CICBV_Experts_Worth_Knowing1

E x p e r t s W o r t h K n o w i n g

Chartered Business

Valuators:

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ExpertsWorthKnowingHow do you measure the value of a newsoftware product? What is a brandworth? How can partners in a privatecompany settle a dispute over the valueof their shares?

A chartered business valuator (CBV)knows how to answer questions like these.The knowledge and skills of professionalCBVs are increasingly important today indetermining corporate values and settlinglegal disputes—and, in many cases, chang-ing people’s lives.

One day in 2002, a call came into Tom Strezos’s office at Mintz & PartnersFinancial Services in Toronto from awoman who owned a software company.She and her husband were consideringretirement and had been offered $4 mil-lion for their company by a largeCanadian corporation. Should they sell at that price?

Strezos, who heads the valuation andlitigation accounting practice at Mintz,spent a week with his team examining thevalue of the software company.

“We looked at future cash flows, thebalance sheet, revenue forecasts, thedebt leverage, the hidden redundanciesthat could generate quite a bit of value,”Strezos says. “In the end, they sold for$8.3 million. I was so happy for them.There is so much personal satisfaction


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in helping people realize what theirassets are worth.”

Chartered business valuators often talkabout how good it feels to provide theexpertise that makes a difference. Andthey do it in many ways.

Profile of aCharteredBusinessValuatorWhat is a CBV? Many people don’t know,outside of the professions of law, account-ing and financial analysis. But peopleeverywhere are affected by their work.

The CBV designation belongs to mem-bers of The Canadian Institute ofChartered Business Valuators (CICBV).The Institute awards the designation tosomeone who has passed a rigorous set ofcourses and exams, has experience in thefield of business valuation, has beenjudged by peers as being qualified, andwho adheres to the code of ethics andpractice standards of the CICBV.

There are almost 1,000 CBVs acrossCanada, and they prize their designation.

“Clients view the CBV designation ascertifying a high level of valuation exper-tise and skill,” says Nicole Cervenka, acorporate finance manager with KPMGLLP in Calgary, who was one of the topperformers of the Institute’s 2002 member-

ship entrance examination. “So from amarketing standpoint, the CBV designa-tion is very valuable.”

CBVs help ensure that businesses areproperly valued for sale, assessment oracquisition. They examine all the assetsand liabilities of an entity that contributeto value, including intangible assets suchas brands and intellectual property, whichare increasingly important components ofcorporate balance sheets.

CBVs also contribute to the resolution oflegal and financial disputes. They oftenserve as members of legal or financial teamsand are called upon as expert witnesses.Many are independent professionals work-ing in valuation consulting firms; others areemployed at accounting firms, investmentbanks and venture capital firms.

What is the key distinction of a CBV?“In one word, it’s credibility,” says Iseo

Pasquali, managing director of Deloitte &

Touche Valuation Advisory services inToronto. “We stand by our opinions andwe follow professional standards. For anythird party, a CBV lends credibility to avaluation because we support and defendthat valuation.”

Denys Goulet, who leads the valuationand litigation support practice ofPricewaterhouseCoopers in Quebec City,adds: “If a client comes to us and asks forassistance in a dispute, we give the clientour true opinion. Even though we are paidby one party, our duty is to the court. Weare there to explain to the court what webelieve is true. We are a kind of law officer.

“We are not allowed to accept assign-ments where the result is pre-established.And we are not allowed to accept anassignment if our fees are dependent onthe success of the case, or the amount ofthe settlement. It’s against our code ofethics, the core of the profession.”


Chartered Business Valuators


AssessingBrandsOne of the most important assets that acompany can have is a brand. A brand ismore than just a product or service. It hasa special value all its own.

Jay Patel, a CBV and a vice-presidentat Ernst & Young Corporate FinanceInc. in Toronto, is an expert on brand

valuations. “Brand is the image that acompany has created in the consumers’mind, which keeps them loyal to a prod-uct or service—keeps them comingback,” he explains. “Consumers areassured of quality and they are willing topay a bit more for that quality.Companies create brands so they cancharge premium prices and increasetheir market share.”

But what is a brand worth? What differ-ence does it make to the price of a compa-ny that is for sale?

The answer is even more importantnow than it once was. Changes toaccounting standards require that “good-

will” recorded in a company’s financialstatements must be re-valued on anannual basis. As a result, the CICBVrecently issued a discussion paper enti-tled Goodwill Impairment TestingDiscussion Paper to assist its managers,accountants and the business communi-ty in general. The paper can be foundon the CICBV’s Web site at www.busi-nessvaluators.com.

Patel explains that brands can be evalu-ated through cost-based, market-based orincome-based valuations. In a cost-basedvaluation, a CBV determines what itwould cost a company to recreate thebrand, in part by determining what costswent into creating it.

More common is the income approach.A CBV determines the cash flows of com-pany, and attaches cash flows that relateto the brand asset. A variation is to calcu-late the value to the brand owner if thebrand were to be licensed to a third party,and so generate royalty income.

The third widely used method isreferred to as a market valuation, inwhich the CBV will compare brands ofsimilar or comparable products, and assessthe prices of market transactions involv-ing those brands.


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Whatever the method used, the CBV’sjob is to calculate the value of some-thing that is not a “hard” asset, like apiece of equipment, but which can beworth even more.

“When you look at the financial state-ments of Coca Cola, the value of thebrand is not on the balance sheet,” notesTony Cancelliere, national practice leaderfor Valuations and Strategy atPricewaterhouseCoopers LLP.

Calculating the value of such an assetis as much an art as a science. A CBVapplies the methods learned from pro-fessional training, and adds experienceon top of that.

“There is a lot of analysis involved, butit’s not just mathematical in the sensethat you plug in numbers and get ananswer,” Cancelliere says. “You need a lotof judgment and experience. You have tounderstand the intent of management.And every brand is different. You need atrue understanding of how the brand isaccepted in its marketplace, and thedemographics of that market. What Ifind exciting about this profession is thatvalue can manifest itself in many ways,and it’s an increasingly important issuethese days in the minds of executives.



Goodwill and IP valuationsrequire the coordination of many moving parts.

Call us.We don’t need toreinvent the wheel.

The Annual Impairment Test for audited financial statementsof goodwill and IP also requires consistent application ofpredictable and efficient models. From software patents to brandnames, we have been evaluating the numbers since 1975.

For independent goodwill and intangible asset valuations thatpass the new Annual Impairment Test required by GAAP, pleasecontact Andrew Freedman, Paula White or Scott Davidson at (416) 364-9700 or visit our website at www.coleandpartners.com.

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BusinessValuationsBusinesses in Canada rely on CBVs toprovide expert valuations for manykinds of business transactions. Often,they are called upon to determine thevalue of an entire business.

It’s a growing trend. When the phone ringsin the office of Peter Miller, a senior vice-

president and director of KPMG CorporateFinance Inc. in Winnipeg, the caller is oftenlooking for answers to questions that, in pastyears, might not have been asked.

Recently, the board of a small publiccompany approached Miller. Its memberswere concerned that the company was notperforming the way it should, and wereseeking ways to improve shareholdervalue, possibly by selling the company.What would it be worth?

In the past, the board might have triedto answer the question internally, but per-ceptions are changing. More businessowners realize that CBVs are particularlywell qualified to assess the value of private

companies, thanks to the training theyreceive from The Canadian Institute ofChartered Business Valuators.

“There is a better appreciation for how aCBV can help,” Miller says. “With today’seconomic turbulence, and the governanceissues that have been raised in recentyears, there is a heightened desire amongboth public and private companies to usegood processes, engage outside advisorsand ensure that decisions are made withgood information.”

Miller’s team is now assisting the smallcompany’s board, not only to value the com-pany but to find ways to maximize its valuefor the time when they might want to sell.CBVs are increasingly involved in all aspectsof such corporate finance strategies. Fromthe search for a potential buyer, seller orinvestor, through negotiations and the designof an offer, a CBV’s valuation skills give con-fidence to corporate decision-makers.

They also give comfort to individuals.CBVs help people to understand the valueof their business holdings.

As an illustration, Iseo Pasquali ofDeloitte & Touche was approached by two


What’s It Really Worth?

Chartered Business Valuators.Experts Worth Knowing.

The Canadian Institute of


Whether you’re making an acquisition,bringing on partners, creating employee

stock options, estate planning or require analysis of corporate financial

issues, the expert insights of a Chartered Business Valuator (CBV)

are worth knowing.

For more information about TheCanadian Institute of CharteredBusiness Valuators and how a CBV can help you, please visit

us at www.businessvaluators.com or call 416 204-3396.

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businessmen who had been workingtogether informally, but who now wantedto create a formal partnership. They wereworried that their working relationshipmight be ruined in negotiating the relativevalue of their contributions to the business,especially intangible assets such as talentand customer relationships. They askedPasquali to write an independent report toassess the value of each contribution.

“They knew that as a CBV, I would nottake one side or another,” Pasquali says.“They were both happy with the approach,and found the price to negotiate the deal.”

How does a CBV know how to makesuch a valuation?

“There are standard methodologies, suchas calculating the capitalized earnings ordiscounted cash flows from a business activ-ity, or comparing market values,” Pasqualisays. “There are variations applied to different businesses. Now we are applyingthose same fundamental principles to indi-vidual intangible assets. It’s an excitingtime. CICBV is at the forefront of the valuation of intangible assets in Canada.”

Dispute ResolutionCBVs often provide a bridge that crossesthe chasm of a dispute. Their expertiseis called upon to help resolve mattersbefore courts, arbitration boards, securi-ties commissions and other regulatorybodies. The legal system trusts them. ACBV brings a solutions-based approach

that helps to resolve issues that havesometimes festered for years, both inCanada and abroad.

A difficult dispute in the UK wasfinally settled with the help ofCanadian valuators. It concerned agroup of people who had left a Londonbond-brokering business and joinedanother. The first company sued fordamages. In the end, however,although the employees had clearlytaken business away, the judge awardedrelatively small damages. The valua-tion team, led by senior principalFarley Cohen of the Toronto office ofKroll Lindquist Avey, had shown that



Providing you with concrete advice.

Expert Litigation Accounting SupportOur imperative is to help provide you with objective and defensible negotiating positionsand courtroom evidence in the following areas:

Lost profits and damages quantification • Breach of contractCommercial and criminal fraud • ExpropriationsPartnership and corporate dissolution • Dissenting shareholder actionsForensic and investigative accounting • Family law matters

The Definitive Business ValuationOur reputation is based on consistently providing a thorough examination of everyaspect of a company’s past, present and potential financial status.

Mergers, acquisitions and divestitures • Fairness opinionsPublic or private capital financing • Employee share purchase and option plansShareholder agreements • Income tax (amalgamations, corporate reorganizations)Insurance matters • Matrimonial matters

200 King Street West, Suite 1900, P.O. Box 48, Toronto, ON M5H 3T4Tel.: (416) 932-8000 • Fax: (416) 932-6200

www.r ich te r.ca

C O N T A C T :Jeff Pellarin, CA•CBV, CA•CIRP

E-mail: [email protected] Schaefer, CA, CBVE-mail: [email protected]

CB19_169-179 05/06/2003 05:00 PM Page 175

the potential value of future businessfrom the abandoned division wasimpaired by outdated technology andother competitive factors.

Cohen, who is also co-head of theNorth American valuation servicesgroup of Kroll Inc., says such dispute res-olutions often involve an assessment ofrisk. “The lower the risk, the higher theprobability of success, and the greaterthe present-day value of the business.The CBV training ensures that youunderstand the relationships betweenrisk and value.

“Another key factor we consider isgrowth,” Cohen says. “What’s going tohappen in the future? The higher theexpected growth, the more someonewould be willing to pay for the business.”

Cohen stresses that a CBV’s role indispute litigation is to present an objec-tive analysis of facts. “I take very seri-ously that it’s not my job to be an advo-cate for one party or the other, but topresent a reasonable, well thought out,well researched conclusion.”

This objectivity helps to resolve the vastmajority of business disputes before theyreach the courts. Sometimes, a CBV is lit-erally in the middle of a solution.

Denys Goulet of PricewaterhouseCoopersin Quebec City recalls: “I had a caserecently where the parties realized thatit made more sense to settle instead of going to court for five or six weeks.Both lawyers came to me at a courtrecess, right in the hallway, and asked if it would make sense to settleunder certain terms. This is what Ilike about my profession—being recognized by your peers as an excellent practitioner, and helping to produce a constructive outcome.”

Intellectual PropertyIn the information age, the legal andaccounting professions as well as corpo-rate strategists are focusing on the valueof intellectual property—things likeinventions, designs, trademarks, copy-rights, distribution networks and know-how. CBVs have become the standard-setters that ascertain their value, which

may be a critical issue for investors orpotential purchasers.

Consider, for example, a patent for apharmaceutical compound. What is itspotential value? The answer depends in parton how long it will take for the patent to gothrough the testing and regulatory processto become a branded product, the develop-ment expense and the extent of competi-tion the product will face from genericcompanies when the patent life expires.

These are complex matters, but CBVsare trained to understand the economicand legal variables involved. They knowthe key information required to producereliable valuations using the most appro-priate methodology—a comparative



study of royalties, capitalization of netcash flow/earnings, market value orincurred costs.

“You can apply different methodologiesto meet specific situations, but they allrelate to how much income someonecould derive from ownership of thatasset,” says Tony Cancelliere ofPricewaterhouseCoopers LLP in Toronto.

Sometimes that income can be erodedover time. New accounting rules requirethat a thorough analysis, known as good-will impairment testing, be done todetermine whether the stated value ofintellectual property and similar intangi-ble assets is still there. Cancelliere notesthat there is a growing role for CBVs inensuring that corporate values arereported appropriately.

CBVs are involved in a wide variety ofassignments on behalf of companies of allsizes, in many places in the world.

Tom Strezos of Mintz and Partners,for instance, recently valued the intel-lectual property of one of the world’slargest producers of software for inter-national trade. The valuation wasrequired for offshore tax planning,since the asset’s location for reportingpurposes was being moved to theBahamas from the company’s headoffice in New York and affiliates inToronto and Taiwan.

By contrast, another recent client was a Canadian turkey processor whowas faced with a breach of contract by a customer. “Nobody knew what the true value of the contract was until we got involved,” Strezos says. “We went to mediation and the client settled for a significant amount.He was ecstatic. That’s what keeps me motivated.”



Shareholder disputes

Partnership disputes

Matrimonial disputes

Goodwill valuations

Mergers, acquisitions &divestitures

Management buy-outs

Financing

Tax & corporate reorganizations

Expropriations

Estates & trusts

At Kroll Lindquist Avey we take

pride in our reputation for inde-

pendent, objective and reliable

business valuations. For the past

30 years, legal counsel, corpora-

tions, governments and individuals

have turned to Kroll for their

forensic financial and investigative

needs. You can trust us to work on

your behalf – with no strings

attached.

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CICBVOverviewThe organization at the heart of this diverseand growing profession is The CanadianInstitute of Chartered Business Valuators(CICBV). The largest valuation organiza-tion in Canada, it was established in 1971to develop and promote high professional

standards in business and securities valua-tions. Its members and students are drawnfrom industry, accounting firms, indepen-dent valuation firms, investment dealers

and government and regulatory agencies.As a self-regulating body, the CICBV

has achieved significant recognition in thefinancial and legal community in Canadaand elsewhere, and is recognized for theexcellence of its training and certificationprocess. The designation CBV—or EEE(expert en évaluation d’enterprises)—granted by the Institute is recognized bythe Canadian Institute of CharteredAccountants as the exclusive designationfor experts in the field of business valua-tion in Canada.

The CICBV establishes the practicestandards, educational requirements andethical standards that support and pro-mote the integrity of the CBV profession.Its comprehensive program of studies inbusiness and securities valuation providesstudents with a sound working knowledgeof business and securities valuation theory,and prepares them to meet the profession’sstringent standards of practice.

“The institute continually upgrades itscourses and content to ensure that it pro-vides students with the leading program ofstudy in valuation matters,” says CICBVPresident Craig McDougall.

To learn more about chartered business valuators, their services and the opportunitiesoffered by the profession, visit the CICBV’sWeb site, www.businessvaluators.com.


When it

comes to

proving

value,

we go

deep.

Whether you’re diving into a high-stakesmerger or acquisition … dealing withlitigation … looking to effectively manageyour assets and risks … you need solidvaluation advice. Ernst & Young CorporateFinance Inc. can help. We explore deepbelow the surface, for the relevant,comprehensive, independent, in-depthvaluation assessments that your keydecisions require. We work closely withCanada’s leading transaction-tax advisorsand other Ernst & Young specialists—to provide you with well-roundedsolutions. www.ey.com/ca

© 2003 ERNST & YOUNG CORPORATE FINANCE INC.




Achieving the professional Chartered

Business Valuator (CBV) designation

takes dedicated study, practical experi-

ence, adherence to high standards and

the approval of peers. Candidates must

complete a rigorous program that instills

not only knowledge, but high standards

of professional conduct and practice.

This program—the programme of studies

in business and securities valuation—is

administered by The Canadian Institute of

Chartered Business Valuators (CICBV) and

provides students with a sound working

knowledge of business and securities valua-

tion theory. The courses are offered through

York University’s Atkinson Faculty of Liberal

and Professional Studies. By successfully com-

pleting the programme, candidates qualify

to take the membership entrance examina-

tion (MEE). Finally, they must meet practical

experience requirements and be sponsored

by peers who can vouch for their character.

Most candidates are already in the

work force. They study at home and usu-

ally take two to three years to complete

the mandatory six courses. The final

exam, the MEE, is administered once

a year. The MEE tests the candidate’s

knowledge and comprehension of

the following:

• Valuation principles, methods, issues

and assignments

• Professional conduct

• Valuation-related merger, acquisition

and divestiture topics

• The law relevant to business valuation

• Relevant valuation-related litigation

and taxation topics.

Once the CBV designation has been

achieved, a member must uphold the

CICBV’s code of ethics and practice stan-

dards. As a self-regulating professional

body, the CICBV ensures that standards

are maintained through its conduct and

discipline committee.

To be a CBV is professionally challeng-

ing, but also professionally rewarding,

says Jeannine Brooks, executive vice-pres-

ident of the CICBV in Toronto. Obtaining

the CBV designation offers the potential

for pursuing a wide range of career

opportunities in industry, government,

education and public practice.

“If you like being involved in busi-

ness, the CBV profession is very interest-

ing because you are right there where

the action is happening, in the middle

of the deal,” Brooks says. “It is also

dynamic, because when you do a

valuation, you are part of a team that is

looking at the future.”

CBVs are in high demand in Canada,

so the designation is a valuable

professional qualification.

Darrin Pickett, an associate at

Campbell Valuation Partners Ltd. of

Toronto and the winner of the CICBV’s

George Ovens Award for top marks

among the 72 graduates of the program

of studies in 2002, says, “The CBV

designation has now become an accept-

ed requirement, especially in business

finance and valuation practices.”

What I t Takes To Become a CBV

www.bdo.ca

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A BDO valuation provides you with the comfort that you have invested in financial advice that you can trust.

Our valuators draw upon their diverse expertise and knowledge to provide you with a comprehensive and objective valuation. We interpret complex issues and scrutinize the details without losing sight of the bigger picture.

With over 95 offices across Canada, we have a business valuator inyour area. Call 1-800-805-9544 to find the one nearest you.

CB19_169-179 05/06/2003 05:37 PM Page 179

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