What’s the ‘Barbie buzz’ worth?

Having a product prominently displayed in a hit movie has value—but how much? In his pre-IPO valuation of footwear company Birkenstock, Professor Aswath Damodaran (New York University Stern School of Business) examined the firm’s intangibles, one of which was the “Barbie buzz”: having a pink version of the company’s sandals appear in the big blockbuster movie, which “hyper charged the demand for the company’s footwear.”

Revenue bump: All buzzes fade “but not before they create a revenue bump and perhaps even increase the customer base for the long term,” Damodaran writes. He estimates that it will push up the revenue growth rate from 15% to 25% over the next year before reverting to a compounded growth rate of 15% a year in the following four years.

The other main intangibles he valued were the brand name (which has the biggest effect on value), a celebrity customer base, and good management. You can read his full valuation if you click here.

Active depreciation charged to business owner in divorce

In a South Carolina divorce case, the business owner (husband) appealed the family court’s decision on the valuation of the family business. The valuation was done on the date of filing of the marital litigation, but the value apparently dropped during the litigation. The family court found that any change in value was attributable to the actions of the husband.

High bar: The appellate court noted that it will affirm “unless the appellant satisfies his burden of showing the preponderance of the evidence is against the family court’s findings.” The burden was not satisfied, so the appellate court affirmed the family court’s decision on the matter regarding the change in value. Other matters affirmed included accounting for personal goodwill and the court’s selection of a value within the range of evidence presented.

The case is Clampitt v. Clampitt, 2023 S.C. App. Unpub. LEXIS 381, and a case analysis and full court opinion will be on the BVLaw platform.

The No. 1 valuation issue that triggers an IRS audit

Discounts continue to be the No. 1 red flag that triggers an IRS audit, according to former IRS manager Michael Gregory (Michael Gregory Consulting LLC), speaking at the recent American Society of Appraisers (ASA) International Appraisers Conference in New Orleans. Gregory worked for the IRS for almost 30 years on valuation matters and continues to interact with the agency (he has over 70 contacts there). He is now in private practice, and he helps clients who have IRS disputes regarding business valuation issues as well as other matters.

Explain it: Make sure you have a clear and complete explanation that supports your discount estimates, whether they be for marketability or control, Gregory advises. We point out that we have heard the same remarks directly from IRS officials.

In addition to valuation issues, Gregory also specializes in mediation and conflict resolution, and he told the audience that his website offers some free e-books (click here).

Regulatory uncertainty regarding ESOP valuation is a major problem

The regulatory uncertainty around valuations for employee stock ownership plans (ESOPs) is a significant burden that creates undue risk and can “hamper employee-owned businesses,” says Alex Brill, a senior research fellow at the American Enterprise Institute, in a new paper. He’s referring to long-awaited rules on the fair market value of company shares to be bought by an ESOP—a key to the setup and ongoing operations of these vehicles. Without final rules, the DOL has resorted to regulating through litigation, winning many cases alleging that the ESOPs overvalued (and thus overpaid for) the stock of the sponsoring companies. Valuation experts say the DOL uses rules that are not consistent with accepted valuation standards.

New-law mandate: The paper points out that, while Congress recently directed the DOL to establish guidance on ESOP fair market valuation, the new legislation (contained in the SECURE 2.0 Act of 2022) does not provide a deadline for issuing the guidance. “It is critical that DOL issue guidance for ESOP valuation promptly through a formal notice-and-comment rulemaking that permits stakeholders to offer feedback on a proposed regulation,” Brill concludes.

You can read Brill’s paper if you click here.

We point out that, although there is no official deadline, a DOL official stated that regs will be issued by year-end, according to a blog post from the National Center for Employee Ownership (NCEO). Once the proposed regulations are issued, there will be a two-to-three-month public comment period before they are finalized.

Will the AICPA FVS conference be the biggest of the year?

It was the biggest business valuation conference of 2022, and this year’s version should also draw a huge crowd. The AICPA & CIMA Forensic and Valuation Services Conference will be three days, November 6-8, in Las Vegas live and online. There are almost 60 sessions on everything from emerging issues (artificial intelligence, cryptocurrency, and ESG) to specialized topics (portfolio valuations, complex structures, trade names, and cannabis firms) to perennial favorites (expert testimony, reasonable comp, goodwill impairments, and cost of capital). The AICPA also allows virtual attendees to pick and choose some sessions using a “select 7” option so you can focus on specific topics that match your needs. For more details on the conference, click here.

Global BV News

Cross-border M&A examined in new CBV Insights

For several reasons, the prevalence of cross-border transactions involving Canadian companies is expected to expand over the next several years. In the latest edition of CBV Insights, Stephanie Lau, CFA, CBV, advises Canadian sellers on a few strategies they can employ when engaging with a foreign buyer—and why they should not base their exit timing solely on the strength of the loonie (the Canadian one-dollar coin), the report says. To read the report, click here.

IVSC signs MOU with French accountants

During the recent annual general meeting of the International Valuation Standards Council (IVSC), a memorandum of understanding (MoU) was signed to commemorate the IVSC’s partnership with the two leading accountancy professional bodies in France, the CNCC and CNOEC. “This significant event underscores the importance of collaboration and the IVS within the French valuation community,” the IVSC said in a statement.

Extra: The “IVSC Annual Report” for 2022-2023 is now available (click here to view).