During a recent BVR workshop on goodwill, the strengths and weaknesses of the multiattribute utility model (MUM) for separating out enterprise and personal goodwill was discussed. MUM is a scoring approach that David Wood (Wood Forensic/Valuation Services) developed and has been accepted by some courts but criticized by others. It is a very detailed systematic method that is designed to objectively address the otherwise imprecise task of carving up overall goodwill into its personal and enterprise goodwill components. But herein may lie a weakness. The detail is so great that it may open up the expert to aggressive attack on its many elements.
Get simple: While the workshop’s speakers praised the method, they felt that, in some cases, it may be better to use the MUM framework in a more simplified way. For example, instead of using a 1-to-5 scoring scale for each attribute of goodwill, a plus-or-minus indicator could be used. Then you wouldn’t get a pointed question such as: “Why did you choose a ‘3’ and not a ‘4’?” A full-blown MUM analysis may be perceived as an “illusion of precision” that opposing counsel could try to tear to shreds.
A valuation expert and forensic accountant in Florida uses a streamlined version of MUM that has been accepted in court and that may reduce the exposure to severe cross-examination. The expert, Thomas Gillmore, has written an article for Business Valuation Update that explains his version in the context of a recent engagement that involved the valuation of a clinical laboratory.
Read and comment: BVR makes Gillmore’s article available as a complimentary download, and we urge readers to take a look at it and provide some feedback. You can comment via email or go to BVR’s LinkedIn Group where you’ll find a discussion thread on this topic. Thank you!
Please let us know
if you have any comments about this article or enhancements you would like to see.