Coronavirus Expected to Impact  December 31, 2019 Business Valuations

For those in the business and legal communities who rely on business valuation reports…….

The effects from COVID-19’s invasion into the U.S. business economy will have major effects on how businesses are valued going forward.  Reagan FVL has been talking with business valuation professionals and valuation associations around the country and there is presently no consensus on how valuators should treat this on their December 31, 2019 valuations.  As a result, there could be a lot of confusion in the marketplace on how to read and rely on business valuation reports where the valuation date is December 31, 2019.  This lack of consensus opens the door for inconsistency and potential bias to arise in valuators’ professional judgments.

The professional judgment arises from whether the COVID-19 event was known or knowable at December 31, 2019 and whether and to what degree it is appropriate to consider subsequent events (things that happen after December 31, 2019 and before the valuator issues his/her report that relate to matters that were known or knowable on the valuation date).

The NACVA, AICPA, and ASA will no doubt soon provide guidance.  It light of current events and the tremendous uncertainty evident in U.S. businesses, the U.S. Congress, and the marketplace, for now it may be wise for valuators to forgo December 31, 2019 valuation dates in favor of a later date whenever possible.

Here is a relevant COVID-19 timeline: 

• 12/31/2019 China announces it is treating dozens of cases of an ‘unknown’ pneumonia
• 12/31/2019 University of Minnesota Center for Infectious Disease Research and Policy News Scan first reports the incident in the U.S.
• 01/07/2020 China announces that this ‘unknown’ pneumonia is a new type of coronavirus
• 01/11/2020 The first deaths were reported in China due to this new coronavirus
• 01/20/2020 The first confirmed case of the new coronavirus is announced in the U.S.
• 01/30/2020 World Health Organization declares a global public-health emergency
• 01/3/12020 President Trump banned travel from China into the U.S.
• 02/11/2020 World Health Organization announces the new coronavirus disease will be called COVID-19
• 02/19/2020 Iran outbreak begins
• 02/21/2020 Italy outbreak begins
• 02/29/2020 First U.S. death from the coronavirus occurs
• 03/09/2020 First effects on Wall Street take effect
• 03/10/2020 Nearly all U.S. States declare a state of emergency
• 03/11/2020 World Health Organization declares the COVID-19 outbreak a pandemic
• 03/11/2020 President Trump banned travel from most of Europe into the U.S.
• 03/12/2020 Greatest one-day decline in U.S. stock market since 1987
• Thereafter  Volatility in the U.S. stock market; businesses closing; shelter-in-home orders across the U.S. for an uncertain period of time

It seems quite reasonable that valuators should consider events such as the Y2K dot-com bubble burst, the unforeseen 9/11/2001 event, and the 2007-2008 real estate crash as a basis for determining how to address making the necessary professional judgments related to COVID-19 into business valuation calculations.

The professionals at Reagan FVL will continue to monitor this situation closely and collaborate with the business valuation community to provide additional guidance as it becomes available. Visit our blog for additional updates as this situation develops. You may also contact our office with additional questions or feedback.