Using a third business valuation expert to bridge the gap

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When each side to a legal dispute hires its own business valuator, the two experts are unlikely to come up with exactly the same conclusion — even if they’re both credentialed and use proven valuation techniques. For this reason, it sometimes makes sense to hire another valuator to identify and reconcile key differences. A third expert can be particularly helpful when the gap between expert opinions is wide and the underlying reasons are unclear.

Keep costs down

Parties to a lawsuit may hesitate to hire a third expert, simply because they don’t want to incur more professional fees. But the use of a third expert can mean the difference between settling amicably and engaging in a drawn-out courtroom battle. If you avoid going to court, you’ll save thousands of dollars — and, in effect, the expert will pay for him- or herself.

It’s also important to understand that a third expert is almost always less expensive than hiring the first round of experts. One reason is that the parties often share the cost of obtaining a third opinion. What’s more, third experts can leverage off the original reports and any assumptions that the parties can stipulate to in advance. In many cases, these valuators issue less expensive, abbreviated “letter” reports.

Define the parameters upfront

The trick to minimizing the costs of using a third expert is to work out the details up front with the opposing side, including:

• Who will select the expert?
• Who will pay the expert’s fees?
• Which documents and workpapers will the expert be allowed to use?
• Should the third expert perform other valuation procedures, such as interviewing management and conducting site visits?
• What type of report will the expert issue?

Also give some forethought to the minimum qualifications an expert should possess, including professional credentials, years of experience and industry experience

Decide how to use the report

Another important detail to iron out before the third expert finishes his or her report is how the parties will use the conclusion. For example, you might decide to average all three conclusions together. Or you might agree to disregard the other conclusions and use the third valuation as the final value.

Any of these options are usually preferable to simply “splitting the difference” between two reports, especially if one side perceives the opposing expert as unqualified or biased. A third expert can provide fresh perspectives, reduce animosity and help the judge make a better-informed decision if you’re unable to settle out of court.