Judge, in approving MUM, also credits an expert’s explanations

BVWireIssue #113-5
February 29, 2012

Just last year, Judge Carl P. Funderburk denied a Daubert-type challenge to the multiattribute utility model (MUM) in Lieberman v. Lieberman, No. FD-2008-956 (Tulsa, Okla.). Developed by BV appraiser David Wood (Wood Valuation), MUM permits an expert to allocate the goodwill value of a business between its enterprise and personal or professional components.

“What I liked about MUM is that it allows the expert to take two, eight, six, or 12 attributes that describe a business and weight the attributes to challenge and confirm the expert’s conclusions,” says Judge Funderburk. “While MUM is subjective, it provides experts with the means to explain rationally the attributes they used and the weights they assigned.” In coming to an ultimate conclusion of goodwill value, the judge agreed with the expert’s selected attributes, but added an additional element to account for the brand names sold by the business. “The valuator needs to be able to see the multiple layers of goods and services that make up the business to better assess the factors and benefits of MUM.”

Words of advice for all BV experts: “When I have valuation or CPA experts on the stand, sometimes it is difficult to follow their assumptions,” says Judge Funderburk. “Their ability to explain the rationale they used in each step goes a long way, at least with me.” Read the complete interview with the judge—as well as the expert, Don B. DeSelms (Sullivan & Associates), who presented the MUM analysis at trial, in the current Business Valuation Update.

Please let us know if you have any comments about this article or enhancements you would like to see.