As BVWire recently reported, the latest development in the long-running Brundle ESOP litigation is a lawsuit the trustee has filed against the very ESOP appraiser it once had hired to work on the case. After paying the $30 million judgment, the trustee is currently trying to obtain contribution from the nonfiduciary ESOP appraiser based on a number of valuation errors the Brundle court cited in its ruling. Veteran appraiser Jim Alerding (Alerding Consulting) has the following comments.
Alerding says this offshoot from the notorious Brundle case is shaping up to be a battle of experts on technical business valuation issues. He notes that the Brundle court had taken particular issue with the ESOP appraiser’s approach to determining beta. The court later acknowledged that it had misinterpreted what beta measured, i.e., the risk of a particular industry relative to the risk of the market as a whole, but this misunderstanding didn’t change the overall outcome of the case.
Alerding says he is “not a fan at all of Betas.” He notes the selection of an industry risk is a judgment call by the valuation analyst. “I am sure if this litigation over contribution continues, there will be valuation analysts willing to testify on both sides of the issue, which makes this a good case for settlement.”
As Alerding sees it, “regardless of the outcome, this case puts valuation analysts on notice that performing valuations for ESOP transactions is risky business. There is no doubt in my mind that the Department of Labor has been on a crusade to wipe out ESOPs, and litigations such as the Brundle suit provide a map as to how to get there.” “I have valued ESOPs a number of times in my career, but I would not touch one now,” Alerding says.
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