Burgis & Bullock are specialists in the valuation of shares, businesses, and intangible assets.
Simon Chapman, Partner at Burgis & Bullock, was appointed to the Panel of Experts of the Institute of Chartered Accountants in England & Wales (ICAEW) in 2012 and regularly carries out, and advises on, valuation determinations.
In our latest blog, Simon discusses the expert work the firm carries out in the corporate valuation area and how specialist guidance can be vital to ensure that the right valuation is reached for a business or asset.
Over the last 12 months we have seen a significant increase in work at the firm for our valuations team – particularly when it comes to divorce, contentious valuations and share option scheme valuations.
We see this work traditionally split into three sectors and these are:
1) Tax valuations
These are driven by specific rules and legislation about how to complete a valuation for tax purposes. Valuation for share option schemes is a common example of this, or the transferring of shares between connected parties. We also look at valuations for tax purposes in relation to estate planning, trusts and inheritance tax.
2) Non-tax valuations
There are several sub categories under this area. One of these would be for transactions, for example how much is a business worth during a sale, or identifying how much a business is worth if you are the buyer. We also complete valuations for management buyouts, incorporations and more.
3) Valuations for disputes
The two most common dispute areas are in divorces and valuations between shareholders in a company or the members of a partnership.
If a couple are filing for divorce, it is important that a valuation is made to determine the worth of an asset and ensure each party receives the correct settlement.
This can sometimes be carried out by one valuation expert acting for both parties, or where the amounts involved are high or there are contested matters, each party might be able to appoint an expert. Those experts may ultimately have to appear in Court and give evidence to help the judge decide the case.
A dispute between shareholders or partners will typically happen when a minority shareholder has decided to leave a business – be that voluntarily or involuntarily. The issue then arises of what exactly is their interest in the business is valued at.
This can be a contentious situation when both sides disagree on the valuation, in which case an independent expert can be appointed to settle the matter. Sometimes this is a role we will carry out at Burgis & Bullock, as appointed by the ICAEW or directly by the parties.
The expert will do a valuation but they won’t do so in a vacuum. Both sides can provide submissions in order to make their case to the expert valuer.
Therefore, having a valuations specialist who knows how to undertake these submissions is really important.
If you don’t get your submission to the expert right then you could lose out when it comes to the final valuation.
Across my career I have worked on both sides of the coin – both as the expert and as the individual advising a party making a case to the expert.
Having that knowledge of working on both sides is vital and can be a difference maker when it comes to getting the best value. We know what arguments work and what arguments don’t work, which puts our client in a great position.
The basis of value is the fundamental assumption on which the valuer conducts the exercise to determine the worth of a business and can make a huge difference to the final valuation.
There are different assumptions you can use, but the typical ones are:
- Market value
- Fair value / equitable value
If you are not a valuations specialist, it might not be readily apparent what those are or what the difference is. But the difference in assumptions can have a significant impact on a final valuation – often larger than which profit multiplier, profit figure, or forecasts are used.
Each industry has certain peculiarities, issues and approaches to consider. But expertise in understanding how companies are valued in the context of expert determinations and courts makes sure we provide the right advice to clients.
A high street accountant or auditor is not going to have the specialist knowledge to do this work, and if you do not have that specialist input and advice you will miss out on the best value.
Fair value v market value in a recent case
In mid-2022, we were appointed to advise a minority partner, who had left an investment firm, on the value of his interest in the business.
Our first task was to help his lawyers get the initial valuation that had been carried out by the auditors overturned (a valuation which our client disagreed with).
This is an exceptionally difficult task to achieve as usually the Courts are reluctant to interfere in expert determinations. But, working closely with the solicitors and barristers we helped to secure a judgement requiring a new valuation to be carried out.
A key part of our case to the new expert (a “Big 4” firm) was that the determination should be carried out on a “fair or equitable value” basis rather than a “market value” basis.
As a minority partner with very few rights and protections under the partnership agreements, I knew that the “market value” (that is, the price an unconnected third party might pay for that minority interest) would be very heavily discounted. But a “fair value” standard would be more likely to give our client a “pro rata” share of the overall business worth with no discounts.
As the other side had not engaged specialists to help them, they did not understand the significance of the arguments we were putting forward to the expert and so missed the chance to rebut them. Instead, they wasted their submissions by putting forward many irrelevant arguments.
The expert agreed with our case and carried out the valuation on a fair value basis, which gave a much higher value to the interest than the auditor’s initial calculation or any market value assessment.
Engaging a valuations specialist at an early stage in any dispute will help you make an informed decision about how best to resolve the matter.
When going to Court or through an expert determination, having a valuations specialist on your side will maximise your chances of getting the best outcome.
Find out more by visiting https://www.burgisbullock.com/services/corporate-finance/ or calling 0345 177 5500
Simon Chapman
E: simon.chapman@burgisbullock.com
M: 07831 255302