Will I-bankers ever understand what BV appraisers do?


Last week’s report from an investment banker on providing the “market value” of an ambulatory surgery center (ASC) prompted Gary Trugman (Trugman Valuation Associates) to point out that the I-banker’s comments were “not only self-serving, but it shows his ignorance about business valuation. A business appraiser interprets the market and does not make the market,” Trugman says. “A proper business valuation will use the information from sales of similar properties to assist in the valuation project.” Take the I-banker’s encouragement to let buyers determine an ASC’s value, rather than valuation experts. “This only proves that the writer does not understand what we do,” Trugman says. “It is time for the investment bankers to follow some set of standards and learn about business valuation rather than do the slipshod work that is being seen in the market. Maybe they would be sued less often!”

In the healthcare field, the I-banker’s remarks may be “misleading and potentially dangerous,” says Jason Ruchaber (HealthCare Appraisers, Inc.). “In many instances the sale of a surgery center (or interest therein) is subject to healthcare regulations that preclude the buyer from paying anything other than FMV,” which “has a very specific definition in the healthcare industry,” more nuanced and perhaps more restrictive than the standard FMV definition used in other fields. “Deviating from the ‘hypothetical world’ of FMV to the real world of investment bankers may also lead buyers and sellers of these interests to face the real world possibility of fines, loss of their Medicare license and/or jail time,” Ruchaber warns.

“For example, if a hospital buys an ASC, it will need to demonstrate that they are not paying above FMV; otherwise this could be construed as a kick-back to fill beds by referrals through the ASC,” adds Kevin Jackson (PwC Transaction Services) in a separate comment. And, taking a step back from healthcare, “Aren’t we potentially mixing standards of value—i.e., fair market value vs. investment or strategic value?” asks Michael Prost (Mueller Prost PC).

Another example: When pricing a business for sale, “Why would you ever use a BV expert . . . when using ‘fair market value,’ as the standard of value excludes strategic or synergistic value?” asks David Bishop, an attorney/CPA with Bishop Dulaney & Joyner, who also provides BV services through Bishop & Co. “I never have figured out how you could have a ‘willing seller’ at a price lower than what the best buyer (perhaps a strategic buyer) will pay unless the seller is not ‘reasonably informed of the relevant facts,’” he adds. “I suppose the BV expert could use a different standard of value but I rarely see that.” Not to criticize BV experts or brokers, Bishop adds: “There are plenty of good professionals—too bad we don’t always work together.”


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