What qualifies someone to be an expert in business valuation? Will the quality of a valuation report be affected by the qualifications of the valuator? The second step to reviewing a business valuation report involves reviewing the business valuator’s credentials and qualifications.
The pre-eminent designation for business valuation in Canada is the Chartered Business Valuator (CBV) designation. CBVs are highly trained, educated and experienced in the valuation of privately held business interests. There are professional standards (e.g. regarding scope of work and report disclosures) that CBVs must follow when conducting a business valuation.
Other U.S. based business valuation credentials and designations include:
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Accredited Senior Appraiser (ASA) with the American Society of Appraisers;
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Certified Valuation Analyst (CVA) with the National Association of Certified Valuation Analysts;
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Certified Business Appraiser (CBA) with the Institute of Business Appraisers; and
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Accredited in Business Valuation (ABV) with the American Institute of Certified Public Accountants.
Where a business valuation report was prepared by an independent expert in the context of a legal dispute, the Rules of Civil Procedure stipulate that it is the expert’s duty to provide opinion evidence that is related only to matters that are within the expert’s area of expertise. As a result, a thorough review of the expert’s area of expertise should be conducted as part of the review of a business valuation report. Obtaining and reviewing the author’s curriculum vitae, or CV, is a good place to start.
According to The Litigator’s Guide to Expert Witnesses,
“A critical review of the opposing expert’s resume is the most often overlooked but wonderfully useful source of cross-examination ammunition. An expert may have carefully reviewed the available information, critically reviewed the literature in the area, meticulously arrived at his opinion and artfully drawn his conclusions, but if he padded or fudged his resume he will be destroyed on cross examination.” [1]
A summary of some questions to consider when reviewing the valuator’s CV is as follows:
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What training and education has the author obtained? What professional designation(s) does he/she have?
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What professional standards must be followed in light of those professional designation(s)?
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What experience does the author have?
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Has the author provided expert testimony on business valuation before? If so, what was the outcome?
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What publications and/or speaking engagements has the valuator prepared/presented? Are there any inconsistencies between his/her report and those prior writings?
I was once retained to review a business valuation report prepared by a “professional advisor” on behalf of a majority shareholder for purposes of a potential buyout of a minority shareholder’s interest. Although this “professional advisor” claimed to have significant experience with actual transactions involving companies operating in the industry, he did not have any formal training in business valuation or any valuation designations.
This valuation report calculated the enterprise value of the business (i.e. value attributed to the capital providers of the company including both debt and equity). Common valuation principles and practice stipulate that the equity value is determined by, among other things, deducting the value of the interest bearing debt and debt equivalents from the enterprise value. This valuation report, however, deducted the total liabilities (including working capital accounts and deferred revenue), resulting in an understated equity value.
I suspect that the lack of formal valuation training and credentials may have contributed to this oversight, illustrating the importance of reviewing the valuator’s credentials and qualifications when reviewing a business valuation report.
If you have any questions regarding matters involving the valuation of your business or if you would like an independent business valuator to assist in your review of a business valuation report, contact us at www.vspltd.ca.
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[1] The Litigator’s Guide to Expert Witnesses, Mark J. Freiman and Mark L. Berenblut, 1997, page 41.