There are few business transactions that don’t somehow involve valuation principles. While most (if not all) business lawyers may not be a certified valuation expert, all need at least a fundamental understanding of valuation and how it can and should impact a business transaction. This year’s Business Law Forum examined the critical aspects of valuation rules and guidelines in the context of M&A deals. However, the sessions are highly relevant to all business attorneys. The importance of valuation is evident in the considerable amount of litigation over what the “correct” value of a company is, and how such value was derived.
Sessions include a nuts and bolts overview of valuation methodologies, day to day best practices regarding valuation advice and guidance by business counsel (including sample valuation/buy-sell provisions in business contracts such as shareholder agreements and operating agreements), and recent Tennessee and Delaware caselaw regarding acceptable methods in valuing dissenter appraisal rights. Other sessions feature topics dealing with valuation of general partnership interests (including recent Tennessee caselaw), ways in which valuation differs depending on the company’s stage in its life cycle, and professional responsibility/ethics issues prevalent when an attorney deals with valuation “experts” (including applicable Tennessee ethics rules, when a valuation may be warranted, the range of cost and types of valuation reports, and real-world examples of how these issues can play out in litigation).
Session 1: “Basics of Valuation Methodologies” by Chris Rowe, Ralph Montgomery, Andrew Allred and moderated by Justin Joy
Session 2: “Business Lawyers and Valuation: Application of Valuation Concepts in a General Business Law Practice” by Nathan Harris and Drew Hill
Session 3: “Athlon and the Death of the Delaware Block Method” by Michael Collins, Paul Davidson, Glenn Perdue and moderated by Professor Joan Heminway
Session 4: “Valuing the General Partnership Share” by Matthew Lyon and Bob Parker
Session 5: “Valuation and the Life-Cycle of the Entity” by Al Bright, Rob Laird and Chase Perry
Session 6: “The Art & Science of Business Valuation: Competence and Other Professional Responsibility Issues” by Mike Costello and Brian Faughnan
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This session will be an introduction to the valuation process for business transactions. It will cover the following topics: why business owners seek valuations; methods and approaches of the valuation process; common adjustments made to EBITDA; and how valuations are used by buyers and sellers in various M&A transactions.
Though a distinct industry comprised of valuation-focused professional services firms and consultants exists, Tennessee business attorneys are nevertheless often required to provide valuation-related advice and guidance in the context of their general business and corporate practices without the luxury of input from such valuation experts. This session will focus on selected topics, and related best practices, that a Tennessee attorney is likely to encounter when advising clients on typical business valuation issues, including drafting valuation/buy-sell provisions in operating and shareholder agreements, structuring equity grants (such as profits interests) to service providers, and valuing LLC capital contributions.
For many years, trial courts around the country (including in Tennessee) relied exclusively or principally on a judicially constructed process for engaging in appraisal valuations under state corporate dissenters’ rights statutes. That process is known as the “Delaware Block” (or “weighted average”) method. In 1983, the Delaware Supreme Court abandoned the exclusive use of the Delaware Block method for appraisal valuations undertaken under Delaware law, adopting “a more liberal approach” that determines value through the use of “any techniques or methods which are generally considered acceptable in the financial community.” Although it took 35 years, the Tennessee Supreme Court also rejected the exclusive use of the Delaware Block method for appraisal valuations in 2018. This panel unpacks the modern history of appraisal valuations in Tennessee from a legal and financial perspective and offers counsel advice on how to navigate appraisal litigation using financial valuation experts.
Although limited liability entities such as the LLC and LLP have predominated since their emergence in the 1980s and 1990s, there are still numerous general partnerships in Tennessee. Moreover, new general partnerships are formed all the time, either intentionally or by operation of law as entrepreneurs associate and begin business activities. Many of these new general partnerships lack a partnership agreement with an exit provision. Upon dissociation of one or more of the partners, it is often left to the lawyers to devise a strategy for determining the value of the partners’ shares. This session will provide an overview of the applicable provisions of the Tennessee Revised Uniform Partnership Act, summarize recent caselaw in Tennessee on the topic, and discuss practical approaches to examining valuation with a general partnership.
The science and art of valuation can vary significantly based on the stage of development of the business firm being valued. The valuation of a start-up with few assets and operations, on the one hand, and a mature public company, on the other hand, can incorporate vastly different types and amounts of information. Seed, angel, and venture capital investments raise especially interesting questions in practice. This panel explores some of the issues that arise in valuing business firms at different stages of those firms’ development.
Mike Costello has been providing business valuation services for over 35 years. He will discuss his experiences regarding when to call on an expert for business valuation services. He will also discuss the cost of different valuation reports along with the pros and cons to each one. His experience includes reviewing the work of other business valuation professionals and identifying competency issues. Mike will share some of the more interesting cases he has observed over the years. The discussion, which will be guided by Brian Faughnan, will also cover various ethical considerations for lawyers who are engaging business valuation experts on behalf of their clients, or advising clients through the process of hiring a valuation expert.