Determining And Defending Value Of Ownership Interest

April 2012       Download PDF      Print

Situation

The former president of a mid-sized manufacturer disagreed with the company's private equity owners over the value of his equity interest in the company. According to the terms of the employment agreement, in the event the president left the company, the private equity ownership group would have the right to purchase his shares at fair market value. The private equity firm offered the ex-president nothing for his shares when he left the company.

Engagement

Working with Lathrop & Gage as his attorney, the ex-president retained one of Allied Business Group's dispute consulting professionals to assist in determining whether his shares in the company had any value. Allied Business Group was not retained as an independent appraiser, but rather as a financial and valuation consultant. As part of the engagement, we performed preliminary estimations of value based on the anticipated assumptions of a typical appraiser. We also performed Monte Carlo simulations to predict the probability of obtaining a value greater than zero for his shares in a third-party appraisal process. Additionally, we represented our client in discussions with private equity ownership's appraiser to bridge the value gap.

Result

Allied collected market data and studied the company's forecasted financial statements which were supplied by the private equity owners. We used this information to provide a range of enterprise values that we believed an independent appraiser would most likely arrive at. Using this information, we offered an approximate value of the ex-president's shares, and recommended that Lathrop & Gage use the approximation as a starting point for negotiations between their client and the private equity owners. Eventually, new financial information concerning the company was discovered, and after having an independent third-party appraisal performed taking the new information into account, it was determined that the shares held no value.