Issue 26  May 5th 2025

When to Bring in Extra Help for a Business Valuation

When Is a Business Valuation Expert Not Enough?

A recent panel of attorneys and valuation experts shared how the use of ancillary experts can be crucial in developing a credible and comprehensive business valuation -- especially in particularly complex or industry-specific matters.

In my experience, clients usually show a strong preference for hiring a valuation specialist familiar with their industry. Who wouldn't? This is probably the strongest reason for business valuation experts to focus on, or at least be really familiar with, a particular industry niche.

But that is not what this panel is talking about. They are talking about non-valuation professionals with deep expertise in a particular industry or process and who can add important supporting inputs, as well as credibility, to a valuation analysis.

For example, imagine a valuation is needed of a pharmaceutical for M&A due diligence. In addition to a valuation consultant, an FDA/regulatory consultant or a pharma development executive is hired. Their input: * Assesses probability of approval and commercialization for each drug candidate. * Evaluates stage of development and competitive landscape for particular drugs. * Helps model risk-adjusted revenue streams and timing for market entry.

This in turn, enables the valuator to construct probability-weighted DCF models or some other method based on credible development assumptions. Without the industry expert, the valuator might have to rely on more generic success rates from published studies.

We can think of other hypothetical examples where a third-party niche industry expert can enhance the valuation process and output.

But practically speaking, bringing in an expert like this would likely crush most appraisal budgets. And in the real world, using these experts often requires extraordinary coordination; communication between experts is often not ideal, and if not managed properly the inputs received might not end up being that useful to the valuation specialist. Worse, the inputs might end up not being terribly material or even relevant to the conclusion.

So when might bringing in an outside, non-valuation expert be something to consider? * High Stakes. When the potential value of the transaction or dispute justifies the additional cost and time of hiring the expert. * Elevated Scrutiny. When the parties know that a specific assumption will be examined under the microscope. * Materiality. When the input will significantly affect projections, asset values, or risk premiums. * Complexity. When the subject business operates in a highly technical, regulated, or not well understood industry.

Have you had a situation where you needed to hire an industry expert in addition to a valuation specialist? If so, how did the process play out?

Or if you are a valuation specialist, have or do you work with industry specialists? Any stories to share?

bvresources.com  

Law Firms Putting Valuation Experts On Staff

Law Firms Are Hiring In-House Valuation Experts: Should Yours?

According to a recent family law discussion panel, more and more law firms, particularly large ones, are hiring valuation and other financial experts as in-house staff.

This seemed to me to be a pretty interesting trend. I personally have not seen many law firms with in-house valuation experts.

What might be the benefits?

Better Case Strategy Coordination. One would think having a valuation expert down the hall might result in more cohesive strategies, particularly in complex cases involving shareholder disputes or business litigation.

Cost Efficiency and Availability. Attorneys tend to wait until the very last minute to hire an outside expert. Having an internal valuation resource on hand would facilitate early access to financial expertise, which could help shape a case (for example, assessing a claim’s merits or helping with discovery) well before an outside expert would be required.

Still, I get why a law firm might be reluctant to have a valuation person on staff.

First, there is the issue of independence. Any work product generated by an in-house valuation specialist would likely be subject to independence challenges. There are ways around this, but they would need to be addressed. Most likely the use of an in-house specialist would be limited to the earlier phases of a matter.

And practically speaking, can a single law firm really keep a valuation specialist fully employed? Probably only the very largest firms would have the workflow that could justify this additional overhead cost.

How can these challenges be addressed?

Re: Independence: limiting internal valuation specialists to certain tasks (most obviously not as a testifying expert), and being transparent in their utilization, can help address objectivity concerns.

Re: utilization: for most law firms, it probably makes zero sense hiring a full-time valuation specialist. But firms could adopt a fractional or subscription-based model, similar to hiring a fractional CFO, to access valuation expertise as needed without full-time commitments.

Do you think law firms (or your law firm) should consider retaining a valuation consultant on a fractional basis? Such a professional could: • Evaluate the merits of cases. • Provide internal assessments. • Assist with discovery requests and responses. • Assist in locating qualified external testifying experts when necessary.

Let me know what you think.

bvresources.com