ABA Business Valuation Services: Litigation
Case Assessment
Preliminary appraisals are a quicker and less expensive estimate of value which can aid the lawyer in assessing the valuation aspects of a case. Consultation is also available with respect to valuation issues such as the applicability and size of discounts, valuation-specific questions for interrogatories and/or depositions, and other valuation-sensitive elements of the case. Such consultation, however, precludes us from testifying as expert witnesses, in which we must be objective appraisers.
Generally speaking, for most litigation matters, you will need an independent and objective appraiser to issue a report that opines and supports an unambiguous value for a business interest or asset. We may be called upon to testify in court to support our conclusion against strong adverse scrutiny. We are required by law and our professional standards to be independent and objective in all such situations. An appraisal that favors the client will have no credibility with the judge and jury, and will be damaging to you and us.
On the other hand, if your attorney wishes to retain us as a consultant, we will not be permitted to testify in court and our work will not be available to (“discoverable by”) the opposing parties. Most of the litigation services described below are provided when we act in this capacity.
In no case can we act as both a neutral appraiser and a non-neutral consultant. That would be a conflict of interest.
Every situation is unique. Please contact us to discuss yours, and an ABA member with the right experience and expertise will get in touch with you to take the next step.
Valuation Questions for Depositions and Cross-Examination
ABA members can draft questions for you to ask the opposing expert (or principals) regarding valuation issues. This service is available on a consulting basis.
Critique of Opposing Expert's Value
ABA professionals can critique business appraisal reports prepared by others. A critique comments on matters such as the appropriateness of the valuation methods used, the degree of compliance with professional standards, the rate of return used, the adjustments made to the income stream, the discounts / premiums applied or not applied, and other factors. A critique does not include an opinion of value. However, it may indicate an opinion that the value would be higher or lower. This service is available on a consulting basis.
Rebuttal Testimony
ABA professionals can provide rebuttal testimony regarding the opinions and comments of opposing experts or others concerning the value of a business interest. Naturally, this service is only available when the rebuttal is consistent with our interpretation of appropriate valuation methodology. This service is available only on an independent appraiser basis.
Alternative Value Dispute Resolution
It is not uncommon for disputes regarding the value of a business or an interest in a business to end up in court. The judicial path to resolution commonly requires considerable time, delays, and expense for attorneys and expert witnesses, followed by a decision on the value by a judge. This may not provide a satisfactory outcome.
An alternative resolution is to submit your value dispute to ABA. Many ABA members have earned certified arbitration panelist designations from the American Arbitration Association. The arbitrator will hear the view of both sides, gather data on the business, and determine a value for the interest which is legally binding on the parties. Generally speaking, this can be completed within 90 days and cost significantly less than the standard litigation process. ABA's Alternative Value Dispute Resolution Service can be structured with one arbitrator or a panel (usually of three). In all situations, panelists are jointly retained by both sides and are completely independent and objective.
For a panel situation, ABA will submit a list of names and qualifications to both parties. Each will select and retain one appraiser. The two retained appraisers will then pick a third who will be jointly retained by both sides and will chair the panel. The panel will meet with each side to hear their views, share information, and determine a final value.
Marital Dissolutions
The end of a marriage is an emotionally charged situation in which there is often wide disagreement between the parties regarding the valuation of a business or professional practice. ABA professionals are frequently retained by both parties or appointed by the court to deliver an independent opinion of value. Their neutral role has the potential to save money, time and emotional distress for all concerned. If, however, the valuation is to be contested in court, ABA professionals are also extensively trained, experienced expert witnesses.
There is substantial variation in the way the courts interpret which business assets constitute marital property subject to division and how they are valued. The following questions are answered differently from one court to another:
- Is value to be determined by the value to the well-informed arm’s length buyer in the market (pure fair market value) or the value to the spouse who will retain the business or practice?
- Are goodwill and other intangible assets marital property subject to valuation and division with the other assets owned by the couple? What portions are transferable and nontransferable?
- If the business predates the marriage, does the value of the business at the time of the marriage remain the separate property of one spouse with the marital asset limited to the value change during the marriage?
- To what extent should valuation discounts be applied to the business interest owned by the marital community?
- To what extent, if any, should the family relationships of other shareholders to one of the spouses affect the value?
- If the business has performed poorly since the separation, was it as a result of the distractions of the marital dissolution or have business conditions changed, and how does this affect the value?
- What is the proper (required) date of the valuation? Is it the date of the separation, the filing, or the trial?
As you can see, divorce valuation creates a host of legal and valuation issues, which is why you need the services of leading experts like ABA members.
Such appraisals usually focus on two very complicated issues: the value of goodwill and valuation discounts. Goodwill is an invisible asset that usually does not appear on the financial statements. It consists of components such as the reputation of the business and its employees, its trade secrets, location, and many other factors. It may or may not, however, be a marital asset, and that is a legal determination.
In a similar vein, business interests of less than 50% often lack control over the course of a business, and there is virtually no market for them. As a result, the values of such interests are often reduced (discounted) to reflect these impairments. ABA professionals are industry leaders in the quantification and substantiation of these discounts, where legally applicable.
Dissenting Shareholder Matters
Conflicts may arise between shareholders regarding the direction of a business. Most state’s statutes grant minority (“dissenting”) shareholders certain protections when those in control take action with which they disagree.
The minority shareholder(s) may then file legal action to have the corporation purchase their shares at fair value, the standard used in this type of litigation.
Fair value is defined as the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable.
This definition addresses only the effective date of the value, which leaves the definition of “value,” or the standard of value, to the courts. This difference varies significantly from state to state. When ABA appraisers are retained by an attorney in these matters, it is the attorney’s responsibility to establish the definition of value.
Damages and Lost Profits
In some disputes, the plaintiff has been damaged (caused economic harm, such as loss of profits) by an alleged action of the defendant. ABA Professionals are experienced in the proper way to determine, value, and support damages, working closely with your attorney to make sure that our work complies with relevant laws and statutes.
Forensic Accounting
Some ABA professionals are Certified Public Accountants and Certified Fraud Examiners, qualified to help reconstruct financial statements when the integrity of the available data is in question.
