you’re involved in this area of practice, please take the survey. You can access it if you click here.
  • Can a business that never made a profit make a claim for lost profits? Yes, say David Gralnick and Joshua S. Sechter (Klein Liebman & Gresen). Also, it can claim lost profits plus lost business value as long as the lost profits are figured up to the valuation date. Otherwise, it’s a double dip.
  • Average price-to-value discounts are down to 22% for real estate holding companies per Partnership Profiles Inc. (PPI) data, says Martin Greene (Greene Valuation Advisors). He says the key court cases to know regarding noncontrolling interests in these entities are: AndrewsWeinbergGiustinaand Tanenblatt (all available from BVLaw).

Our congratulations to the conference committee Mitchell H. Chosak (Forfeiture Support Associates LLC), Jeffrey Gibralter (Klein Liebman & Gresen LLC) and Jean J. Han (Baker Tilly Virchow Krause LLP) for putting together a fine event! The July issue of Business Valuation Update will have a detailed recap.

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