I often have people referred to me say,
“I want to get my business valued. What will it cost?”
That’s a fair question. To which I usually respond with three more.
The client responses could range from:
These four situations are very different. In the first case, there may not be any transfer of wealth from the family group, but there will be for tax purposes. In the second case, it may be a friendly transaction, with no minority discount for a non-controlling interest. In the third scenario, it may or may not be friendly or go to trial. In the last case, the financier knows the difference between a Calculation Valuation Report (the lowest level of assurance), an Estimate Valuation Report, and a Comprehensive Valuation Report (the highest level of assurance). The purpose of the Valuation Report is a large determinant of the amount of work required and, therefore, the cost of the valuation.
Again there could be a variety of responses:
The amount of work required to value a group of operating companies would likely be more than the amount of work required to value a company which owns two commercial buildings.
Often a well written shareholders’ agreement stipulates how shareholders deal with each other upon the death of a shareholder, disability of a shareholder, when a shareholder wants to leave or wants you to leave. Many shareholders’ agreements, however, state that the value to be used among shareholders is to be a certain multiple of the average of the last three fiscal years’ earnings. While this approach may be relatively simple, it may result in unintended consequences if, for example:
To advise on the type of Valuation Report (such as a Comprehensive Valuation Report), the appropriate Valuation Date, the types of appraisals required from other professionals (e.g. real estate appraisal or Phase 1 Environmental Assessment) or to address if minority interests are even an issue, we would likely ask to see:
After reviewing all of the above we would be in a position to:
All of the above, plus additional information, would be covered in an engagement letter that we would ask you to sign.
Then we get started…