The art of quantifying company-specific risk
Company-specific risk is one of the most subjective components of business value. Typically, it’s defined as the incremental risk an investor bears by investing only in one particular business. Quantifying company-specific risk can be tricky absent good empirical research or market data. This is where the “art” of appraisal comes into play. This article discusses how valuators analyze both quantitative and qualitative factors to capture and support a company-specific risk premium.

Beware of the capricious court
In every civil lawsuit, the goal is to settle amicably out of court. Undesirable and even irrational outcomes may result if settlement is left to the court’s discretion. This article uses a controversial divorce case, In re Marriage of DeVries, to drive home this point. The article points out that a valuation expert should understand, reference and, if necessary, dispute relevant professional standards, valuation publications, empirical data and legal precedent to protect a client’s financial interests.

Case Citations:
In re Marriage of DeVries, G041096, Super. Ct. No. 05D005748 (Nov. 30, 2009).
In re Marriage of Foster, 42 Cal. App. 3d 577, 581-582 (1974).

Fatal flaws
Finding weaknesses in an opposing expert’s opinion
A key function of a financial expert is to provide effective rebuttal to the opposing expert’s analysis and opinions. This article explains how an expert witness can analyze, critique and rebut the opposing expert’s valuation conclusions both in deposition and during a trial. The article also lists several common mistakes attorneys make that can erode their experts’ effectiveness, including failing to ask which documents the expert needs in discovery and engaging an expert too late in the process.

Qualities every valuator must have
Courts and regulatory agencies expect today’s valuation expert to commit full-time to appraisals and to stay current with the latest techniques, legal precedent and empirical research. Currently, the Small Business Administration and the IRS are evaluating what it takes to be a “qualified appraiser.” This brief article notes the importance of ensuring a valuator is affiliated with a professional appraisal association and meets ongoing training and licensing standards.