Business Valuation Services

BUSINESS VALUATION EXPERT WITNESS AND LITIGATION-SUPPORT SERVICES

SUPER APPRAISERS®ELITE-RATED

Elite-Rated member of the peer-voted Super Appraisers® Global Network of internationally-recognized appraisal luminaries.

Internationally Accredited Business Valuation Instructors

RICS only Business Valuation Expert Witness Accreditation Service (EWAS) and Dispute Resolution Service (DRS) Certifications in the Americas.

SUPER APPRAISERS®ELITE-RATEDBusiness Valuation Services

PREVAILING IN BILLIONS AT TRIAL AND ADR

EDS Business Valuation experts are American Society of Appraisers (ASA) and/or The Royal Institution of Chartered Surveyors (RICS) business valuation instructors and reviewers—all well-published luminaries in the global valuation community. We specialize in providing Business Valuation Expert Witness testimony services and we have prevailed in billions of dollars at issue in some of the world’s most important—high-profile—and valuable Business Valuation-related litigation and Alternative Dispute Resolution (ADR).

Our Business Valuation experts understand, develop, and report critical multi-disciplinary component value drivers and provide the insight, research, and professional opinions of value that are independent and objective and render credible findings that will withstand scrutiny and challenges from regulatory, judicial, and taxing authorities.

INTERNATIONALLY ACCREDITED BUSINESS VALUATION INSTRUCTORSEDS Business Valuation Services Experts are internationally accredited Business Valuation, Uniform Standards of Professional Appraisal Practice (USPAP), International Valuation Standards (IVS), and Royal Institution of Chartered Surveyors (RICS) ‘Red Book’ instructors.

SUPER APPRAISERS®ELITE-RATEDEDS is an Elite-Rated member of the peer-voted Super Appraisers® Global Network of internationally recognized appraisal luminaries.

RICS ONLY BUSINESS VALUATION EXPERT WITNESS CERTIFICATION IN THE AMERICASWe hold the only Royal Institution of Chartered Surveyors (RICS) Business Valuation Expert Witness Accreditation Service (EWAS) and Business Valuation Dispute Resolution Service (DRS) Certifications in the United States and all of the Americas.

PREVAILING IN BILLIONS AT TRIAL AND ADRBUSINESS VALUATION EXPERT WITNESS SERVICES

ASA | RICS | USPAP | IVS BUSINESS VALUATION INSTRUCTORS

EDS Business Valuation Expert Witnesses, having prevailed at trial and Alternative Dispute Resolution in multiple multi-billion dollar matters, are highly trained—highly skilled—highly credentialed multidisciplinary appraisal review instructors with decades of courtroom experience who master the facts and are able to present clear, objective, and compelling findings to judges and juries.

BUSINESS VALUATION SERVICES

SPECIALIZING IN BUSINESS VALUATION EXPERT WITNESS AND LITIGATION-SUPPORT SERVICES

A Business Valuation expert witness is a qualified professional appraiser who provides expert testimony on the value of a business in a legal or dispute resolution context. Business valuation experts are typically engaged in cases such as divorce proceedings, shareholder disputes, mergers and acquisitions, and bankruptcy proceedings.

EDS Business Valuation Services Experts are internationally-accredited Business Valuation, Uniform Standards of Professional Appraisal Practice (USPAP), International Valuation Standards (IVS), and Royal Institution of Chartered Surveyors (RICS) ‘Red Book’ instructors.

We specialize in providing Business Valuation Expert Witness testimony and litigation-support services, and we have prevailed in billions-of-dollars at issue in some of the world’s most important—high-profile—and valuable Business Valuation-related litigation and Alternative Dispute Resolution (ADR).

EDS pioneered the appraisal review profession—the cornerstone of Business Valuation Expert Witness Testimony—and directed the development, writing, and implementation of the appraisal review Principles of Valuation and best practices that are taught to and in use today by professional valuers, legal experts, and government agencies throughout-the-world.

We hold the only Royal Institution of Chartered Surveyors (RICS) Appraisal Expert Witness Accreditation Service (EWAS) and Appraisal Dispute Resolution Service (DRS) Certifications in the United States and all of the Americas—one of only a handful of such Appraisal Expert Witness and Appraisal Dispute Resolution Certifications in the world.

A business valuation expert witness will use their knowledge of business valuation techniques and methodologies to determine the value of a business. They may use a variety of methods, such as discounted cash flow analysis, market comparables analysis, and income capitalization, to determine the value of the business. They will also consider the specific circumstances of the case, such as the size and nature of the business, the industry and market conditions, and the financial performance of the business.

The business valuation expert witness will also research and analyze relevant financial data, and may interview key stakeholders, such as management, employees, and customers to gather additional information. They will then provide a written report outlining their findings, including the value of the business, and will be prepared to testify in court or in arbitration or other Alternative Dispute Resolution proceedings.

Business valuation expert witnesses must have the appropriate qualifications, education, and experience in the field of business valuation. They will often hold professional designations such as ASA (Accredited Senior Appraiser) with the American Society of Appraisers or other similar accredited professional designations and organizations.

EDS Business Valuation experts are American Society of Appraisers (ASA) and/or The Royal Institution of Chartered Surveyors (RICS) business valuation instructors and reviewers—all well-published luminaries in the global valuation community. We specialize in providing Business Valuation Expert Witness testimony services and we have prevailed in billions-of-dollars at issue in some of the world’s most important—high-profile—and valuable Business Valuation-related litigation and Alternative Dispute Resolution (ADR).

Our Business Valuation experts understand, develop and report critical multi-disciplinary component value drivers and provide the insight, research, and professional opinions-of-value that are independent and objective and render credible findings that will withstand scrutiny and challenges from regulatory, judicial, and taxing authorities.

Overview of Business Valuation Methodology

Correctly valuing a business is central to any successful M&A transaction. As much art as science, valuation strives to quantify the financial benefits of owning the business today and in the future. Here are the core principles of valuation, components of business value, and the most common methods used to assess it.

Business Valuation Core Principles

Which will yield greater contribution to equity holders: liquidating the business’s assets, or operating it as a going concern? The answer lies in comparing (a) the value of the business based on the cash flows it is expected to generate discounted to reflect the associated risk, and (b) the estimated net proceeds that could be realized by selling the underlying assets and settling all liabilities.

This foundational question gives rise to the two most common valuation approaches income or cash flow-based, and asset-based. If a business is viable on a stand-alone basis, valuing it as a going concern based on its cash flows will generally be more appropriate and yield a higher value.

With this as a starting point, we look at some of the core principles of valuation which apply across private and open-market transactions, reflecting economic theory, common practice, and legal precedent[1]:

  • Value is specific to a point in time, reflecting available information and reasonable expectations at that time.
  • Capital Structure – Value should be independent of how a business is financed, so enterprise value is calculated assuming a “normalized” capital structure, before debt servicing costs.
  • Cash Flow – For an economically viable business, value is mainly a function of future discretionary cash flows.
  • Rate of Return – Market forces – including economic conditions, borrowing rates, the market’s view of an industry’s growth prospects, competitive landscape and risks, and company-specific risk factors – determine the required rate of return built into valuation models.
  • The more liquid a business or equity interest (i.e., the number of prospective buyers at the relevant point in time), the higher the value.
  • Higher Net Tangible Operating Assets will tend to support a higher valuation, even when using cash flow-based techniques, as they imply barriers to entry, greater access to debt financing, inherent liquidation value, and lower risk than intangible assets (i.e., goodwill).
  • Commercial and Non-Commercial – Commercial (i.e., transferrable) and non-commercial (i.e., specific to an owner) value are distinct concepts, with the latter accounting for differences in what prospective buyers may be willing to pay for a business.
  • Controlling vs. Minority Interest – The controlling interest in a privately held business may have a higher value per share than a minority interest in the same company; this is not typically the case in publicly traded companies, whose minority shareholders have access to a liquid market.

Components of Business Value

The enterprise value of a business is its total value, including both its interest-bearing debt and equity components. It is the total value of:

  • Interest-bearing debt and equivalent liabilities
  • The value of all outstanding shares, or the owners’ equity, is often referred to as the “intrinsic value” of the business. This, in turn, is comprised of:
    • Adjusted net book value, i.e., tangible operating assets less liabilities
    • Intangible value, including identifiable intangible assets (e.g., brand names, patents, copyrights, etc.) and non-identifiable intangible assets, or goodwill
  • Any incremental value above the intrinsic value, as perceived by a buyer, resulting from expected synergies or other economic benefits that are not available to the business on a standalone basis. Intrinsic value plus expected synergies is known as “strategic value”.

Business Valuation Methods

Cash Flow-Based

Because of their ability to reflect the future economic benefits of an ongoing business, cash flow methodologies are most commonly used in business valuation. There are various ways to estimate value based on cash flow – each with its unique benefits and limitations – including applying a multiple to an income number like EBITDA, capitalizing cash flows, and discounting cash flows. All of these methodologies require:

  • An estimate of prospective future cash flows, with discretionary cash flow considered to be the most accurate measure
  • Determination of the risk involved in achieving those cash flows, which is then expressed as a rate of return (discount rate or capitalization rate), or valuation multiple
  • The deduction of interest-bearing debt and equivalent liabilities from the enterprise value, which normalizes the capital structure and yields the equity value of the business
  • An assessment of the business’s underlying net assets, and adjustments to reflect an excess or deficient net operating assets, as well as redundant assets (e.g., owned building or plane)

The art and judgment in this type of valuation lie mainly in determining prospective cash flows and the appropriate level of risk to apply. Note that the same enterprise value can be calculated using a conservative cash flow number and lower risk level or a more ambitious cash flow and a higher level of risk.

Asset-Based

We use asset-based valuation methodologies when a business is not viable as a going concern, where it is more practical for an owner to dissolve rather than sell a small company, or for capital-intensive businesses where the net asset value may exceed the present value of cash flows. The most common asset-based methodology calculates the liquidation value, though in some cases adjusted net book value or real estate valuation are used.

Liquidation can be either forced (e.g., when a failing company goes into receivership) or voluntary, and take place either immediately or over an extended period of time. Voluntary liquidation typically involves circumstances more favorable to the owner and yields a higher valuation. When liquidation takes place in a relatively short period of time, it is considered less risky and avoids prolonged overhead expenses, often resulting in a higher valuation than a more extended process.

Under the liquidation value methodology:

  • Assets on the balance sheet are restated to reflect their current net realizable values (sale price less disposition costs)
  • Liabilities are deducted from the expected proceeds resulting from the sale of the assets, normally at face value
  • Liquidation costs are deducted to calculate the net proceeds before income taxes
  • Corporate income taxes are deducted, resulting in the “proceeds available for distribution”, or liquidation value of the business

Industry or Business Model-Specific Asset Based

Occasionally a buyer will focus entirely on the acquisition of an industry or business model-specific asset, like nursing home beds or hot water tanks or subscriptions for a service or product. In particular, “The subscription business model is booming. Previously dominated by the likes of newspapers, magazines, gyms, utilities, and telecommunications firms, … business-to-consumer subscription businesses have attracted more than 11 million U.S. subscribers in 2017, and the industry as a whole has been growing at 200% annually since 2011.”

In a sense, these are both cash flow and asset-based valuations. Typically, we build revenue and profitability per asset unit, costs of acquisition, rates of turnover, etc. into our cash flow and risk assumptions. We also look at the multiples applied to the specific asset in comparable transactions.

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Our Valuation and Advisory Services Group is headed by Executive Managing Director Steven N. Siegler, ASA, FRICS. Mr. Siegler is an Accredited Senior Appraiser (ASA) and was honored to serve as the founding International Chairman of Appraisal Review and Management (ARM) for the American Society of Appraisers from 2002-2011. Mr. Siegler co-authored and directed the development and implementation of the ASA’s Appraisal Review and Management Principles of Valuations series of courses and best practices that are now taught to professional valuers, government officials, legal experts, and many others throughout the world.

When, as part of Dodd-Frank, the Federal Deposit Insurance Corporation (FDIC) acting for and on behalf of the U.S. Federal Reserve and all inter-agency regulators sought the expertise to develop, implement and monitor the new National Appraisal Ordering and Appraisal Review Protocols for the United States and all U.S. territories, it came to Mr. Siegler and EDS.

Mr. Siegler holds international valuation accreditation as Fellow, Royal Institution of Chartered Surveyors (FRICS), and he is the only RICS accredited expert witness in the United States and the Americas—one of only a handful of such expert witnesses in the world holding the much-coveted RICS Expert Witness Accreditation Service (EWAS) Certification.

Mr. Siegler holds TS Clearance with the U.S. Government and he is uniquely qualified to practice before U.S. Government agencies in national security-related valuation and in other special matters.

Steven is an Elite-Rated member of the peer-voted Super Appraisers® Global Network of internationally-recognized valuation expert witness testimony luminaries. He has served as an expert witness valuer in U.S. state and federal courts, at international tribunals, and in valuation-related Alternative Dispute Resolution and he has personally prevailed in billions-of-dollars at issue in some of the world’s most important—high-profile—and valuable valuation-related cases.

We would welcome the opportunity to bring this level of Business Valuation expertise to you.

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