WHY EXPERT REPORTS OFTEN DISAPPOINT
While it appears that few valuation reports are denied outright, many are subject to such obvious issues that they fail to be convincing to the court. Too often reports are diminished in their worth for reasons that should have been obvious in peer review, to supporting counsel or any lay reader.
The devil hides in the simple details, and the devil can cause considerable embarrassment.
- Comply with or distinguish local law.
- Comply with local court requirements such as format, binding, timing and distribution.
- Comply with applicable professional standards.
- Properly identify the subject of the valuation. Surprisingly, the subject’s legal name is often cited incorrectly and subsidiary assets not clearly identified.
- Identify the correct valuation date or explain why the selected date is reasonable.
- Offer a clear conclusion with simple supporting commentary “up front.”
- Accurately cite external sources of data that were relied upon.
- Recognize that grandiose credentials often serve to emphasize that the expert has little, if any, actual experience in dealing with the business type, industry or issues involved.
- Sign or evidence who prepared the report.
“And this above all else,” EXPLAIN!! EXPLAIN!! EXPLAIN!!
- Explain your process. The source and reliability of financial data and how acquired; site visit or lack thereof; management discussions and their input; pro forma adjustments, if any.
- Explain the reasons for the selection or rejection of usual methodologies. Courts are expecting valuation opinions to be based on generally accepted valuation methodologies. In individual situations some are more important than others. In many cases, some aren’t even applicable.
- Explain how the target compares to others in its industry and the economic and competitive environment that existed at or around the valuation date. For a general list of factors see Rev. Rul. 59-60. Should you have your own list of risk factors explain the relative importance of each item. Such lists and references are valuable because they provide experts with the means to explain rationally the attributes they used and the weights they assigned.
- Explain the basis for all assumptions. Do not make it difficult to follow how assumptions are developed and used. This is particularly important: when developing a Capital Asset Pricing Model; determining premia or discounts; distinguishing corporate and personal goodwill, and weighting the results of alternative valuation methodologies.
- Explain the relevance of third party, commercial data sources. A number of highly regarded services that provide useful data are available to practitioners. However, when used, a practitioner should explain why the data is relevant to this specific assignment. Too often, general data is just that, too general and of little relevance to the subject entity.
 Shakespeare, Hamlet Act I, Scene 3