It’s common for business valuation professionals to disagree about the valuation of a private interest — even when both are objective and apply sound valuation techniques. But sometimes opposing experts hired in a case are worlds apart in their opinions. How do you bridge the gap? A rebuttal expert can help.

Resolving disputes

Rebuttal reports can be useful in a variety of situations. For example, suppose two owners dispute the value of their auto dealership. The owner hoping to dissolve her interest hires an expert who values the business at $10 million. The other owner’s expert estimates that the company is worth $8 million.

Neither side will split the $2 million difference. So, they jointly hire a third expert to compare and contrast the two valuations. After sorting through the underlying assumptions and methodologies, the rebuttal expert discovers that the valuations are remarkably similar, except for two key differences:

1. An adjustment for excess owners’ compensation, and

2. An addback for excess working capital.

As a result, the dispute evolves from an ambiguous question about the value of the business to a list of more specific questions. How much are each owner’s day-to-day contributions worth? Compared with its competitors, does the dealership have excess cash on hand? If there’s excess cash on hand, how much? To help the parties make an informed decision, the rebuttal expert also offers citations and reference materials on these two issues.

Simply put, rebuttal reports can facilitate settlement by pinpointing differences and putting technical valuation issues in more user-friendly language. And, when court is unavoidable, rebuttal reports help attorneys draft pointed deposition and trial questions.

Reporting findings

Rebuttal reports come in many forms. The appropriate length and format depend on the time and resources available, as well as the parties’ strategic preferences.

For instance, some experts and attorneys prefer oral rebuttals. They argue that less formal discussions generate no tangible report for the opposition to review before court. Accordingly, oral reports preserve the element of surprise and potentially reduce client costs.

However, written reports are often helpful because judges and jurors can review them during deliberations. Court procedural rules and professional valuation standards provide little guidance on how to prepare written rebuttals. Some experts issue lengthy formal rebuttal reports; others construct concise letters highlighting key findings.

Content generally includes a description of the rebuttal expert’s review procedures and a list of errors and omissions (or “findings and conclusions”), which is typically footnoted with authoritative references. When reviewing two divergent valuations, rebuttal experts often break down the difference into its specific sources. They typically disclose all errors and omissions, not just those that support their clients’ financial interests. Many experts also attempt to quantify how errors — individually and collectively — might affect value.

Saving time and money

Adding a rebuttal report to the valuation process might seem to increase the overall cost of resolving a dispute. But a report deployed at the right time and with a qualified valuation at the helm can actually reduce costs by keeping some disagreements out of court and bringing a speedier judicial decision to others.

(This is Blog Post #1510)