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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, Fourth Quarter, 2008 Divorce Court Considers Discount for Lack of Control For a 50% Interest Bussa v. Bussa, 2008 WL 2117138 (Michigan) May 20, 2008 Where is the line between an appraiser advancing a client's best interests and maintaining an air of detached neutrality? This unpublished divorce case from the Michigan Court of Appeals offers insight on maintaining that fine balance and emphasizes the wide discretion of trial courts in determining questions of value. Opposing experts can't agree on much During their thirty-year marriage, the husband grew from being a driver for an oil distribution company to a one-half (50%) partner in four related businesses. The primary, cash generating business owned and operated gas stations and convenience stores; the three remaining companies distributed fuel products and owned real estate/rental properties. At their divorce trial, the parties' experts vigorously disputed the value of the primary business and related entities. The wife's expert valued each business separately, on a going concern basis, using the market approach (sales of identical or comparable businesses) and income approach (estimating future cash flows, adjusted for profitability and owner compensation in the industry). Finding the market approach to be more reliable, the expert valued the primary business at $1.53 million. She combined all three approaches to value the petroleum distribution company at $668,821 and used a strict asset approach to value the two remaining entities at $3.11 million. The total valuation came to $5.31 million, or nearly $2.66 million for the husband's one-half interest. By contrast, the husband's expert regarded the four businesses as "so interrelated, they must be viewed as a whole." He agreed that the companies should be valued as going concerns but believed the asset method to be the most appropriate, based on the "uncertain" nature of the petroleum industry. Using this method, he initially valued the husband's one-half interest at just under $902,000. However, after an extensive cross-examination at trial revealed some computational errors, the expert revised this value up to $1.1 million. Trial court notes flaws, need for discounts The trial court found that both experts' appraisals had "significant flaws." Specifically, the wife's expert selected comparable sales that did not involve "same market" businesses, and she failed to note any operational differences among her comparables. Notably, she also omitted marketability discounts. At the same time, the court found that the husband's expert "appeared confused" during trial when asked to support his conclusions with data. It also noted that he was "more the advocate of [the husband]…than a business evaluator utilizing neutral valuation principles." For instance, he criticized the wife's expert's appraisal repeatedly at trial but did not support his allegations with data or citations to the record.The trial court adopted the wife's expert's value of the business as a baseline and then applied three discounts: 1) a 5% discount to reflect the husband's lack of control; 2) a 10% key person discount (based on analysis by the husband's expert); and 3) a 10% discount based on the "lack of information about the comparables employed by [the wife's expert], which…undermined the reliability of her valuation." The court's final value of the husband's interest was $1.99 million. The husband appealed. A 'mistake of incredible proportion'? Although the expert claimed to have accounted for all Georgia-Pacific factors, the court found this to be "simply untrue." In particular, it discussed his analysis of three factors: Because the trial court found so many flaws in the wife's appraisal, it should have disregarded it entirely, the husband argued, and relied exclusively on his expert's valuation. (Alternatively, the court should have conducted its own asset-based valuation.) The wife's expert also failed to consider that market forces had negatively impacted his businesses, he said, which essentially placed them in liquidation mode and lowered their value. But the appellate court noted that the trial court had addressed—and rejected—many of the husband's criticisms. For instance, there was no evidence to suggest that the husband intended to dissolve his partnership, so no "liquidation" analysis was appropriate. Moreover, even though the husband argued that the trial court made a "mistake of incredible proportion" by reducing the wife's appraisal by 10% (based on the flawed comparables), the higher court pointed out that the husband failed to present any alternative comparables. Finding sufficient evidence to support the trial court's determination of value, including its discount to reflect any flaws in the underlying appraisals, the higher court upheld all aspects of its decision. |
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