Court professes to favor DCF to value beer franchise contracts

Tri County Wholesale Distributors v. Labatt USA Operating Co., LLC, 2015 U.S. Dist. LEXIS 81914 (June 24, 2015)

Discounted cash flow versus comparable transaction analysis. A federal court recently ruled on how to determine the “diminished value” of a business that lost a number of well-known beer franchise contracts under Ohio’s “successor manufacturer” statute.

The diminished value of the business was the fair market value of the franchise contracts, “which is appropriately determined using a DCF analysis,” the court said. Notwithstanding extensive plaintiff testimony on the way industry insiders trade beer brands, the court expressly rejected a gross profit multiple approach.

But did it really? When the court found the prevailing expert’s DCF was “discordant” with market conditions, it adjusted key inputs to achieve a DCF-based result that fell within the industry average.

Find out more about the case here.