More insight on divergent valuation opinions

BVWireIssue #179-2
August 9, 2017

In last week’s issue, we pointed out that judges are still asking the question: How can two highly qualified and credentialed experts come up with such different numbers? They often assume it’s advocacy, but that’s not always (and should never be) the case. Legitimate differences in assumptions can cause two experts to disagree.

Added reasons: Veteran valuation expert Chris Mercer (Mercer Capital) points out in the latest issue of Value Matters that valuation opinions and valuation conclusions between experts differ for at least six reasons:

  • Differences in legal guidance or assumptions related to this guidance;
  • Differences in information availability;
  • Access to management and due diligence opportunities;
  • Differences in valuation approaches or methods;
  • Differences in appraiser judgments and assumptions; and
  • Mistakes.

In most cases, divergent expert opinions are due to differences in just a small number of assumptions, Mercer says. The “filters” courts use to weigh two differing opinions include the credibility of the report and of the expert’s testimony, consistency with the expert’s prior writings and rulings, and what is equitable in the eyes of the court. A major filter, though, is comparability—do the multiples in the valuation conclusions make sense when compared with available market multiples?

Mercer states that courts should assume the appraiser is neutral unless there is direct evidence to the contrary. We certainly agree with that but do not see the tide turning anytime soon.

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