Wednesday, 12 August 2020

Valuation in Disputes

Through its team of judicial experts, Hermes Advisory provides financial-economic and statistical analyses and expert opinions to support national and international legal proceedings. In legal proceedings, both the legal and economic effects play a key role. After all, you wouldn’t want to win your case, but then for the ruling of the court not to put you in the financial position that you are actually entitled to? This situation can be prevented by sound financial substantiation during your legal case.

In disputes where value is pivotal

Hermes Advisory is often appointed as expert by the judiciary and by parties involved in a legal dispute in legal proceedings where the value of an asset plays a pivotal role. These assignments vary between performing business valuations in divorce proceedings, the buy-out of a shareholder, in a situation of tort resulting from mistakes made in share issues, in (international) arbitration or, for example, in disputes between shareholders. Hermes Advisory is also brought in when there is ambiguity concerning a specific valuation element which will affect the outcome. For these cases we provide substantiated opinions, with references to specific literature.

Comprehensive knowledge of valuations and experience in legal proceedings

Hermes Advisory has knowledge and experience in the following areas of valuation:

  • Business valuations
  • Business valuation for reasons of financing
  • Valuation of intellectual property and estimating pecuniary damage in the event of intellectual property infringement
  • Business valuation in extraordinary administration situations
  • Valuation of financial portfolios (structured finance and investment portfolios)
  • Valuation of complex financial instruments

We have a team of professionals with broad experience in valuation and financing. The team comprises chartered valuators (who are registered with the Netherlands Institute of Chartered Valuators), chartered accountants, investment bankers and quantitative finance specialists.

Disputes over capital structure

Businesses are generally financed by a number of different parties: shareholders, secured lenders, and suppliers. The more complex the capital structure, the more parties will be involved. Multiple financial parties offer lines of credit, derivate instruments and interest swaps come into play, the company’s fleet is leased, and the receivables are transferred to a factoring company. An economic setback and the resulting pressure on the company’s financial obligations will lead to tension between the various financiers involved. In these situations, the input of an independent third party who also determines the value of the business may have added value.

“Valuation is a discipline in its own right, in which legal, fiscal and economic aspects converge. It is not enough to say: we will just run a model.”

Pieter van Prooijen – Partner Hermes Advisory

Our team is conversant with the following methods, valuation principles and valuation approximations:

  • The various standards under which the value of an asset is included in a report, for example, liquidation value, market value, intrinsic value and investment value.
  • Value approximation on a going-concern basis or for liquidation
  • The following valuation methods and approximations:

Income approximation: Discount Cash Flow Method and the Adjusted Present Value method

Comparable Companies method: key figures based on comparison with similar listed companies

Comparable Transaction method: key figures based on comparison with the sale of similar businesses

Underlying valuation method: method where the value of the underlying assets is examined

  • Discount rate and capitalisation rate: underpinning the discount rate and capitalisation rate using the ‘ build-up method’, the ‘capital asset pricing model’, the underpinning of the ‘ weighted average cost of capital’ and other quantitative methods, in order to substantiate these.
  • Substantiation of minority discounts and the verification of premiums and discounts in order to substantiate the application of a discount when shares are marketable only to a limited extent.
  • Deductive valuation methods that are applied in transactional work
  • Monte Carlo Analysis and Real Options Theory
  • Structured Finance applications to determine the value of loans in portfolios
  • Price setting for derivatives and complex options based on quantitative models

Our job is to convincingly and fully substantiate your case, to ensure that this is understood by the judiciary and to ensure that your rights are recognised

Should you require more information, please contact:

Pieter van Prooijen mobile: +31 (0)6 301 54 753