A Chartered Business Valuator (“CBV”) is a valuation specialist trained to provide an opinion of the fair market value of a business interest. The typical role of the CBV is that of independent expert, objectively arriving at a conclusion of value that is communicated in a report known as a “Valuation Report”.
In many circumstances, only one CBV will be required but in certain circumstances, especially in matters of dispute, it may be that two or even three CBV’s are required.
Single valuator scenario
Consider a scenario where a minority shareholder (“Anita”) wants to sell her 40% interest to the 60% majority shareholder (“Aanik”). Anita and Aanik have been business partners for 15 years and have mutually benefitted from a successful professional relationship. Lately, Anita has been feeling that she would like to take her career in a different direction and has decided to sell her investment either to Aanik or to a third party.
In this situation, it may be best for Anita and Aanik to jointly retain a single valuator to help them understand the value of the business and assets in question. In this situation it is extremely important for the CBV to maintain complete objectivity and independence in the valuation process as a result of each shareholder having competing interests. Anita, as the seller, would naturally prefer the value conclusion to be higher whereas Aanik, as a potential buyer, would prefer a lower value conclusion.
In this setting, the CBV will have to spend time educating both parties on the valuation process, methodologies utilized, and the ultimate conclusions reached. The CBV will often bridge any gaps between each shareholder’s view of the value of the business, while keeping in mind that an owner’s view often considers emotional value, as well as financial value.
Introducing a second valuator
In the case of Anita and Aanik, their competing objectives may be too great such that they each decide to retain their own CBV.
In this setting, each valuator will typically perform their own, but likely similar, research, analysis and calculations to support their conclusions. Whether or not this duplication of effort adds utility for the shareholders or furthers progress toward a resolution is for the parties involved to decide.
In a confrontational or litigious scenario, it may be that each party is required to retain its own valuator throughout the dispute process.
In the two CBV scenario discussed above, it is rare that both valuators arrive at the same conclusion. Each shareholder may have differing views and interpretations of the relevant facts and assumptions pertaining to the business, and subsequently, each valuator may interpret these details differently.
This effectively means that both shareholders will need to determine a method to resolve the gap between the expert opinions. This can include “splitting the difference” in some way, mediating, attending trial, or perhaps retaining a third valuator to assist in mediation or arbitration of the matter.
In any of the scenarios presented, the involvement of a CBV as early as possible will help to identify the relevant issues, and determine whether one, two or three valuators may be necessary to effectively assist the valuation process.