Business Valuation Update Yearbook 2014

May 2014 978-1-62150-037-7 Hardcover, PDF (310 pages)

BVR (editor)

Business Valuation Resources, LLC

Stay on top of the most important business valuation news with the Business Valuation Update Yearbook 2014. With emerging methodology, evolving approaches, and critical debate, it’s more important than ever to be current on the trends in the business appraisal profession. Now, all of the year’s most important developments are reflected in a new resource—the Business Valuation Update Yearbook 2014

BVR’s publications are the voice of the business valuation profession. We’ve got you covered with the latest on new approaches and techniques, leading conferences, new court decisions and changes in regulations and professional standards with on-the-ground reporting from valuation experts, thought-leaders and the BVR editorial team. The Business Valuation Update Yearbook 2014 contains more than 60 must-have articles from these sources and is divided into five categories: 

  • Section I: Business Valuation Approaches, Methods and Entity-Specific Issues
  • Section II: Discounts for Lack of Marketability
  • Section III: Industry-Specific Valuation
  • Section IV: Intangible Assets
  • Section V: Business Valuation Profession and Practice Management 

In addition, the book offers a data section, which is a crucial reference for appraisers to track economic conditions and trends.

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TABLE OF CONTENTS

Introduction
Section I. Business Valuation Approaches, Methods and Entity-Specific Issues

  • The Implied Private Company Pricing Line 2.0 K= (FCFF1/P) + g
    By Bob Dohmeyer, ASA; Pete Butler, CFA, ASA; and Rod Burkert, CPA/ABV, CVA
    • Exhibit 1. Practical Example of the “Pitfalls”
    • Exhibit 2. Aggregation of the IPCPL 500 ($ in Millions–500 Private Company Transactions)
    • Exhibit 3. Completed Transactions Data Reliability Analysis 95% Confidence Interval
    • Exhibit 4. Simulation of Data Errors
    • Exhibit 5. Aggregate Revenue Growth ($Millions)
    • Exhibit 6. IPCPL Cost of Capital ($150 million sales)
    • Exhibit 7. IPCPL
  • Compare Apples to Apples (I): Investigating the Differences in Transactional Databases
    By C. Fred Hall III, MBA, CBA, AVA
    • Exhibit. Summary of Adjustments to the Databases to Make Data Points Comparable
  • Compare Apples to Apples (II): Recommended Adjustments to Transactional Data
    By C. Fred Hall III, MBA, CBA, AVA
    • Customer Relationships—Attrition
    • Summary of Adjustments to the Databases to Make Data Points Comparable
  • Lessons on Using the Guideline Public Company Method From the Delaware Court of Chancery
    • Case Citations
  • Beware of Distortions of Market Multiples During a Recession
    By Alina Niculita, MBA, CFA, ASA
    • Exhibit 1. CBRE Group Financials
    • Exhibit 2. Jones Lang LaSalle Financials
    • Exhibit 3. CBRE Enterprise Value/Revenue
    • Exhibit 4. CBRE Enterprise Value/EBITDA
    • Exhibit 5. CBRE Price/Earnings?
    • Exhibit 6. JLL Enterprise Value/Revenue
    • Exhibit 7. JLL Enterprise Value/EBITDA
    • Exhibit 8. JLL Enterprise Value/EBIT
    • Exhibit 9. Subject Company Performance 2007-2011
    • Exhibit 10. Subject Company Resulting Values From Application of Distorted Valuation Multiples
    • Exhibit 11. Subject Company Annual Percentage Changes in Resulting Values From Application of Distorted Valuation Multiples 2007-2011
    • Exhibit 12. Subject Company Percentage Changes in Resulting Values From Application of Distorted Valuation Multiples 2007-2010
  • Despite Flaws, the Excess Earnings Method Is Alive and Kicking
    • Exhibit 1. Procedures for the Excess Earnings Method (Traditional)
    • Exhibit 2. Example of Excess Earnings Method (Traditional)
  • Income Approach Dominates When Valuing Liabilities, Analysts From Big Four Tell ASA Conference
  • Why Do Private Firms Linger on the Selling Block? 
    By Marc Vianello, CPA, ABV, CFF, and Paul Murray, CPA
    • Exhibit 1. Distribution of Marketing Periods Pratt’s Stats Database
    • Exhibit 2. Distribution of Marketing Periods BIZCOMPS Database
    • Exhibit 3. Average Marketing Period by SIC Code
    • Exhibit 5. Average Marketing Period by Asking Price
    • Exhibit 4. Average Marketing Period by Year of Sale Initiation
    • Exhibit 6. Average Marketing Period by Month
  • Regulators Turn Their Sights to Private Equity Valuation
  • Valuing Equity Securities in Highly Leveraged Companies Considering the Fair Value of Debt
    By Amanda Miller, Ph.D
    • Effect of a Decline in Enterprise Value on Debt, Preferred and Common Stock
  • Valuation Q&A: With Future Unclear, Here’s What You Need to Know Now About FLPs
  • Bogdanski Compares Recent ‘Baffling’ FLP Rulings
  • When Precedent Doesn’t Help: Valuing Preferred Stock Outside the Box
    By Stuart Weiss, CPA/ABV
  • Valuing Shareholder Loans in Divorce (I): Sorting Out the Problem
    By Christine Baker, CPA/ABV/CFF
    • Exhibit 1a. Single Owner, No Discount: Loan as Debt
    • Exhibit 1b. Single Owner, No Discount: Loan as Capital
    • Exhibit 2a. Noncontrolling Interest: Loan as Debt
    • Exhibit 2b. Noncontrolling Interest: Loan as Capital
  • Valuing Shareholder Loans in Divorce (II): Debt or Equity?
    By Christine Baker, CPA/ABV/CFF
  • Valuing Shareholder Loans in Divorce (III): What Is It Worth?
    • Exhibit 1. Effect of Expected Duration of Repayment on Yield
    • Exhibit 2. Effect of Bond Risk on Market Yield
    • Exhibit 3. Impact of Changes in Duration and Interest Rate on Present Value of Future Payment
  • Pension Plans: The $20 Trillion Elephant in the (Valuation) Room
    By Dr. Susan Mangiero, CFA
    • Exhibit 1. Attributes of Pension Plans That Impact Appraisal Analysis
    • Exhibit 2. 10 Key Documents Related to Retirement Plans
  • Using Oracle Crystal Ball for Monte Carlo Simulation
    By Steve Hoye, CFA, MBA
    • Exhibit 1. Simple Discounted Cash Flow Analysis
    • Exhibit 2. Monte Carlo Simulation
  • Yeanoplos Advances the Framework for Key Person Discounts
  • The Best Valuation Mechanism for Buy-Sell Agreements
  • Anatomy of an Inflated Valuation Report
    By Stuart Weiss, CPA/ABV
  • Case Studies Reveal How BV and Bankruptcy Issues Are Intertwined
  • Lost Business or Lost Profits? Key Considerations for Economic Damages Cases
    • Exhibit. Tale of the Tape: Lost Profits Versus Lost Business
  • Takeaways From Damodaran Seminar Put Into Practice
    • Don’t Forget to Pay for Growth

Section II. Discounts for Lack of Marketability

  • The World of DLOM According to the IRS: What Should Appraisers Do?
  • Volatility and the DLOM
    By Ronald M. Seaman, FASA
    • Exhibit 1. Representative Sampling of LEAPS, December 2011
    • Exhibit 2. Cost of Price Protection Over Time Media Discounts
    • Exhibit 3. Cost of Price Protection 2014 LEAPS
    • Exhibit 4. 2014 LEAPS Individual Company Movements (# of Cos.) Change From Prior Month to Current Month
  • Restricted Stock Studies That Back Up the DLOM
    • Exhibit 1. Summary of Restricted Stock, Private Placement, and PIPE Studies
    • Exhibit 2. List of Restricted Stock Studies
    • Exhibit 3. Significant Factors Found in Multiple Studies
  • Empirical Method for Determining DLOM
    • Exhibit 1. Restricted Stock Studies
    • Exhibit 2. Johnson Restricted Stock Study
    • Exhibit 3. Marketability Discount
    • Exhibit 4. Historical Return Requirement
    • Exhibit 5. Average Variance in Yield Between Short-Term Treasury Yields and Long-Term Bonds
    • Exhibit 6. Differential
    • Exhibit 7. Summary of Three Studies
    • Exhibit 8. Rates of Return
  • Latest LEAPS Study Sheds Light on Company Size and DLOMs
    By Ronald M. Seaman, FASA
    • Exhibit 1. 2014 LEAPS (14 months to expiration) (Dollars in millions)
    • Exhibit 2. 2015 LEAPS (26 months to expiration) (Dollars in millions)
    • Exhibit 3. 2015 Added Costs of Additional 12 Months of Price Protection (1)
  • LEAPS on ETFs: Your Absolutely Lowest Reasonable DLOM
    By Ronald M. Seaman, FASA
    • Exhibit 1. ETFs With LEAPS (as of Dec. 12, 2012)
    • Exhibit 2. Ishares Biotech ETF
    • Exhibit 3. Healthcare ETF

Section III. Industry Specific

  • Avoid This Pitfall When Valuing a Physician Practice
  • Big Valuation Opportunity in Diagnostic Imaging Centers
  • Unique Factors That Affect the Valuation of Home Healthcare Service Firms
  • Avoiding the Valuation of Referrals in a Healthcare Context
  • The Updated BVR/AHLA Guide to Healthcare Valuation: More Valuable Than Ever
    By Greg Endicott, CPA/ABV, ASA
  • BV, CV, and the Relationship Between Fair Market Value and Commercial Reasonableness
    By Mark O. Dietrich, CPA/ABV
  • Valuable Insight on Reasonable Compensation in New Healthcare Industry Compensation and Valuation Guide
    By Greg B. Gates, CPA, JD
  • Valuing Natural Gas Rights in Shale Formations: A Case Study 
    By Joshua Lefcowitz, CPA/ABV/CFF, CVA, CFE, ASA
    • Exhibit 1. Case Study Analysis Production Data From Analogous Wells as of Valuation Date
    • Exhibit 2. Case Study Analysis Valuation of Sub-Surface Mineral Interest Rights
    • Exhibit 3. Case Study Analysis: Valuation of Sub-Surface Mineral Interest Rights Multi-Period Excess Earnings Calculation
  • Where to Dig for the Value of an Oilfield Services Company
    By Brad Edwards, CFA, CPA/ABV
  • Using Oil and Gas Royalty Trusts to Value Minority Interests in Similar Holdings
    By Chris D. Treharne, ASA
    • Trust That Holds Rights to a Royalty Stream
  • Winery Valuations: Six Questions to Ask When Analyzing Operations and Cash Flows
    By Christopher Meineke, CPA/ABV
  • Margin Pressure and Competition Are Limiting Community Bank Values
    • Exhibit 1. Index Performance From Market Low (March 2009)
    • Exhibit 2. The Timeline of the Financial Crisis and Where We Are Today
    • Exhibit 3. Noninterest Income and Pretax, Preprovision Earnings (by Size)
    • Exhibit 4. Net Noninterest Expense (by Size)
    • Exhibit 5. Bank Stock Valuation in Relation to Market Group
  • The Current Auto Dealer Acquisition Environment and Its Impact on Blue Sky
    By Timothy W. York, CPA/ABV
    • Exhibit 1. Sales Per Store
    • Exhibit 2. SAAR (in $ Millions)
    • Exhibit 3. Net Profit Before Taxes (As a Percentage of Total Sales)
  • The Impact of Real Estate on the Valuation of an Auto Dealership
    By Adam Lawyer, CPA/ABV/CFF

Section IV. Intangible Assets

  • Testing the Reasonableness of Royalty Rates and Solving the Null Set Problem
    By Steve N. Economou, MBA
    • Exhibit 1. Historical Royalty Licenses—Technology
    • Exhibit 2. Proprietary Technology Valuation
    • Exhibit 3. Royalty Rate Reasonability—Market Participant Test
    • Exhibit 4. Royalty Rate Reasonability—Profit Split Test
  • Best Practices for Calculating Patent Damages by Today’s Tougher Standards
  • Entire Market Value Rule in the Spotlight
  • Latest Techniques to Sort Out the Complexities of Brand Valuation
  • Look at Attrition When Valuing Customer Relationships
  • Exhibit. Customer Relationships—Attrition
  • Dealing With Data Limitations in Customer Survival Curves
    By Darren S. Cordier, CFA
    • Exhibit 1. Last Three Customers May Be One-Time Purchasers
    • Exhibit 2. Potential Redundant Client
    • Exhibit 3. Data Indicating an Acquisition
    • Exhibit 4. New Entry to Reflect Acquisitions
    • Exhibit 5. Different Account Numbers
    • Exhibit 6. Combine Data and Eliminate Old Account
  • Valuing Customer Relationships: Does the Distributor Method Miss the Mark?
    By Dan Guderjohn, CFA, ASA, CPA/ABV, and Robert Reis, CFA
  • What to Consider When Carving Out the Value of a Firm’s Website
    By Stuart Weiss, CPA/ABV

Section V. BV Profession and Practice Management

  • Can the BV Profession Agree on Common Practice in These Challenging Areas?
    • Exhibit. A Current Level of Value Chart
  • BV Firms Thriving Despite Slowdown From Heady Growth
    • Exhibit 1. What Was the First Year Your Current Firm Offered Business Valuation Services?
    • Exhibit 2. BVR’s Estimate of Total Business Valuation Revenues in North America
    • Exhibit 4. What Is the Fastest Growing Part of Your Practice This Year?
    • Exhibit 3. Compared With Your Previous Fiscal Year, Do You Believe Your Firm’s Business Valuation Revenues in 2013 Will:
  • Top 10 Tips for Best Report Writing and Standards Compliance
  • Key BV Topics From Latest APB Public Meeting
  • TAF BV Roundtable: Profession at the Crossroads
  • Some Key Takeaways From the ASA Advanced BV Conference
  • Conference Roundup: Some Highlights From NACVA’s Annual Confab
  • Recap of the IRS Valuation Summit 2013
    By David M. Rosenthal, MAI, FRICS
  • Social Media: Unicorn or Horse for BV Professionals?
    By Rod P. Burkert, CPA/ABV, CVA, and Barbara Walters Price
  • Six Reasons Why Private Firms Need You to Do an Annual Valuation
    By Robert M. Clinger III, CBA, CVA, LIFA

Section VI. Data

  • Exhibit 1. 2013 Month by Month Cost of Capital Data
  • Monthly Cost of Capital Data
    • Exhibit 2. Month by Month Cost of Capital Data Chart
    • Exhibit 3. Duff & Phelps 2013 Premiums Over Long-Term Risk-Free Rate
  • BVR’s Economic Outlook for the Month (excerpt from the Economic Outlook Update)