More support for questioning management projections

BVWireIssue #54-2
March 14, 2007

Remember the recent bankruptcy case that disallowed a “maverick” DCF methodology in calculating the debtors’ enterprise value?  (See BVWire # 51-1).   Well, the “rest of the story” has just been published: In re Nellson Nutraceutical (Jan. 18, 2007) has all the elements of an appraisal potboiler, including principal investors who “deliberately manipulate” management projections, leaving creditors and their valuations experts “completely in the dark” about the debtors’ true financial outlook.

The Delaware Bankruptcy Court condemns the investors but largely praises the three creditor’s experts, who maintained their independence and credibility throughout.  (The debtors’ expert appears to have been snared in the machinations.)  The peculiar twists of the case also posed this conundrum: “How does the Court rely on the expert testimony…that has been partially compromised by…management and its controlling shareholder?”

For the answer to this and a thorough, “three approach” determination of enterprise value, despite the flawed forecasts, click here for a free copy of the case abstract, to be published in the next issue of the Business Valuation Update™.

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