The court date has finally arrived, and it's your business valuation expert's opportunity to provide testimony. You're expecting a stellar presentation. His credentials are impressive, and he's calm under pressure, but does he understand the importance of applying a common sense analysis to the valuation issue? Can he separate the "art" of business valuation from the "science"? Let's look at the critical areas your expert should have researched before his day in court and ways he can help when testing an opposing expert.
Use Common Sense First
Support the underlying theory with a hefty dose of common sense. First of all, experts should rely on their common sense. Many professionals meticulously examine their work, ensuring that all objective calculations are completed in a technically accurate way, and then depend on the results of their efforts. However, part of an expert's role is to inquire, "Does the analysis make sense as a whole?" More cases are won or lost with common sense analysis than by any other means because judges and juries like the answer that feels right. Valuation theory should not depart from common sense. When your expert applies a common sense analysis to every valuation issue and supports the analysis with the underlying theory, his credibility rises. Likewise, when your expert questions common sense in relation to the underlying theory applied by the opposing expert, the opposing expert's credibility is diminished.
For example, take the case of the opposing expert who valued a Jaguar automobile dealership for $156,000. Our analysis showed the dealership was worth quite a bit more. The judge ruled in favor of our client, not because we delivered our testimony more artfully, or because our underlying theory was more technically correct, or because we verified our work better. Our client won on this issue because the average price of a Jaguar is $85,000, and one of the benefits of this particular dealership is that the owner received two demonstration vehicles from the manufacturer. We simply pointed out that the opposing expert apparently believed that this dealership was worth less than the price of two Jaguars; that answer simply did not make sense under the circumstances.
Do Thorough Research
Know the external studies—in detail. Your expert should have an in-depth knowledge of the external studies utilized in the opposing expert's analysis and provide questions for the opposing expert that challenge the same knowledge. Many practitioners are trained to rely on various studies when determining relative discounts and premiums. In many cases, material adjustments are made to the value indication based on external studies. These studies may be well-known or relatively obscure, and the application of the study and the expert's knowledge of the study itself is critical. Experts frequently refer to studies in their report, applying them to their analysis without having read the studies. In trial or deposition, the expert should be asked if they have a thorough understanding of the studies utilized in their analysis. They should be asked specific questions regarding the studies' methodology and results.
Never assume the math is correct. Your expert should always make sure the opposing expert's numbers add up. Many experts have failed in their presentations because of simple math errors. The primary effect of this type of error is to distract the court, drawing its focus away from the underlying theory of the valuation. A challenge to basic math can fluster a vulnerable expert as he attempts to recalculate numbers from the stand. Miscalculations also create questions in the court's mind as to the expert's thoroughness.
Raise doubts about the opposition's credibility. Because the credibility of an expert is paramount, it is essential to remember that your expert's role entails more than providing testimony. Your expert can and should point out instances where the opposing expert has failed in the analysis, whether that failure is related to mathematical errors, financial and valuation theory, or common sense consideration of the assignment. Expert testimony is 20% about being correct (an important 20%) and 80% about being believable.
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