Situation
The owner of a fractional ownership interest in a mid-size business was going through a divorce and failed to obtain a professional valuation before discovery closed. However, the spouse had hired a local CPA firm to do a valuation of the ownership interest, valuing it at more than $250,000. Merrimack Business Appraisers President Lou Pereira was brought in by the owner’s attorney to critique the spouse’s business valuation.
Merrimack Business Appraisers’ Approach
- Pereira thoroughly reviewed the spouse’s business valuation report and identified several errors and omissions that had resulted in an overstatement of value.
- As discovery had closed, Pereira provided a comprehensive written critique to the attorney, which explained the specific errors and deficiencies in the spouse’s report, including detailed calculations that defined the magnitude of these errors and omissions and their impact on the value conclusion.
- In addition, Pereira consulted with the attorney and advised during the attorney’s cross examination of the appraiser from the CPA firm.
Valuation Outcome
Leveraging Pereira’s appraisal critique and expert advice, the attorney presented in court a well-crafted interrogation that revealed the errors and omissions and their significant impact on the value of the busines. The judge ruled accordingly, reducing the value conclusion of the ownership interest to $110,000. This saved the owner more than $140,000 in unjustified asset allocation.
Situation
The owner of a mid-size auto repair supplies wholesaler was going through divorce proceedings in Massachusetts. The owner’s spouse had hired a CPA for a business valuation. With a reputation for developing highly defensible business valuations and providing expert testimony, Merrimack Business Appraisers President Lou Pereira was engaged to appraise the business, complete a detailed review of the CPA’s business appraisal, and testify in court to both. The CPA’s appraisal of the business had numerous errors and omissions including incorrect application of an income approach and asset approach.
Merrimack Business Appraisers’ Approach
- As a Certified Business Appraiser, Pereira leveraged Merrimack’s proven method to conduct a careful and thorough qualitative and quantitative analysis including the history, products, services, customers, management, employees, facilities, capital structure, and competitors. Pereira conducted a complete detailed financial analysis for the past five years with a peer group and trend analysis.
- Pereira then constructed a forecast of expected future operations including the income statements, balance sheets, and cash flows. The income approach using a discounted cash flow analysis allowed the judge to understand the basis of the value and why it was reasonable and credible.
- Pereira also completed a detailed appraisal review of the CPA’s valuation, identifying and articulating the errors and each error’s magnitude relative to their value conclusion.
- Finally, Pereira testified to the business valuation concluded in the report – which was five times less than the CPA’s business valuation – explaining the errors and omissions of the valuation prepared by the CPA.
Valuation Outcome
Merrimack’s business valuation reports were admitted into evidence. At the end of Pereira’s expert testimony, which had followed the CPA’s testimony, the judge held up the Merrimack Business Appraisers’ report and stated, “I now have only one report in front of me.” The parties settled at the business valuation presented in the detailed valuation prepared by Merrimack Business Appraisers.
