Business Valuations – Litigation Landmines (Part 2)

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It is not uncommon for the valuation of a privately-held business to be one of the central issues in a litigation matter, such as a shareholder dispute or a family law matter. When this is the case, the attorneys representing the parties to the dispute will need to be on the lookout for litigation landmines.

As previously covered in Part 1 of this series, we were assisting in a family law matter in Virginia and were provided a prior valuation report of a business to review. Aronson expressed our concerns with the purpose of the valuation (gift tax) and the standard of value (fair market value) to the client. We continue that discussion with another concern, the date of the valuation. The valuation date of the report preceded the date of the divorce trial by about 15 months. Business valuation reports are date-specific, and while it is possible that the value of the business had been static, based on our initial research it appeared the company had achieved a few significant milestones during the intervening months.

There are no hard and fast rules concerning business valuation reports and the length of time until “expiration.” A valuation report could be more than 15 months old and still reasonably represent the value of a business, or a report could be three months old and be woefully out-of-date. Some factors that could influence this include: the industry, addition/loss of contracts or customers, stability of management, technological changes and changes in the competitive environment.

litigation

Depending on the facts and circumstances of a matter, as well as the jurisdiction, the date of a valuation can be a critical, yet sometimes overlooked, element in a litigation matter. For example, in the aforementioned family law matter in Virginia, any of the dates to the left could be the date(s) required to have a business valued.

Navigating and deciphering a valuation report can be tricky business. Making a determination as to its current validity as well as identifying the proper valuation date(s) are just some of the many issues to be addressed. To learn more about how Aronson’s Financial Advisory Services team helps attorneys untangle complex financial disputes and conduct accounting investigations, click here; or, please contact Will Kunz at 301.222.8216 or wkunz@aronsonllc.com.

About William Kunz

William Kunz has written 2 post in this blog.

William Kunz is a senior manager in Aronson's Forensic & Valuation Services Group. He has more than 17 years of corporate finance, investment banking, valuation, litigation support and business consulting experience, serving various types of businesses, including retail, wholesale, service, healthcare, hospitality, professional services, venture capital, construction and information technology businesses. William specializes in litigation support services, such as valuations of closely-held businesses, evaluation of accounting and tax issues, financial analysis and investigations, general business issues and related forensic support services. He has submitted more than 100 expert reports and valuations for federal litigation, as well as litigation in Virginia, Maryland and Washington, D.C.

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