By Terry Silver
Special to the Legal
Business owners and others need valuations for a variety of reasons. They might want to gift some stock. They might be nearing retirement age and not have an exit plan in place. They might have received an unsolicited offer for their business. They might be getting divorced, quarreling with a business partner, or wanting to get incentives in place to reward their key people if business value increases. There might be a buy-sell or operating agreement that requires a valuation.
The list goes on, and the possibilities are numerous. But a large source of business for valuation professionals is litigation support.
Attorneys either engage business valuation specialists directly or ask their clients to do so. Possessing a business valuation certification will usually separate those who occasionally prepare business valuations from those who are active. First, let’s discuss the primary business valuation certifications.
1. ABV–The Accredited Business Valuation certificate is issued by the American Institute of Certified Public Accountants. This accreditation was born in November 1997, and requires a college degree and a CPA designation. To become an ABV, a CPA must pass a written test and submit proof of involvement in at least 10 valuation engagements; no report review is required. To maintain this certification, a CPA must undergo at least 60 hours of continuing professional education every three years. There are now about 2,900 ABV-holders.
2. ASA–The Accredited Senior Appraiser credential was born in 1981. It is issued by the American Society of Appraisers. In order to become an ASA, a candidate must have a college degree or equivalent, submit a log showing 10,000 billable hours of valuation experience, pass four comprehensive written examinations, submit one report that survives third-party review, and undergo 96 hours of classroom preparation time. Maintaining the ASA certification requires 40 hours of continuing professional education in each five-year period. There are now about 1,400 ASAs specializing in business valuations. The Accredited Member (AM) is a "lite" version of the ASA. The requirements are identical, except that 4,000 billable hours of valuation experience must be logged.
3. CBA– Since 1978, the Institute of Business Appraisers has issued the Certified Business Appraiser credential. The society also offers four other certifications: Master Certified Business Appraiser (MCBA), Business Valuator Accredited for Litigation (BVAL), Accredited in Business Appraisal Review (ABAR), and Accredited by IBA (AIBA). Requirements for each of these vary. To become a CBA, the candidate must have a college degree or equivalent, pass a written exam, submit two reports that survive third-party review, and take 90 hours of classroom preparation. To maintain the certification, one must take 24 hours of continuing professional education every two years. About 350 professionals hold the CBA certification. The Institute of Business Appraisers is an affiliate of the National Association of Certified Valuation Analysts (NACVA).
4. CFA –The Chartered Financial Analyst designation first saw the light of day in 1963. A candidate must pass three rigorous exams. While there is no report-review requirement to get the CFA charter, 48 months of "qualifying work experience" are required. At year-end 2010, there over 48,000 CFA charter holders in the United States, many of whom work as investment advisers. Still, their training is such that they are certainly qualified to value private equity.
5. CVA – The Certified Valuation Analyst is sponsored by NACVA. Becoming a CVA requires having a college degree, holding an active CPA license, and passing a written examination. Maintaining the CVA certification requires 36 hours of continuing professional education in a three-year period. There are now 5,800 CVAs. NACVA also offers the AVA (Accredited Valuation Analyst) for those who are not C.P.A.s. Neither of these certifications requires a specific level of experience or report review.
So which one of the above business valuation certifications is best? Which credential would provide you with the best valuation report in your situation? Like almost everything else related to valuation, the answer is, “It depends.” A crucial consideration in your decision-making, however, should be that your business valuator has the appropriate credentials to at least initially gain the respect and attention of the trier-of-fact, the opposing counsel and of course, the client.
Yet, credentialing is not everything. Those who do well in litigation support tend to do it often. They are not shrinking violets socially, and they do not avoid conflict. They tend to be articulate, thoughtful and well-read. I believe that, if your situation calls for a valuation professional, you should seek the very best person who can do the job that the circumstances demand. While cost is always a consideration, you probably wouldn’t want to seek out the least expensive brain surgeon or one who does one or two brain surgeries a year — that would be really “practicing medicine”!
Beyond certification and experience, I recommend that you seek an expert with a history of litigation success, of being prepared, of approaching the engagement in a team-like manner, and of communicating clearly, especially in writing. You should ask for and check references.
You should also check with the organization(s) sponsoring the credential(s) in question to make sure that there is no history of disciplinary action. If the person is a CPA, check with your state’s Board of Accountancy for any reprimands or other problems; these are a matter of public record.
In the United States today, there are over 50,000 credentialed business valuators who hold at least one of the professional certifications above. Many valuation analysts hold a number of credentials. So as a minimum, your expert valuation professional should certainly be credentialed by at least one reputable association. Hiring someone who is credentialed doesn’t guarantee success in litigation but it is a good start.
Terry Silver is a Certified Public Accountant, Certified Valuation Analyst and Certified in Financial Forensics, for Citrin Cooperman, an accounting, tax and business consulting firm in Philadelphia, where he is a partner with more than 33 years of experience as an accountant and auditor. He focuses his practice on business valuation and financial forensic services, expert testimony and matrimonial actions. He can be reached at firstname.lastname@example.org or 215-545-4800.