Courts tend to prefer the market approach in business valuation, because it’s based on real-world “comparable” transactions. This article identifies different pricing multiples that may be used in the market approach and explains when each one tends to work best. Statistical tools can help business valuation experts evaluate which multiples are most relevant based on market evidence.
The laws in most states make a distinction between marital and separate property for purposes of marital dissolution. In cases where property increases in value during the marriage, experts may be hired to determine whether that appreciation is passive or active. This article explains the difference between these terms and why it matters when divvying up a marital estate in divorce. A sidebar highlights the need to take a holistic approach when differentiating between the active and passive appreciation when valuing a business.
Bair v. Bair, 214 So. 3d 750 (Fla. 2nd DCA 2017)
The Tennessee Supreme Court recently turned to case law from Delaware to decide on the appropriate method to value shares in appraisal rights actions. This article explains how the Delaware Block method works and why the state supreme court decided to allow “any technique or method that’s generally acceptable in the financial community and admissible in court.”
Athlon Sports Communications v. Stephen Duggan, et al., No. M2015-02222-SC-R11-CV, June 8, 2018
Weinberger v. UOP, Inc., 457 A.2d 701, 712-13, Del. 1983
The U.S. merger and acquisition (M&A) market hit a record high in 2018. That momentum is expected to continue in 2019. But, before you get swept away in the hype, it’s important to do your homework. This article explains the importance of conducting thorough due diligence and preparing detailed financial projections before you close on a deal.
A recent survey reported an active merger and acquisition (M&A) market for small businesses in 2017 — and that momentum has continued in 2018. This article explains how business valuation professionals can help owners prepare for sale and increase the chances of receiving a premium selling price.
Under the market approach, a business’s value is derived by comparing it to real-life transactions involving similar private or public companies. This article outlines common pricing multiples, such as price-to-earnings and price-to-discretionary-income, and discusses some pros and cons.
Many business owners plan to reinvest their tax savings from the Tax Cuts and Jobs Act (TCJA) into their operations. Strategic investments shouldn’t be made solely on gut instinct, however. This article explains the importance of projecting cash flows and using them to calculate the accounting payback period, net present value (NPV) and internal rate of return (IRR) to evaluate a project’s potential. A sidebar provides a reminder of TCJA provisions that are expected to lower business taxes.
Valuing a business using projected earnings is a complex undertaking. This article identifies common pitfalls that novice or untrained valuators tend to make when using the income approach. A sidebar compares and contrasts two methods that fall under the income approach: the capitalization of earnings and discounted cash flow methods.
One way business valuation experts gauge company-specific risk is to benchmark financial performance over time and against competitors. This article explains critical benchmarks that experts monitor: profitability, liquidity, asset management and leverage. A sidebar discusses the importance of understanding differences in accounting methods when analyzing financial results.
Too often, business valuation experts are hired months after a case is filed or just before it goes to trial. This limits the documents and procedures that they can use to perform their analysis. This article reminds attorneys that it’s important to hire experts early in the litigation process and ask for relevant items during discovery.