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Case Studies in Contingent Consideration

A significant component of the transaction price in an M&A or buyout transaction often consists of proceeds that are “contingent” upon the target company’s achievement of certain performance targets after the closing has taken place. From the perspective of the seller, “contingent consideration” represents the right to receive additional assets or equity interests from the buyer (earnout), or the obligation to return part of the proceeds from the transactions (clawback) if specified future events occur ...

Accounting fraud causes Berkshire Hathaway subsidiary to overpay for sinking German manufacturer

Financial experts were unable to prevent a Berkshire Hathaway subsidiary, Precision Castparts Corp. (PCC), from acquiring a German family business for five times as much as the collapsing company was worth, recent articles in the New York Times and the German newspaper Handelsblatt report.

Valuation underpinning contested stock sale reflects fair value, Court of Chancery says

In a breach of fiduciary duty action arising out of a controversial stock sale, the Delaware Court of Chancery dismissed the plaintiff’s attacks on the underlying valuation, noting the appraiser was “exceptionally knowledgeable about the industry” and held “informed beliefs” as to the company’s specific structure.

Journal of Business Valuation 2019 Edition

From the CBV Institute ...

Coster v. UIP Companies, Inc.

In breach of fiduciary duty action, court says stock sale passes enhanced fairness review; appraiser valuing real estate investment services company before sale is eminently qualified and knowledgeable about industry; capitalized cash flow method “generated a reliable indicator” of company’s value.

Valuation Underlying Controversial Stock Sale Satisfies Highest Scrutiny

In breach of fiduciary duty action, court says stock sale passes enhanced fairness review; appraiser valuing real estate investment services company before sale is eminently qualified and knowledgeable about industry; capitalized cash flow method “generated a reliable indicator” of company’s value.

EBITDA multiples by industry: 2Q 2019 analysis on private-company selling prices

Business Valuation Resources recently published EBITDA multiples by industry in our DealStats Value Index (DVI). DVI presents an aggregated summary of valuation multiples and profit margins for over 30,000 sold private companies listed in our DealStats database. This post includes some of the highlights from the report.

Multiples Used to Estimate Automotive Dealerships Market Value

Practitioners use goodwill multiples for valuing automobile dealerships. In this paper, the valuation accuracy of five goodwill multiples and seven more traditional multiples that can be used for estimating the market value of the equity of car dealerships is assessed during the 2010–2016 period. Our results support that the goodwill multiples provide the smallest estimation errors in valuing the market value of automobile dealerships.

Zayo Group v. Latisys Holdings, LLC

In contract dispute, Chancery rejects plaintiff’s damages analysis, noting expert lacked valuation experience and chose a methodology (EBITDA multiple) that did not fit facts of case; court says there was no evidence that the alleged breach permanently diminished value of the acquired company.

Fairness Opinion Triggers Viable Aiding and Abetting Claim Against Financial Advisor

In dispute over related-party transaction, court upholds aiding and abetting claim against financial advisor; plaintiffs produced enough facts to show fairness opinion ignored most relevant precedent transaction and other valuation metrics indicating the buyer was overpaying for contested asset.

Mesirov v. Enbridge Energy Co.

In dispute over related-party transaction, court upholds aiding and abetting claim against financial advisor; plaintiffs produced enough facts to show fairness opinion ignored most relevant precedent transaction and other valuation metrics indicating the buyer was overpaying for contested asset.

Court Favors MUM Method for Goodwill Allocation in Illinois Divorce Case

In divorce case, appellate court upholds valuation based on opinion of husband’s expert using MUM method to separate total goodwill value into personal and enterprise components; court also upholds use of small marketability discount where owner spouse is the sole owner of the company.

In re Marriage of Preston

In divorce case, appellate court upholds valuation based on opinion of husband’s expert using MUM method to separate total goodwill value into personal and enterprise components; court also upholds use of small marketability discount where owner spouse is the sole owner of the company.

City of Hialeah Emples. Ret. Sys. v. FEI Co.

Court rejects dissenting shareholder’s proxy challenge, finding board member statements about management projections are protected under applicable act’s safe harbor provision; also, court says financial advisor’s fairness opinion did not double count for risk in underlying DCF analysis.

Jensen v. Jensen

In deciding whether, in divorce, retained earnings in a closely held company that is separate property are includible in marital estate, appeals court creates presumption against inclusion and requires trial court to perform totality of circumstances review.

Trustee’s Attack on Merger Projections Fails to Resonate With Court

Court says trustee fails to show debtor was insolvent under any applicable financial condition tests; contemporaneous industry analysis and valuations by financing banks belie claim that management projections in support of merger were unreasonable.

Management projections take center stage in bankruptcy case

In a complex bankruptcy case involving players in the petrochemical industry, the court trained its eyes on the management projections underlying a merger that led to the formation of a company that went bankrupt only a year after the close of the transaction.

Pike v. Tex. EMC Mgmt., LLC

In business tort case involving unprofitable entity trying to market a trade secret, court upholds damages award; experts’ EBITDA valuations were based on commonly used method and numerous data sources, and experts linked data to conclusions, court says.

Trustee’s Attack on Merger Projections Fails to Resonate With Court

Court says trustee fails to show debtor was insolvent under any applicable financial condition tests; contemporaneous industry analysis and valuations by financing banks belie claim that management projections in support of merger were unreasonable.

Weisfelner v. Blavatnik (In re Lyondell Chem. Co.)

Court says trustee fails to show debtor was insolvent under any applicable financial condition tests; contemporaneous industry analysis and valuations by financing banks belie claim that management projections in support of merger were unreasonable.

Shareholder Approval ‘Cleanses’ Potential Undervaluation

Per business judgment rule, court dismisses shareholder complaint that board members breached fiduciary duties by rushing to sell entire company where financial advisor had stated separate sales of company’s various business units would maximize value.

Persuasive’ Defense Expert Testimony Defeats ESOP Overpayment Claims

Court says defense expert opinion provides “credible and persuasive” support for court’s conclusion that ESOP financial advisor produced sound fairness and valuation opinions prior to contested transaction; there was no overpayment for stock at issue.

Chancery Achieves Fair Value by Blending Three ‘Imperfect Techniques’

Court says uncertainty about company’s future performance and viability limits reliability of values derived from DCF and multiples-based comparable company analyses as well as deal price; court blends three “imperfect techniques” to determine fair value.

Shareholder Approval ‘Cleanses’ Potential Undervaluation

Per business judgment rule, court dismisses shareholder complaint that board members breached fiduciary duties by rushing to sell entire company where financial advisor had stated separate sales of company’s various business units would maximize value.

In re OM Group, Inc. Stockholders Litig.

Per business judgment rule, court dismisses shareholder complaint that board members breached fiduciary duties by rushing to sell entire company where financial advisor had stated separate sales of company’s various business units would maximize value.

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