Court tweaks blue-sky method in valuing a car dealer

BVWireIssue #235-3
April 20, 2022

shareholder dissent/oppression
fair value, net asset value, normalization, shareholder oppression, auto dealership, valuation methodology, dissolution, blue sky

A Tennessee appellate court recently considered the Chancery Court’s determination of the value of an oppressed minority shareholder’s interest in an “ultra-high-end” car dealership. The valuation of one expert utilized the “blue-sky method,” a commonly used method to value the dealership and ultimately the minority interest. “Blue sky” represents the intangible value of a car dealership. A blue-sky multiple is applied to normalized earnings, and then the tangible net assets are added in to get the fair market value of the entire enterprise. The other side’s expert also used a blue-sky multiple but did not add in the tangible net assets, saying it would be “double counting.”

While the Chancery Court accepted the blue-sky approach, it did not accept either expert’s normalization factor and made its own determination. Additionally, the Chancery Court added back only half of the adjusted net assets. The case was appealed, and the appellate court affirmed the Chancery Court’s valuation and its methodology, saying it was “generally accepted by the financial community.”

The case is Buckley v. Carlock, 2022 Tenn. App. LEXIS 75; 2022 WL 593549, and a case analysis and full opinion are available on the BVLaw platform.

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