News Tag: buyout


Trial court’s IPO valuation in fair value proceeding holds up on appeal

A recent case shows just how difficult it is to value a startup. Here, there was an extra challenge because the subject was a pharmaceutical venture that required years of funding for the development of two drugs working toward FDA approval. The trial court needed to determine the fair value of the plaintiff’s interest prior to the company’s ultimate success. Read more >>

Why Bankruptcy Court declines to be bound by divorce valuation

Following the divorce, the husband filed for Chapter 13 bankruptcy and asked for confirmation of his plan. The issue was whether the plan could meet the liquidation test applicable under the Bankruptcy Code’s section 1325(a)(4). In essence, the test requires that creditors in a Chapter 13 bankruptcy receive present value payments that are at least equal to the amount the creditors would receive in a Chapter 7 case. Read more >>

Court refuses to take stand on minority discount in buyback of shares

The parties retained a sole appraiser, whom they both knew from past appraisals he had done of the company. Prior to formally engaging the appraiser, in a court hearing, both sides broached the issue of whether it was appropriate to apply a minority discount in valuing the plaintiff's shares. The court declined to weigh in on the subject, but told the parties the minority discount issue should form “part of the discussion” they needed to have over the valuation methodology. Read more >>

NY fair value ruling deals blow to DLOM

The case featured experts whose professional backgrounds and valuation approaches could hardly be more dissimilar. Their value determinations were light-years apart. In trying to make sense of the conflicting testimony and achieve a plausible and fair result, the court decided it could not totally trust either valuation. Although it adopted the defense expert's valuation, it made two consequential changes to it. One was getting rid of the expert's admittedly high and insufficiently explained 35% discount for lack of marketability. Read more >>

New Jersey DLOM ruling inches ancient dissenting shareholder suit to conclusion

The parties' most recent fight focused on whether the prevailing expert's DCF analysis embedded a marketability discount to account for illiquidity. If not, the trial court had to decided what the appropriate DLOM rate was. The plaintiff-selling shareholder argued in favor of a zero DLOM, the defendants-buying shareholders presented an expert valuation that specified a 35% DLOM, based on the expert's use of a market approach. Read more >>

Chancery declines to meddle in parties' valuation agreement

In terms of valuation methodology, the agreement provided that “there shall be no minority or non-marketability discount applied.” Also, “fair market value” meant an arm’s length sale to an unrelated third party. And, for purposes of calculating the “total equity value,” the value of the assets would be subject to an EBITDA collar to ensure that the value of the assets was at least 6.5 x but no more than 7.5 x the company’s “EBITDA less Maintenance Capex” for year-end 2013. The resulting number was to be reduced by the company’s obligations and liabilities. Most important, the parties agreed to be bound by the appraiser's calculation of the price of the put units. There was no provision for judicial or any other form of review of the appraiser's valuation. Read more >>

Fair value calculation exposes gaps in court’s understanding of valuation

DLOM alive and well in 'AriZona Beverages' fair value proceedings

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