Dispute Analysis Issues: When to Call in a Business Appraiser
There is no doubt that valuation advisory services can provide the peace of mind and thoughtful documentation required to conduct those transactions that may be scrutinized by regulators, courts, tax collectors and a myriad of other lurking adversaries.
Compliance issues (regulatory, tax, and legal/fiduciary compliance) trigger many needs for qualified, independent valuations. Many regulatory considerations relate to transactions with ESOPs and certain (re)financings, mergers, and acquisitions. Legal and fiduciary compliance issues stem from ESOPs, transactions that affect minority shareholders and practically any deal where a law requires “fair” treatment of parties who lack control. When it comes to addressing these compliance considerations, the benefits of valuation services are understood by practically all legal and financial advisors to business owners.
Moving beyond the typical compliance issues, valuation services can be extremely useful in the litigation arena. Undoubtedly, value is the centerpiece of much business and personal litigation. The high-stakes, hard-to-quantify issues of litigation are always aggressively challenged. In essence, an expert analyst should do three things essential to assessing any question of value, whether in a litigation or a compliance environment:
- Focus on relevant information;
- Draw conclusions that have economic substance; and,
- Articulate the reasonableness of conclusions in a manner that appeals to common sense.
A qualified expert has practical experience dealing with real problems of real companies and individuals. A business appraiser should be able to define the valuation issues, assemble the relevant information, and quantify the financial aspects of a case. Moreover, an expert should be able to communicate the soundness of conclusions convincingly.
Litigated issues are as diverse as the people involved and the problems that haunt them. These areas of litigation are the ones most likely to require the type of support that a business valuation professional can provide:
- Trial Support. Critique of opposing experts, cross examination assistance, expert testimony, economic research, public securities, market and industry research.
- Business Damages. Lost profit analyses, contract disputes, and mediation of valuation disputes.
- Buy-Sell Agreements. Establishing valuation mechanisms, resolving valuation disputes, multiple appraiser exercises.
- Securities Fraud Analyses.
- Goodwill Analyses. Impairment Testing, purchase price allocation
- Family Law and Marital Dissolution. Controlling interests, minority interests, professional practices, partnerships, valuation of publicly traded and restricted securities, joint retention of a single appraiser.
- Blockage Analyses.
- “Fair Value” Controversies. Dissenting shareholders, state law statutes.
- Tax-Related Controversies. Corporate tax matters, gift and estate tax controversies.
- ESOPs and Other ERISA-Related Disputes.
- Bankruptcy and Corporate Reorganization. Postmortem analysis, going-concern valuations, reorganization feasibility assessment, fraudulent conveyance, forecasting.
- Mediation or Arbitration. Review of opposing experts, negotiation assistance, range estimates of value.
- M&A Advisory Engagements.
Having a qualified business valuation expert on a litigation team can be a wise asset-protection strategy. Downside exposure is a problem for both plaintiffs and defendants. Mercer Capital is a business valuation and investment banking firm serving a national and international clientele. Mercer Capital brings analytical resources and over twenty years of experience to the field of dispute analysis and litigation support. Our professionals have been designated as expert witnesses in federal and state courts and before various regulatory bodies. Please give us a call at 901.685.2120 to discuss how we might be of assistance to you.
Reprinted from Mercer Capital’s Value Added Vol. 15, No. 1, 2003.