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Monthly Archives: February 2019

We have distilled decades of experience at the intersection of law, business and finance into a suite of articles to help our clients make sense of business valuation, forensic accounting, and litigation support. Please visit our site regularly for our latest content.

  We are presently working of several assignments concerning dissenting shareholder disputes.  Attorneys that represent clients in such matters can attest that there are many challenges unique to these cases.  One of them, and perhaps the most prominent, relates to the value of the business subject to the dispute.  Within this broad context, attorneys need to be familiar with a number of valuation issues affecting their case.  These often include a familiarity of the standard of value, the valuation date, and valuation method to be employed. This week’s blog briefly discusses these issues. Hopefully, it will set you in the right direction. Standard Of Value The standard of value for dissenting shareholder cases in most states is fair value, although the term is subject to different statutory and judicial interpretations. Generally, fair value is defined as the value of the plaintiff’s shares immediately before the corporate action that the shareholder objected to. Fair value typically excludes any appreciation or depreciation related to the corporate action unless exclusion would be inequitable. This definition may not necessarily be synonymous with the “fair market value” standard of value. For instance, the dissenting shareholder is not usually a willing participant in the transaction; nor is the transaction consummated on an objective, unbiased basis. Also, fair value usually doesn’t always include discounts for lack of control and marketability. Some jurisdictions may recognize one of these discounts — or leave the application of these discounts to the court’s discretion based on the case’s facts and circumstances. […]


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Recently, while testifying to the fair market value of a closely-held business, the attorney began off-scrip and asked, “Mr. Gottlieb, what is valuation?” He didn’t ask me to explain the genesis of the fair market value standard or the premise of value used in my report.  He completely ignored the first set of questions we carefully planned. My initial response was, “excuse me”.  He repeated the question, “What is valuation?” Not to lose the attention of the Judge, I responded with confidence, “Valuation is the prophecy of the future”. With that, the usual and customary questions defining the general valuation theory and how one selects the most appropriate method for each instance quickly ensued.  We were back on track, following the script that has been written many times before. So, now that we are clear what valuation is, the next question – How is the future determined? – needs to be addressed. The income approach is often used to determine the initial indication of value.  Simply stated, the income or cash flow of the business that is expected to continue in perpetuity is utilized. In this week’s blog, we are providing our readers with a cram course comparing and contrasting the differences between the Discounted Cash Flow and Capitalization of Earnings Methods. The Discounted Cash Flow Method. The International Glossary of Business Valuation Terms defines discounted cash flow as “a method within the income approach whereby the present value of future expected net cash flows is calculated using a discount […]


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