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Do you know what your business is worth? Our business valuation experts provide you with an objective, expert view of your company – while helping you understand the value drivers of your business. In addition to preparation for sale, knowing the actual value of your business is crucial for a number of reasons:
Your business' balance sheets and financial statements are not enough to present the true value of your company. An accurate valuation requires a customized approach. Our Certified Valuation Analysts integrate basic valuation principles with the very latest developments in business valuation theory to arrive at the most comprehensive valuation possible. We can also help you comply with the complex requirements of the Statements of Financial Accounting Standards (SFAS) Nos. 141 and 142. These standards require companies to perform a valuation to determine the current fair value of intangible assets and goodwill acquired in a business combination or merger and to periodically test previously recorded goodwill and intangibles with indefinite lives for impairment. For more information about our Business Valuation practice, email BVLS@SCandH.com or call (410) 403-1500 | (800) 832-3008.
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Valuations Insights, First Quarter, 2009 Valuing Goodwill of Large Contingency-Fee Law Firm Von Hohn v. Von Hohn, 2008 WL 2814830 (Texas) July 23, 2008 The husband was a partner in a prominent law firm that specialized in plaintiffs’ litigation, included seminal cases against the tobacco industry and patent infringement claims against large financial institutions. The firm’s partnership agreement provided that upon a partner’s death, retirement, withdrawal, or expulsion, he would be entitled to his capital account and his undivided profit accounts along with any unpaid draw. Key: the agreement was silent in the event of divorce. Partnership agreement controlling? The husband first challenged the wife’s valuation under Daubert motion, claiming that she should have relied exclusively on the partnership agreement, and further, that the methodologies were flawed and unreliable. The expert, for instance, admitted not using information from patent cases in valuing law firms. Nor could he recall having taken a specific legal case, valued it and then adjusted the assets on law firm’s balance sheet. The expert did not the asset approach in this case, and while he had never used information from a patent case in valuing a law firm, he had valued a contingency fee practice by using the same type of projections. Notably, the expert had also valued the very same law practice in a divorce case five years before, also using the income approach. The trial court qualified him to testify in this case, and permitted him to use valuation methods other than those set forth in the partnership agreement. However, it limited the expert to using no more than two years of future earnings under the income approach. Valuing settled versus unsettled cases. At trial, the husband again argued that the partnership agreement should control the valuation of his interest in the law firm. He had no immediate plans to leave the firm, however. And since none of the other triggering events had occurred, the trial court found that the valuation could include methods beyond simple withdrawal and reimbursement of partnership accounts. In his application of the income approach, the wife’s expert specifically included the firm’s commercial goodwill but none of the husband’s personal goodwill. He also considered the firm’s historical operations and, per the court’s instructions, two years of projected earnings, adjusted for nonrecurring events, including the settlement of a large patent infringement case. He valued the husband’s interest in the general law practice at $1.5 million. His interest in the settled cases was worth an additional $400,000, based on the payment history of the opposing parties and projected payments over the next two years, bringing his total interest to $1.9 million. The expert also valued pending but unsettled cases, using a royalty rate calculation. If the four largest clients settled in the next two years, the husband’s interest would be worth $4.1 million, he said. If all defendants settled within this period, the husband’s interest would increase by another $2.2 million. Projected fees based on professional goodwill? Ultimately, the jury valued the husband’s total interest in the firm at $4.5 million. On appeal, the higher court found problems. The valuation of the husband’s interest in the general law firm and the “settled” cases ($1.9 million total) was proper, because the amounts were fixed by settlement contracts and the husband would not have to spend any more time or work to receive them. The proceeds from the unsettled cases were an expectancy interest, the court said, derived from the husband’s future earnings. The jury must have included this amount in its $4.5 million valuation, and the court remanded the case for findings that did not include the husband’s future earnings or expectancy interests in the calculation of law firm value and commercial goodwill.
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