Business Valuation

Just wondering if any AF’ers are in Business Valuation on the appraisal / advising side. I was hoping to get some thoughts or experiences in the field, pros / cons, and if you were doing business valuation / valuation services in the past and no longer are, what field / function did you transfer into. Thanks for your feedback.

I’m in business valuation at a big 4. You can drop me a line at dhyun 4 @ if you have any questions. I also would like to know what field / function did anyone from valuation transfer into.

16 years in business valuation at a non-big 4 national firm. What exactly do you want to know?

Basically, I have about 10 years in corporate finance, will be doing level 3 next year and am trying to determine if it is a career move that I would want to make at this point. I am pretty familiar with the model, that is of a 3rd party appraisal for M&A clients, experts witnesses for litigation, etc. If I went down the valuation road, I am wondering if there are options to work in PE, investment management, buy / sell side research down the road or if these sides generally stay separated. I would think that some of the skills are transferable, but am wondering if in 5-7 years time, if a change wanted to be made, how transferable those skills actually are. I know that there are additional designations that many appraisers get, AVA, ASA, but don’t see many people with them in finance. I think it can be pretty lucrative, with the right firm and work ethic, just looking for some insight as to where future opportunities and career paths are.

The analytical skill sets are indeed quite similar, but b-val folks are not viewed as “deal guys”, so jump to PE and VC is kind of rare. The jump to research or AM is a little easier, but tends to happen after 2-3 years, not 5-7, because the experience you gain after 2-3 years isn’t really a benefit outside of valuation and you would get hired as a staff grunt. To be honest, you might find it difficult to make the jump to b-val in the first place. To come in at anything higher than a staff grunt, most firms will want direct experience and/or a book of business. Even at the staff level, most firms would likely prefer a recent grad who they can pay $45k and make work nights and weekends when needed because they don’t have a spouse and kids to worry about.

I’ve been in BV for about 8 years now. First, the cons: 1. A lot of mediocre people. You get a lot of finance guys who couldn’t quite get into banking, asset management, etc. Or you get the bean counters who move up into BV, especially since all the accounting firms now have valuation practices. 2. As an extension to the above, the field is becoming more and more dominated by the accounting firms. They tend to be very formulaic in their valuations, and generally not much insight. Worse, they have increasing clout and are influencing the way the profession is evolving. If you’ve ever dealt with auditors, then you know why this is not a great outlook. 3. Pay can be crappy relative to other finance jobs. If I were at a big 4, I’d probably be a sr. manager. That pay grade is probably $140-180k depending on the geographic market. Not the end of the world, but definitely not great in comparison to the other jobs you might be considering. There is certainly potential for much higher comp at the partner level. 4. A lot of the same old ideas are rehashed over and over. People do attempt to innovate on the theoretical front, but I haven’t seen too much that was truly original. Even then, it wouldn’t make its way out of the BV community. 5. A lot of technical knowledge that is really only relevant to the strange little world of BV. As Higgmond stated above, not a lot of lateral moves after you’ve accumulated 5-7 years. 6. Fees are definitely coming down or at least stagnant. Again, too many bean counters getting into the game. I could list a number of more cons, but that would just be nitpicking. On the other hand, there are a lot of offsetting pros (otherwise I obviously wouldnt stay in the field). Unfortunately, I find myself out of time as I write this. I’ll try to drop back in in the next couple days to provide the flip side. Stay posted for round 2.

Okay, as promised - Round 2. Unfortunately, I don’t have the energy to put too much thought into this right now, so here is the quick version: 1. Project based work- always get to move onto something new. Also you generally have a lot of flexibility about how you go about your work. The exception might be for work that will be reviewed by an auditor. In those cases you have to play by their rules. 2. Following on the above, the amount of variety is astounding. You end up being exposed to a vast array of industries involving every conceivable product or service. There are some business that are so niche and would never be on your spectrum if you are just analyzing public companies. 3. You meet a lot of extremely interesting people. As part of each project, you will generally interview the CEO who is often the founder. Most of the time these people are incredibly bright and perceptive- In my estimation they are far more accomplished than all the finance drones that you meet on wall street or other money centers. 4. You develop a deeper understanding of business. You realize that the textbook view of business is not so cut and dry as a pure maximization of profits that necessarily occurs for a company with a wide ownership base (i.e. a public company). When a few individuals or families control a business, then they operate according innumerable motivations and strategic aims. There is really a lot more psychology involved. This differs markedly from public companies that seem managed in an almost scientific way. Only a certain type of person will appreciate this aspect of the job. 5. You become fairly connected within your local business community. This might appeal to you if you are tied to a specific geography. There were a couple others I was going to mention, important ones too, but they seem to have slipped my mind at the moment.

Good posts vonja - you pretty much nailed the field of business valuation. Fees have certainly come down, especially for tax work where CPA firms have started to enter the business. Business owners look at valuation as more of a compliance related activity so they will often go with the cheapest provider. I don’t know how some firms survive given the fees they charge.

To those in BV, especially ones that deal in financial reporting valuations, what are you thoughts on the new guidance for impairment testing and how that might impact business?

BValGuy Wrote: ------------------------------------------------------- > To those in BV, especially ones that deal in > financial reporting valuations, what are you > thoughts on the new guidance for impairment > testing and how that might impact business? It’s already starting to reduce business as clients early-adopt. The good news is that my clients are increasingly granting complex performance awards that require lattice or MC models to value, so they don’t know how to do themselves. I’ve been pretty successful at getting premium fees because the low cost providers generally don’t have the expertise to even bid.

slyle31 Wrote: ------------------------------------------------------- > Just wondering if any AF’ers are in Business > Valuation on the appraisal / advising side. I was > hoping to get some thoughts or experiences in the > field, pros / cons, and if you were doing business > valuation / valuation services in the past and no > longer are, what field / function did you transfer > into. > > Thanks for your feedback. I would say you have gotten some pretty good feedback on the issue, and you can see there are quite a number of people on the boards in the field. Also, you will notice quite a growing number of charterholders in the field as you look on linkedin and various other sources. In my opinion, many of the charterholders are probably looking at the CFA as a way to transition out of BV, and not so much progress their career in BV. Please note I said many, and not “all”, as I would assume there would be plenty in the later category. I wanted to discuss something you wrote in your follow-up post. Although age is just a number, and you are never too old to try new things if you want (and all the other things people say), I will have to say while this is not untrue, it is the glass half full approach of looking at things. Age does make the landscape more challenging for a variety of reasons. So, with 10 years of corporate finance under your belt, I would look at a move into business valuation as a long term move, and not a stepping stone. With 10 years of corporate finance experience, you can probably always return to corp finance if BV doesn’t pan out or runs its course, etc, but in general, BV isn’t a good stepping stone. Generally speaking, BV is more of a career choice and does not possess good exit opportunities. The reason being it’s a very highly specialized skill set, and while many general financial tools can be applied elsewhere, the specific applications of the skillset are not transferable. Also, the perceptions of the field will barr you from entry into the fields you most likely would try to strive for (i.e. finance). Most people in finance do not know or care what business valuation is, and if you tried to explain it to them, you will automatically be associated with compliance (because after all, thats what BV is), accounting, product control (most banks have “valuations” in their product control areas). For what it’s worth, my gut feeling is you would enjoy BV more as it is a client facing position than a product control or “valuations” type role at a bank. Separately, some PE firms have valuations people to assist with their reporting requirements, but in many cases, controllers and accountants act in a dual capacity and take care of that. Also, as valuations is non-revenue generating and compliance oriented, the pay and respect will probably not be great, as opposed to being a revenue generating, client service professional at a BV firm. Somebody in this thread mentioned exit ops as not being IB/PE and more of ER and AM, and I would tend to respectfully disagree with that. Although the chance of getting into any of these is relatively low, you may have a better shot at a banking or transaction based role if you are doing more purchase price allocation work. The exception is moving over to an equity research role if you have a particular focus and expertise in an industry, and not just a valuation generalist. I would go a step further as saying that the industry would probably have to be more specialized, such as energy, pharma, or financial institutons, and not something like broadline retail or restaurants. Regarding the actual work - The work can be somewhat fun and interesting, and it’s not a bad gig. You get to wear many hats (depending on your shop) from marketing and presenting and educating, to excel guru doing modeling and analysis, to literary genius wriitng remarkable reports. In actuality though, the modeling is different because for the most part, you aren’t actually forecasting anything, you are kind of regurgitating management projects. Well, thats for finanical reporting or tax valuation. Economic damages/IP Stuff is a whole different ballgame. Writing the report is usually just a formality and it’s usually all backward looking. Also, most processees for certain types of valuations are generally dictated by accounting firm preferences, IRS regs, or certain court rulings, depending on the field of valuation you enter. So there usually isn’t a whole lot of room for creativity or new financial theory, although I find valuation to be very academic, in nature, and you will constatly read papers, or here about debates into finanical theory, but there are always going to be clashes between the accounting school and the finance school. But it is a field where you can do side work to fuel your intellectual curiousity by writing papers and the like, but mostly for your work, just stick to the straight and narrow. The cool thing though is traveling. You really get to see many different types of businesses, plants, operations and stuff, which is cool. It’s laid back travel, not wall street travel, so you have a bit of time to enjoy yourself. Also there are many industry conferences, classes and stuff, which you get to try your hand and picking up a fresh young thing and take her to daddy’s suite. But I digress. As far as pay, it’s generally pretty good, meaning you can make a nice living doing valuations. Depending on Big 4, regional accounting firm, or independent valuation shop, there are alot of opportunities in the field, especially with the increasingly stringent regulatory environment. However, this brings up a heirechy/ego issue. In valuation, Auditors are the Lions, audit review valuation teams are the lionesses (they are the auiditors bitches), and you are like a pet bunny rabbit. Sorry I don’t have a good metaphor as to why you are a bunny, but you just are. You pander to accountants (the lions here, but it in real life they are the guys in the stands with the scorecards writing down every base hit, stolen base etc where the players (wall street, p/e firms etc, corporations) are playing the game), you even kind of pander to the valuation review people…then you have to kiss your client’s backsides, which sure you do on the sell-side also but here your clients can be small time lawyers, accountants, mom& pop shops) so you really have to eat some humble pie here. All that said, besides from the good living, you can make a very good living if you are truly talented and have the credentials to become an expert witness that can command a very high fee. There are not many of them, there is a huge barrier to entry, as you need credentials, and tremendous experience, but the few people who dominate that area probably have some high quality suits on when they get into their luxury cars. The negatives are the work can get repetitive doing the same thing, and it can become unfullfilling knowing you aren’t really doing anything except for an accounting function, but if that doesnt matter to you, you just want a nice career, by all means, BV may be the place to go! As far as getting into BV, i think you have a few different types of people: 1) Accountants who want to do something more “finance” They look at is as a step-up 2) Fresh out of school finance people that don’t land banking/research/ PE/ HF/consulting (people don’t turn down those offers to take valuation jobs). They look at BV as temporary, and a stepping stone -usually pursue CFA to help that stone 3) Finance people, like investment bankers who were pushed out of the field, dont like the hours, had enough, want to go into business for themselves, etc. They generally look at this as a work/life move and are fine with sacrificing money/prestige Sure, there are people who land there from all walks of life, but hose are a few of the bigger buckets. So to summarize, and please contact me (no I don’t really use hotmail that much) 1) BV is a good career that generally has stability, a nice living, and decent exposure to finance 2) It can however become a little repetitive, but there is room for intellectual curiousity on the side by exploring financial/valuation theory, but for work purposes, it’s probably best to stick to accepted procedures for executing valuation tasks. Also, it may be unfulfilling as you aren’t really adding to the investment process, but generally just doing the accounting function of keeping score. 3) It’s a career move, as the exit opportunities are generally not good. 4) Expanding on #2, with many industry conferences, there really is so much room to learn alot and explore your intellectual curiousities. However, in practice, it will not be used much. 5) Wear a half decent suit, and you will instantly be the most stylish guy in the shop, and thereby have a good shot as getting some young tail. Just DO NOT, whatever utter the words “Im an appraiser” 6) Oh, side note. Do not, please, put “Investment Banking” as your industry on Linked In if you work in BV. Tons of people do it and it’s such a joke. Good luck dude!

diesel, you writing a book or something?

1 Like

I wanted to read it, but it didn’t have images.

isnt fairness & solvency work considered business valuation as well? a lot of midmarket i-banks do it such as duff & phelps, houlihan and some bigger ones. it’s work on live deals alongside with teams of i-bankers, lenders, PE shops so generally better exposure if you’re thinking of exit ops down the road. i’m pretty sure Big 4 dont do this stuff, their business valuation work is compliance-driven as many have said, audit and tax-related stuff and highly specialized knowledge built upon a strange mix of accounting, finance and tax rules

diesel, you just like to write to hear yourself write…btw “Generally speaking, BV is more of a career choice and does not possess good exit opportunities” how can YOU say that?? details, gentlemen

Interesting thread, as this is what I am currently doing. I’ve been in for less than a year and don’t have any other finance experience so anyone have any additional thoughts?

Thanks for the insights vonja - I was wondering if this is also true for Big4 Corporate finance (M&A; capital restructuring)… also a “career move” ? What about exit, pay, hours, colleagues, etc?

I moved to BV after about 5 years at a middle market i-bank. Still work on plenty of deals (fairness opinions/solvency opinions, ESOP transaction advisory, etc.), but the hours are so much better than what I was doing before. The pay is decent too once you make into more of a mangement role (I make 6 figures plus up to 25% bonus).

This thread is nailing the BV profession. Agreeing with almost everything said. I entered field straight out of college about 4 year ago. To reitierate what eveyone else has already said:

Interesting work - almost every engagement is unique;

Awesome work/life balance - it is unusual for me to leave the office after 6;

You will become a great writer and explainer - this is a huge part of your job;

Pay isn’t amazing unless you can bring in work. If you like going to a lot of networking events and talking to attorneys and business owners you could do well.

Nice summary.