Valuation experts who testify should not assume that the courts view them as independent parties who are advocates for their opinion rather than for the client. We’ve heard judges say they perceive testifying experts to be hired guns, but a recent case actually cites some studies that they believe back up their feelings. In the Cellular case (see below for citation), the court wrote: “As this court’s experience with appraisal cases demonstrates plainly, valuation professionals reach outcomes that are influenced by the interests of the party that retains them, even when ostensibly acting as disinterested experts. Scholars have reached the same conclusions.” The first sentence contained a footnote to the Dole Food case (In re Appraisal of Dole Food Co., Inc., 114 A.3d 541, 557 & n.10 (Del. Ch.2014)) that cited cases “recognizing the omnipresent ‘widely divergent, litigation-driven expert valuations’ this court sees in appraisal proceedings.” The second sentence footnoted two studies, “An Analysis of Private Versus Public Firm Valuations and the Contribution of Financial Experts,” and “On the Added Value of Firm Valuation by Financial Experts,” that the court says present evidence of bias in expert valuations.
Later in the Cellular opinion, another, more recent, study was cited: “Are Business Valuators Biased? A Psychological Perspective on the Causes of Valuation Disputes.” That study, the court writes, “found ‘clear evidence for the existence of … engagement bias’ in purportedly neutral valuation professionals who were assigned randomly to perform valuation tasks on behalf of a buyer or a seller.”
Unless these studies are refuted, they may keep showing up in future opinions. In the meantime, testifying experts may have to deal with the hired-gun perception a judge may have.
An analysis and full opinion of the case, In Re Cellular Tel. P’ship Litig., 2022 Del. Ch. LEXIS 56, are available on the BVLaw platform. Also, there is commentary on the case in two articles by Gil Matthews (Sutter Securities) and BVR legal editor Jim Alerding (Alerding Consulting) in the June 2022 issue of Business Valuation Update.