Purchase Business

Buy-Sell Agreement

Estate & Gift Tax

Partner Disputes

Dissenting Proceeding

Divorce Proceeding

VALUATION SERVICES

Purchase and Sale of a Business

Engagements associated with the acquisition or sale of a business differ from other types of valuations. Because the valuation is part of a transaction, or a potential transaction, it should be viewed within the context of the overall acquisition process. In addition to valuation, that process includes negotiating a price, structuring the form of the transaction and determining all of the other terms of the sale.

Acquisition-oriented engagements are influenced by expectations about the prospective performance of the business being valued. The buyer will approach an acquisition with specific objectives in mind and usually anticipate increased efficiencies or competitive advantages. These may be realized through vertical integration, expansion of product lines or production facilities, access to research and development capabilities, or simply through the removal of a competitor from the marketplace. In any event, the acquirer’s perspective on value is directly related to anticipated future benefits.

Although the process can become somewhat subjective for both the buyer and the seller, the professional valuator must exercise professional judgment. We are experienced in the full scope of acquisition management from the screening and selection stage, the due diligence process and the negotiating and structuring of the transaction. Following the consummation of the deal, additional services can be provided to ensure the successful integration of the business operations.  Back to Business Valuations

Buy - Sell Agreements

Buy/sell agreements should be an integral component for all owners of closely held businesses. Such agreements are designed to enable owners to liquidate their interest in a business upon the occurrence of a specified event such as their willful withdrawal from the business or their disability or death.

A well-structured buy/sell agreement can do the following:

Because a buy/sell agreement is a legal document, it should be drafted by an attorney. However, we can play an important role in structuring the Agreement, especially in choosing the method for determining the value of the withdrawing interest. If this aspect of the Agreement is not properly addressed, an otherwise well-conceived and executed agreement can be rendered ineffective or lead to litigation.  Back to Business Valuations

Estate and Gift Tax Planning

Valuation consultants are often asked to estimate the value of a closely held company, or interest in a business in connection with the filing of an estate or gift tax return. Because the maximum estate and gift tax rate is 50%, there is a high probability that such a return will be subject to IRS audit. In fact, the IRS normally audits more than 50% of the returns of those estates valued in excess of $5 million.

A recent Tax Court case, Estate of Edgar A. Berg (T.C. Memo 1991-279), illustrates the importance of a thorough valuation. In this case the minority interest and marketability discounts used by the appraiser of a business interest owned by the estate were challenged by the IRS. The Tax Court sided with the IRS’s expert witness for two important reasons:

1. The IRS’s expert developed the discounts used by referring to specific studies and demonstrated how they applied to the value under dispute.
   
2. The IRS’s expert demonstrated his competence with superior education, experience, and professional credentials.

The estate’s valuation consultants made only general references to prior cases, which the Tax Court concluded were not relevant to the situation under dispute.

Another interesting aspect of Berg is that the Tax Court rejected the estate’s valuation entirely and accepted the value determined by the IRS in total. In the past, the Tax Court has often "split the difference" at some point between the values suggested by both sides. It has been suggested that Berg continues a trend started with the Buffalo Tool and Die case (74 T.C. 441,1980) towards the courts favoring the side with the most comprehensive appraisal and qualified appraiser. Back to Business Valuations

Partner Disputes and Dissenting Shareholder Actions

Owners who cannot agree on issues, such as how to manage the business, may decide that one or more shareholders should buy out the interest of the dissenting shareholder (partner).

Statutes affecting minority stockholders’ rights vary greatly from state to state. These statutes, and the case law developed pursuant to each, can have an extremely important bearing on the values of certain minority or majority interests in many situations.

If a buy/sell agreement does not exist or fails to cover this situation, the valuation issues raised by a shareholder dispute coincide closely with those present in arms-length sales. We are experienced in providing litigation support and expert witness testimony to support our determination of value in such disputes.  Back to Business Valuations

Divorce Proceedings and Litigation Support

When two people divorce, their assets and liabilities are divided in accordance with state law. Such assets are usually divided based on their fair market values. When one of the assets is an interest in a closely held business, a valuation consultant should be involved to estimate the value of the interest.

In a divorce petition, both spouses typically hire attorneys. The attorneys may then require the engagement of consultants or expert witnesses. Generally, a valuation consultant is engaged to perform a valuation because there is, or is expected to be, a lawsuit. In reality, less than 5% of divorce cases actually go to trial.

Divorce cases are generally heard by matrimonial judges who have three primary responsibilities:

1. To decide various custody issues, such as which spouse will have primary custody of minor children.
2. To decide who should pay support payments (child support and alimony), how much such payments should be, and when they should cease.
3. To decide what is marital property, its "value", and how it will be divided in accordance with the laws of the state.

It is not unusual that an interest in a closely held business or partnership is one of the most significant marital assets. Further, the spouse involved with the business generally intends to continue such involvement. Therefore, the value of the business interest becomes a crucial element in the overall manner in which all other marital assets are divided.

We can be engaged directly by the client or by the client’s attorney. Regardless of whether the case goes to trial or a negotiated settlement is reached, the independent, objective estimate of value can have a lasting impact on the agreed upon terms, regardless of which spouse engages the consultant.

In addition to business valuations, the circumstances of a divorce engagement sometimes involve other services such as identifying separate assets and liabilities, scheduling income that is available for payment of child support and alimony, and finding assets or hidden income by applying various forensic examination procedures. Expert witness testimony can be provided to support our findings and determinations.  Back to Business Valuations

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