BVR Logo 20 December 2022 | Issue 45-2

BVWire—UK is a free service from BVR focusing on the business valuation profession in the United Kingdom. We offer news and perspectives from valuation thought leaders, the High Courts, HMRC, SSBV, ICAEW, IVSC, and more.

Please be in touch with your perspectives, news, and ideas—and pass this issue along to colleagues (complimentary sign-up instructions are here).

Causation and Financial Losses with Prem Lobo of Cohen Hamilton Steger & Co (Toronto)

Damage claims caused by breach of contract, negligence or tort claims, infringement, or other causes have the same assumptions, Prem Lobo (Cohen Hamilton Steger & Co of Toronto) told Society of Shares and Business Valuers (SSBV) members in last week’s session for members of the SSBV. “Causation always involves assumptions of duty, wrongdoing, causation, and damages or a remedy,” he began in his session Causation and Financial Losses.

However, business valuers “cannot make assumptions” about the legal grounds for claims—including whether the plaintiff holds the burden of proof or whether the familiar “but-for” valuation methods are appropriate. There’s also the complicated question of causation. Quoting Jon Snow of “The Game of Thrones,” Lobo says, “We look at the stars and all see such different things.”

“There’s a distinction between correlation versus causation,” Lobo says. Usually, the valuation expert does not need to prove causation. “This is a factual determination,” but sometimes a statistical analysis may be helpful to analyze causation. “It’s up to the courts and the lawyers to provide evidence.”

However, “depending on the specific facts, loss experts may have to do analyses” supporting claims of causation. This is generally to “obtain sufficient degree of comfort that there is a reasonable, proximate link” between the action and the loss,” Lobo says. He reminds business valuers that, “as usual, facts will outweigh assumptions in the courts—for instance evidence of specific customers that left because of documented actions of individuals, less any unrelated potential causes.”

Court cases, contracts, and judicial changes can affect these grounds. But “business valuation experts must be able to demonstrate” whether:

  • There were other causal possibilities;
  • The loss has factual clarity;
  • The damages can be verified through multiple approaches and then reconciled; and
  • The causation is measurable by factors involving business resources or personnel, customer changes, market changes, competition changes, or other business changes.
Argos Index of deal multiples holds steady, at 10.0x EBITDA, despite market turmoil

This index, prepared by Epsilon Research, tracks the valuations of eurozone private, mid-market companies in which a majority stake has been acquired during the last six months. While the overall Argos Index® remained stable in the third quarter, at 10.0x EBITDA (the average of the last five years), this masked the increasing spread between the multiples of the high end of the market (still more than 12x EBITDA) and those of the lower midmarket (down 0.8 points, at 8.9x EBITDA).

Prices paid, both by strategic buyers and investment funds, were stable. Multiples paid by strategic buyers have been stable, at 9.9x EBITDA, since the fourth quarter of 2021 and have not been affected by the continued slide in equity markets. Those paid by investment funds have also been stable, at 10.7x EBITDA, this quarter and remain higher than those paid by strategic buyers.

The current report also shows that the share of transactions at multiples greater than 15x EBITDA returned to pre-COVID-19 levels for the first time, at 12% of analysed transactions.

U.S. court accepts ‘calculation’ report in divorce case

It’s rare that UK courts will accept the lower standards of a calculation of value from a financial expert, so it’s worth noting a recent U.S. decision from Arizona. While the appellate court there affirmed that a calculation of value is not the “gold standard, it is not unacceptable,” the judge determined in a divorce case.

No challenge: The husband and wife were owners of a law firm, and the wife’s valuation expert used information she provided as well as an analysis of comparable businesses. The husband refused to provide any financial information to the expert in a timely manner. During the trial, the husband’s attorney did not challenge the methodologies and conclusion of the valuation expert. What’s more, the husband did not offer an opposing valuation. The trial court accepted the wife’s expert’s valuation, and the husband appealed, arguing that the expert’s opinion was deficient because it was a calculation of value report rather than “an opinion of value report.”

The appellate court noted that the fact-finder need not discount an expert’s opinion just because he did not consider every process and procedure that would be included had he conducted a more complete valuation. Plus, the husband’s counsel had ample opportunity to challenge the valuation and offer a competing opinion, but he did not.

The case is Mikalacki v. Rubezic, 2022 Ariz. App. Unpub. LEXIS 836; 2022 WL 10219850, and the full court opinion and a case analysis are available on the BVLaw platform.

Investment banks use higher COE estimates for management buyouts

A new study, “The Cost of Equity: Evidence From Investment Banking Valuations,” by Gregory W. Eaton (Oklahoma State University), Feng Guo, Tingting Liu, and Danni Tu (Iowa State University), examined investment bank incentives in M&A. They found significant biases in management buyout transactions, and concluded these deals are “particularly rife in conflicts of interest.”

The banks “use significantly higher COE [cost of equity] values in management buyout deals, which potentially underestimates target value to make the proposed bid more attractive for target shareholder approval,” the paper says. They also found that investment banks do not look to CAPM or the Fama-French models to estimate COE but use several proxies for risk, including industry effects, beta, size, and illiquidity as well as past returns, financial distress, and volatility.

Dates for your diary

17 January 2023: Society of Shares & Business Valuers’: Dr Aswath Damodaran Discusses Topical Valuation Issues, 17:30 BT

16-17 February: ICAEW Advanced Valuation Techniques, two days, virtual classroom (repeated 1-2 June 2023)

11 April 2023: ICAEW Practical Business Valuation, four days, virtual classroom (repeated 21 June)

Want to share a news item? Have feedback or comments? Please contact David Foster at

Want to share a news item? Have feedback or comments? Please contact
David Foster at

LinkedIn Icon
Twitter IconYouTube Icon

Business Valuation Resources, LLC
111 SW Columbia Street, Suite 750, Portland, OR 97201 U.S.A.
+011-503-479-8200 |
© 2021. All rights reserved.