Business Valuation Year in Review 2020

What a year! In its 25 years, Business Valuation Update (BVU) has not seen anything quite like the year 2020. Virtually everything in the practice of business valuation changed, and BVU chronicled these developments as well as the latest thinking in methodologies, changes in regulations, court cases, new and updated resources, and practice-building ideas. Here’s a sampling of what we covered in 2020.

Approaches and methods. 

Once the pandemic hit, BVU was fortunate to share the insights of some of the profession’s top thought leaders on the impact on valuation. These include:

  • Understanding the soul of a business;
  • “Known and knowable” and subsequent events;
  • Using the DCF after an economic crisis;
  • How to adjust pre-COVID-19 market multiples;
  • A technique for analyzing a pandemic-shuttered firm.

BVU also covered an important publication that examined the impact of COVID-19 on valuation from the standpoint of the science of the disease. Why is this relevant? For the economy to recover, the origin, transmission, “hot spots,” and proposed vaccines need to be understood.

BVU encourages new ideas and thinking that challenges conventional wisdom, such as some of the articles listed above triggered by the pandemic. But here are some examples unrelated to the pandemic:

  • How to extract DLOM from the BIZCOMPS database;
  • Using a binomial model to value convertible notes; and
  • An obscure resource that can help better support projections.

The year 2020 was not without its controversies. Probably the most notable had to do with ESOP valuations. The controversy surrounding the proposed upending of the current impairment model continued without a final resolution. Another conflict that reared its head was related to the fair value of equity consideration issued in a SPAC merger transaction. In the wake of this, the FASB started a project to reduce diversity in practice on measuring the fair value of equity securities that are subject to an underwriter lockup restriction.

A few other interesting articles related to methodology include:

  • How to account for cybersecurity risks in a valuation;
  • Using the asset approach for going con­cerns;
  • Special risks of adult nightclubs; and
  • How to figure damages for a terminated financial advisor.

Cost of capital. 

Naturally, there was great interest in how the pandemic impacted the estimation of the cost of capital, so BVU included articles such as these:

  • A framework for assessing the additional economic risk;
  • What to do about the cost of equity amid COVID-19; and
  • Using high-yield bond pricing to quantify a COVID-19 ERP.

Cost of capital was also a hot topic at the many conferences BVU covered.

Conference coverage. 

As it does every year, BVU attends major U.S and global business valuation conferences and many smaller, specialty conferences and provides coverage of major takeaways from these events. In the wake of the pandemic, some events were canceled and others were retooled for a virtual environment. Here are some of the events we covered:

  • 2019 AICPA Forensic and Valuation Services Conference (Las Vegas);
  • New York State Society of CPAs BV Con­ference;
  • NACVA and the CTI’s 2020 Business Valuation and Financial Litigation Super Con­ference;
  • AAML/BVR Virtual Divorce Conference;
  • Virginia Society of CPAs BV, Fraud, and Litigation Services Conference; and
  • American Society of Appraisers 2020 International Conference.

On the international front, BVR sponsored a series of webinars in October bringing together panels of leading international experts to discuss the major trends and issues shaping the valuation, business, and investment worlds. The webinars were part of the Virtual Annual General Meeting of the International Valuation Standards Council (IVSC), which is making free podcasts available of the series.

Legal, regulatory, and standards. 

Each month, BVU presents a digest and analysis of an important valuation-related court case as well as a chart of other notable cases. Some of the case digests we presented during 2020 deal with key issues such as:

  • COVID-19 impact on the value of a debtor entity;
  • Financial projections;
  • Discounts in a buyout;
  • A new method involving beta;
  • Tax affecting; and
  • Goodwill.

In addition, BVU includes articles of interest involving legal-related valuation practice, such as acting as an expert witness, particularly in a virtual environment.

On the regulatory front, BVU covered all of the major developments in 2020, ranging from domestic to international matters. Much of this was covered in BVU’s expanded “U.S.” and “Global News” sections.

Practice management. 

BVU presented some interesting results on firm billing practices from BVR’s survey-based Firm Economics & Best Practices Guide. Also, our “Tales From the Trenches” series continued, with guidance for business valuation practitioners thinking about getting into the M&A arena. Years ago, BVU reported that the era of the business valuation generalist was over, and this notion was reinforced in ongoing coverage. Today, the advice to specialize continues to resonate. Also, the pandemic has triggered some opportunities to expand practices, such as in exit planning and bankruptcy-related work.

Data sources and new books. 

During 2020, BVU provided insights and reviews of several new books and resource tools, such as:

  • The new edition of the Mercer/Harms book;
  • An update to pre-IPO studies;
  • Enhancements to the 2020 FactSet Mergerstat Review;
  • A new book on best practices; and
  • Transaction databases.

These are just a few of the developments in the business valuation profession we covered in 2020. Subscribers to the Business Valuation Update have access to the complete article with links to the highlighted articles above. If you aren’t already a subscriber, we encourage you to take this opportunity to access all current and historical issues with a subscription. Thank you to our readers and contributors, and we look forward to keeping you posted on important developments in the business valuation profession.