We’ve all heard it: “Valuation is more of an art than a science.” But one valuation analyst puts it differently. Serena Morones (Morones Analytics) says it’s an “iterative” process. Speaking at a recent BV expert seminar attended mostly by attorneys with little prior exposure to business valuation, she explained that, upon engagement, the appraiser starts gathering information and outlining the issues. As she learns more, she has to keep circling back to tweak assumptions and calculations—and even course-correct. It’s also important to keep the big picture in mind and not get lost in complexities, or risk being “precisely wrong.”
The seminar was conducted by the Multnomah Bar Association of Portland, Ore., and Morones’ presentation also featured two local attorneys, Kim McGair (Farleigh Wada Witt) and Keith Ketterling (Stoll Berne).
Close collaboration: All three panelists agreed that close collaboration among the attorney, expert, and the client was key to getting the most out of the appraiser’s work. A lawyer should attend any interview the appraiser has with the client’s management because his or her knowledge of the case and the legal issues augments the expert’s questioning. “Inform yourself” about all the factors that may figure into the valuation in order to be able to “push” the expert, one attorney exhorted the audience.
Two is better than one: One of the attorneys said he preferred hiring both a testifying and a consulting expert, assuming the purse allowed for it. The consulting expert can bring a different perspective with which to challenge the testifying expert’s methodology and assumptions before the opposing side does so in deposition or at trial.
Know your weaknesses: All speakers agreed that preparing the expert for deposition and trial was crucial. A deposition serves to gather facts and assumptions; it pins the expert down to a position. It’s not wise to subject an expert to cross-examination at that point, one of the attorneys said.
Preparation means asking the expert to identify vulnerabilities in his or her report and force him or her to formulate a cogent response to any potential questions. Morones said that role-playing was a great way to experience the adversarial process ahead of time and feel more at ease in the real situation.
One of the attorneys said he liked to create a spreadsheet to simulate the opposing expert’s analysis and play around with the variables to understand the key assumptions. He also uses his document as a guide to questioning the expert at deposition or in cross-examination.
The second attorney cautioned against fighting over every variable. The key for the expert is to know which variables matter most to the conclusion of value and defend those. Morones did say that an expert’s grasp of detail and her ability to point out inaccuracies to the court are an instant boost to the expert’s credibility.
Avail yourself of translation aids: Morones agreed that experts operate on a different level of communication. Visual aids that make the expert’s testimony comprehensible to jury members are invaluable, as are trial consultants who can take valuation concepts and formulate them in a way laypeople can understand.