M&A Talk (Mergers & Acquisitions), by Morgan & Westfield

Navigating Partnership Disputes: Lessons from a Valuation Expert

Jul 31, 2024

Andy Frew, an expert appraiser, delves into the complexities of partnership disputes and business valuations. He explains how these disputes can dramatically impact a company's value and highlights the distinctions between legal and market-based valuations. Frew emphasizes the critical role of experienced appraisers in ensuring fair assessments, especially in emotionally charged situations like divorces. He also discusses the nuances of valuing minority stakes and the importance of crafting effective buy-sell agreements to prevent future conflicts.

01:12:52

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Andy Frew

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Quick takeaways

Partnership disputes can stem from differing partner visions, leading to valuation disagreements that escalate tensions within the business.

Appraisers serve as neutral evaluators in disputes, with their expertise being vital for balanced valuations amidst potential mistrust between partners.

Understanding the different standards of value, such as fair market and fair value, is crucial for accurately assessing business interests during disputes.

Deep dives

Triggers of Partnership Disputes

Partnership disputes can arise from various dynamics, including differing visions for the business among partners. These conflicts may begin amicably when one partner seeks to retire or exit the partnership, leading to previously harmonious relations deteriorating due to disagreements over valuations. In some cases, tensions escalate when parties suspect that crucial information is being withheld, which can shift the previously cooperative environment into a contentious one. Effective communication and adherence to established ground rules are essential to prevent misunderstandings that may lead to disputes.

Intro

2min

Navigating Partnership Disputes and Valuation Challenges

14min

Understanding Business Valuation in Partnership Disputes

3min

Navigating Appraisals in Partnership Disputes

10min

The Risks of Discount Appraisals and Customized Valuation Approaches

3min

Valuing Minority Ownership: Discounts and Agreements

11min

Crafting Effective Buy-Sell Agreements: Key Considerations

2min

Navigating Partnership Valuation Disputes

15min

Crown C Case: Valuation and Legal Implications

10min

10.

The Importance of Choosing the Right Appraiser for Legal Valuations

3min

View the complete show notes for this episode.

What impact can a partnership dispute have on the value of a company? What is the difference between a legal valuation and a market-based valuation for M&A purposes? Expert appraiser Andy Frew answers these questions and more as he discusses what’s involved and what can go wrong with valuations involving companies that have a partnership dispute arise. He covers the complexities of valuing partnership interests and establishing a thorough valuation methodology to prevent disputes from escalating.

What You’ll Learn

Standards of Value: An explanation of the three types of standards of value – fair market value, investment value, and fair value – and when each is used.
Triggers: What can cause a partnership split or a dispute and the complexities involved in valuing minority interests in privately held businesses.
Experience: The critical role of experience and credentials for appraisers, especially when their work may be challenged in court or by regulatory bodies like the IRS.
Differences in Valuations: The distinction between valuations for legal purposes (e.g., partnership disputes, estate taxes) versus market-based valuations for M&A transactions.

Want More? Related Resources:

Books Mentioned:

Buy-Sell Agreements for Closely Held and Family Business Owners by Z. Christopher Mercer
Quantifying Marketability Discounts by Z. Christopher Mercer
Business Valuation: An Integrated Theory (Wiley Series in Finance) by Z. Christopher Mercer and Travis W. Harms
Valuing a Business, 6th Edition: The Analysis and Appraisal of Closely Held Companies by Shannon P. Pratt and the ASA Educational Foundation
Cost of Capital, + Website: Applications and Examples (Wiley Finance) by Shannon P. Pratt (Author), Roger J. Grabowski (Author), Richard A. Brealey (Foreword)
30-Second Economics by Donald Marron

Additional Resources:

Planning to sell your business? Schedule a free consultation today.
Download a free PDF copy of The Art of The Exit: The Complete Guide to Selling Your Business, Acquired: The Art of Selling a Business With $10 Million to $100 Million in Revenue, and Food and Beverage M&A: An Insider’s Guide to Selling a Food or Beverage Manufacturing, Distribution, or Grocery Business.
Purchase your copy now of A Beginner’s Guide to Business Valuation | The Exit Strategy Handbook | Closing the Deal

Listen to Other Episodes

M&A Valuations in the Real World with Abhi Mathews
The Art and Science of Valuing a Middle-Market Business with Kevin Moyer and Megan Sartor
What Does the Future Look Like for Middle Market Valuations? with Bill Wiersema

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M&A Talk (Mergers & Acquisitions), by Morgan & Westfield

Navigating Partnership Disputes: Lessons from a Valuation Expert

Episode guests