1. E x p e r t s W o r t h K n o w i n g
Chartered
Business
Valuators:
Produced by
Canadian Business Promotions
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2. Experts
Worth
Knowing
How do you measure the value of a new
software product? What is a brand
worth? How can partners in a private
company settle a dispute over the value
of their shares?
A chartered business valuator (CBV)
knows how to answer questions like these.
The knowledge and skills of professional
CBVs are increasingly important today in
determining corporate values and settling
legal disputes—and, in many cases, chang-
ing people’s lives.
One day in 2002, a call came into
Tom Strezos’s office at Mintz & Partners
Financial Services in Toronto from a
woman who owned a software company.
She and her husband were considering
retirement and had been offered $4 mil-
lion for their company by a large
Canadian corporation. Should they
sell at that price?
Strezos, who heads the valuation and
litigation accounting practice at Mintz,
spent a week with his team examining the
value of the software company.
“We looked at future cash flows, the
balance sheet, revenue forecasts, the
debt leverage, the hidden redundancies
that 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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3. in helping people realize what their
assets are worth.”
Chartered business valuators often talk
about how good it feels to provide the
expertise that makes a difference. And
they do it in many ways.
Profile of a
Chartered
Business
Valuator
What is a CBV? Many people don’t know,
outside of the professions of law, account-
ing and financial analysis. But people
everywhere are affected by their work.
The CBV designation belongs to mem-
bers of The Canadian Institute of
Chartered Business Valuators (CICBV).
The Institute awards the designation to
someone who has passed a rigorous set of
courses and exams, has experience in the
field of business valuation, has been
judged by peers as being qualified, and
who adheres to the code of ethics and
practice standards of the CICBV.
There are almost 1,000 CBVs across
Canada, and they prize their designation.
“Clients view the CBV designation as
certifying a high level of valuation exper-
tise and skill,” says Nicole Cervenka, a
corporate finance manager with KPMG
LLP in Calgary, who was one of the top
performers of the Institute’s 2002 member-
ship entrance examination. “So from a
marketing standpoint, the CBV designa-
tion is very valuable.”
CBVs help ensure that businesses are
properly valued for sale, assessment or
acquisition. They examine all the assets
and liabilities of an entity that contribute
to value, including intangible assets such
as brands and intellectual property, which
are increasingly important components of
corporate balance sheets.
CBVs also contribute to the resolution of
legal and financial disputes. They often
serve as members of legal or financial teams
and are called upon as expert witnesses.
Many are independent professionals work-
ing in valuation consulting firms; others are
employed at accounting firms, investment
banks 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 in
Toronto. “We stand by our opinions and
we follow professional standards. For any
third party, a CBV lends credibility to a
valuation because we support and defend
that valuation.”
Denys Goulet, who leads the valuation
and litigation support practice of
PricewaterhouseCoopers in Quebec City,
adds: “If a client comes to us and asks for
assistance in a dispute, we give the client
our true opinion. Even though we are paid
by one party, our duty is to the court. We
are there to explain to the court what we
believe 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 an
assignment if our fees are dependent on
the success of the case, or the amount of
the settlement. It’s against our code of
ethics, the core of the profession.”
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4. Assessing
Brands
One of the most important assets that a
company can have is a brand. A brand is
more than just a product or service. It has
a special value all its own.
Jay Patel, a CBV and a vice-president
at Ernst & Young Corporate Finance
Inc. in Toronto, is an expert on brand
valuations. “Brand is the image that a
company has created in the consumers’
mind, which keeps them loyal to a prod-
uct or service—keeps them coming
back,” he explains. “Consumers are
assured of quality and they are willing to
pay a bit more for that quality.
Companies create brands so they can
charge premium prices and increase
their 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 important
now than it once was. Changes to
accounting standards require that “good-
will” recorded in a company’s financial
statements must be re-valued on an
annual basis. As a result, the CICBV
recently issued a discussion paper enti-
tled Goodwill Impairment Testing
Discussion Paper to assist its managers,
accountants and the business communi-
ty in general. The paper can be found
on the CICBV’s Web site at www.busi-
nessvaluators.com.
Patel explains that brands can be evalu-
ated through cost-based, market-based or
income-based valuations. In a cost-based
valuation, a CBV determines what it
would cost a company to recreate the
brand, in part by determining what costs
went into creating it.
More common is the income approach.
A CBV determines the cash flows of com-
pany, and attaches cash flows that relate
to the brand asset. A variation is to calcu-
late the value to the brand owner if the
brand were to be licensed to a third party,
and so generate royalty income.
The third widely used method is
referred to as a market valuation, in
which the CBV will compare brands of
similar or comparable products, and assess
the prices of market transactions involv-
ing those brands.
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5. Whatever the method used, the CBV’s
job is to calculate the value of some-
thing that is not a “hard” asset, like a
piece of equipment, but which can be
worth even more.
“When you look at the financial state-
ments of Coca Cola, the value of the
brand is not on the balance sheet,” notes
Tony Cancelliere, national practice leader
for Valuations and Strategy at
PricewaterhouseCoopers LLP.
Calculating the value of such an asset
is as much an art as a science. A CBV
applies the methods learned from pro-
fessional training, and adds experience
on top of that.
“There is a lot of analysis involved, but
it’s not just mathematical in the sense
that you plug in numbers and get an
answer,” Cancelliere says. “You need a lot
of judgment and experience. You have to
understand the intent of management.
And every brand is different. You need a
true understanding of how the brand is
accepted in its marketplace, and the
demographics of that market. What I
find exciting about this profession is that
value can manifest itself in many ways,
and it’s an increasingly important issue
these days in the minds of executives.
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Chartered Business Valuators
Goodwill and IP valuations
require the coordination
of many moving parts.
Call us.We don’t need to
reinvent the wheel.
The Annual Impairment Test for audited financial statements
of goodwill and IP also requires consistent application of
predictable and efficient models. From software patents to brand
names, we have been evaluating the numbers since 1975.
For independent goodwill and intangible asset valuations that
pass the new Annual Impairment Test required by GAAP, please
contact Andrew Freedman, Paula White or Scott Davidson at
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CB19_169-179 05/06/2003 04:45 PM Page 173
6. Business
Valuations
Businesses in Canada rely on CBVs to
provide expert valuations for many
kinds of business transactions. Often,
they are called upon to determine the
value of an entire business.
It’s a growing trend. When the phone rings
in the office of Peter Miller, a senior vice-
president and director of KPMG Corporate
Finance Inc. in Winnipeg, the caller is often
looking for answers to questions that, in past
years, might not have been asked.
Recently, the board of a small public
company approached Miller. Its members
were concerned that the company was not
performing the way it should, and were
seeking ways to improve shareholder
value, possibly by selling the company.
What would it be worth?
In the past, the board might have tried
to answer the question internally, but per-
ceptions are changing. More business
owners realize that CBVs are particularly
well qualified to assess the value of private
companies, thanks to the training they
receive from The Canadian Institute of
Chartered Business Valuators.
“There is a better appreciation for how a
CBV can help,” Miller says. “With today’s
economic turbulence, and the governance
issues that have been raised in recent
years, there is a heightened desire among
both public and private companies to use
good processes, engage outside advisors
and ensure that decisions are made with
good information.”
Miller’s team is now assisting the small
company’s board, not only to value the com-
pany but to find ways to maximize its value
for the time when they might want to sell.
CBVs are increasingly involved in all aspects
of such corporate finance strategies. From
the search for a potential buyer, seller or
investor, through negotiations and the design
of 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 value
of their business holdings.
As an illustration, Iseo Pasquali of
Deloitte & Touche was approached by two
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It Really
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Chartered Business Valuators.
Experts Worth Knowing.
The Canadian Institute of
Chartered Business Valuators
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 The
Canadian Institute of Chartered
Business Valuators and how a
CBV can help you, please visit
us at www.businessvaluators.com
or call 416 204-3396.
CB19_169-179 05/06/2003 04:49 PM Page 174
7. businessmen who had been working
together informally, but who now wanted
to create a formal partnership. They were
worried that their working relationship
might be ruined in negotiating the relative
value of their contributions to the business,
especially intangible assets such as talent
and customer relationships. They asked
Pasquali to write an independent report to
assess the value of each contribution.
“They knew that as a CBV, I would not
take 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 make
such a valuation?
“There are standard methodologies, such
as calculating the capitalized earnings or
discounted cash flows from a business activ-
ity, or comparing market values,” Pasquali
says. “There are variations applied to
different businesses. Now we are applying
those same fundamental principles to indi-
vidual intangible assets. It’s an exciting
time. CICBV is at the forefront of the
valuation of intangible assets in Canada.”
Dispute
Resolution
CBVs often provide a bridge that crosses
the chasm of a dispute. Their expertise
is called upon to help resolve matters
before courts, arbitration boards, securi-
ties commissions and other regulatory
bodies. The legal system trusts them. A
CBV brings a solutions-based approach
that helps to resolve issues that have
sometimes festered for years, both in
Canada and abroad.
A difficult dispute in the UK was
finally settled with the help of
Canadian valuators. It concerned a
group of people who had left a London
bond-brokering business and joined
another. The first company sued for
damages. In the end, however,
although the employees had clearly
taken business away, the judge awarded
relatively small damages. The valua-
tion team, led by senior principal
Farley Cohen of the Toronto office of
Kroll Lindquist Avey, had shown that
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8. the potential value of future business
from the abandoned division was
impaired by outdated technology and
other competitive factors.
Cohen, who is also co-head of the
North American valuation services
group of Kroll Inc., says such dispute res-
olutions often involve an assessment of
risk. “The lower the risk, the higher the
probability of success, and the greater
the present-day value of the business.
The CBV training ensures that you
understand the relationships between
risk and value.
“Another key factor we consider is
growth,” Cohen says. “What’s going to
happen in the future? The higher the
expected growth, the more someone
would be willing to pay for the business.”
Cohen stresses that a CBV’s role in
dispute 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 to
present a reasonable, well thought out,
well researched conclusion.”
This objectivity helps to resolve the vast
majority of business disputes before they
reach the courts. Sometimes, a CBV is lit-
erally in the middle of a solution.
Denys Goulet of PricewaterhouseCoopers
in Quebec City recalls: “I had a case
recently where the parties realized that
it made more sense to settle instead
of going to court for five or six weeks.
Both lawyers came to me at a court
recess, right in the hallway, and
asked if it would make sense to settle
under certain terms. This is what I
like about my profession—being
recognized by your peers as an
excellent practitioner, and helping
to produce a constructive outcome.”
Intellectual
Property
In the information age, the legal and
accounting professions as well as corpo-
rate strategists are focusing on the value
of intellectual property—things like
inventions, 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 or
potential purchasers.
Consider, for example, a patent for a
pharmaceutical compound. What is its
potential value? The answer depends in part
on how long it will take for the patent to go
through the testing and regulatory process
to become a branded product, the develop-
ment expense and the extent of competi-
tion the product will face from generic
companies when the patent life expires.
These are complex matters, but CBVs
are trained to understand the economic
and legal variables involved. They know
the key information required to produce
reliable valuations using the most appro-
priate methodology—a comparative
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9. study of royalties, capitalization of net
cash flow/earnings, market value or
incurred costs.
“You can apply different methodologies
to meet specific situations, but they all
relate to how much income someone
could derive from ownership of that
asset,” says Tony Cancelliere of
PricewaterhouseCoopers LLP in Toronto.
Sometimes that income can be eroded
over time. New accounting rules require
that a thorough analysis, known as good-
will impairment testing, be done to
determine whether the stated value of
intellectual property and similar intangi-
ble assets is still there. Cancelliere notes
that there is a growing role for CBVs in
ensuring that corporate values are
reported appropriately.
CBVs are involved in a wide variety of
assignments on behalf of companies of all
sizes, 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’s
largest producers of software for inter-
national trade. The valuation was
required for offshore tax planning,
since the asset’s location for reporting
purposes was being moved to the
Bahamas from the company’s head
office in New York and affiliates in
Toronto and Taiwan.
By contrast, another recent client
was a Canadian turkey processor who
was 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.”
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11. ADVERTISING SUPPLEMENT
Chartered Business Valuators
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 It Takes To Become a CBV
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12. THIS AD PREPARED BY: RYAN EDWARDS
CLIENT: GRANT THORNTON
FILE NAME: GT CORNERED-CANADIAN BUSINESS
AD #: GT-2003-08
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What is the true value of your business? An objective business valuation is often required for the
sale of a company, taxes, disputes or a retirement plan. Intangibles such as reputation, brands or
trademarks count for something -- but for how much? Not all business valuations are created equal.
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Look ahead, behind, beside and under
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Glen Harry, Vancouver, BC
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GT Cornered-Canadian Business 4/29/03 11:56 AM Page 1
