In commercial tort claims, courts must decide how much damage the plaintiff suffered from the defendant’s alleged wrongdoing. This article summarizes a recent Eighth U.S. Circuit Court of Appeals case that upheld a jury’s damages award based on lost market value, even though the business wasn’t completely destroyed. A sidebar highlights the benefits of hiring a separate financial expert to conduct a formal appraisal review.
West Plains, LLC v. Retzlaff Grain Co., 870 F.3d 774, 8th Cir., August 30, 2017
In recent years, Delaware’s Supreme Court has shown its preference, under the right circumstances, for market-based indicators of value in statutory appraisal cases. This article summarizes a recent dissenting shareholders case in which the court concluded that the best evidence of fair value was the target company’s unaffected stock price. Conversely, a sidebar highlights another case in which the court relied on an expert’s discounted cash flow analysis in the absence of reliable market-based indicators of value.
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.