Michael B. Lehner, CPA/ABV, CFE, ASA
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Can joint business valuation experts really work?

joint valuation experts meeting

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Many courts and attorneys encourage the use of a joint valuation expert, rather than two dueling valuators. This can save time and money. It can also eliminate the perception that each side’s expert is a hired gun, advocating for his or her client’s financial interests.

Establish a solid foundation

Consider three sisters who took over their father’s creative agency when he retired. After a few years, the youngest wanted to sell her one-third interest, but the sisters couldn’t agree on its value. So their attorney recommended that they hire a joint appraiser to come up with a fair, objective buyout price.

The parties stipulated to certain facts and scope limitations in the valuator’s engagement letter. First, the interest’s value would be based on the last three years’ financial statements, which the parties agreed accurately reflected the firm’s earnings capacity and financial standing.

In addition, they agreed that these reports required no adjustments for discretionary, contingent or nonoperating items. In terms of the interest’s relative lack of control and marketability, the parties agreed to apply a 15% combined discount from the preliminary value of the business.

These initial steps helped foster an atmosphere of trust and collaboration. They also minimized surprises when the valuator shared his conclusion. Thanks to the effective use of a joint appraiser, this buyout was completed within a month of signing the engagement letter — and the parties avoided the arguments and acrimony that tend to accompany shareholder buyouts, especially among family members.

Understand the limitations and pitfalls

Joint appraisers don’t work in every situation. Sometimes the parties can’t overcome deep-seated feelings of animosity and distrust, no matter how many details they stipulate to in advance. These feelings may be intensified by the disproportionate amount of time valuators inevitably spend with controlling shareholders as they gather data about the company.

Some litigants also worry about the fact that, unlike communications between expert witnesses and attorneys, communications with joint appraisers aren’t entitled to attorney-client privilege. Parties also might be concerned that, if a joint appraiser doesn’t work out, they’ll need to start over with new experts.

Rebuild trust for the future

Always consider the unique facts and circumstances of the case before using a joint appraiser. If the parties seem capable of working together and openly sharing information, a joint appraiser can save time and money — and rebuild trust. The last component can be especially beneficial if the parties hope to, after the dust settles, have an ongoing relationship, such as family business owners who will spend the holidays together or divorcing spouses who will co-parent their children.

Michael Lehner

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. In addition, any discounts are used for illustrative purposes and do not purport to be specific recommendations.