Should You Use a Joint Expert to Value Your Business?

In litigation involving the value of a business, each party often hires its own expert. However, under the right conditions, sharing one expert can benefit both parties. In a joint valuation, the parties retain a single business valuation professional who works for both rather than advocating for either side. The valuator and parties agree in advance on basic ground rules for the engagement. Ideally, the result is an opinion that narrows the areas of disagreement. Here's a closer look at the pros and cons of this approach.

Reduced Costs, Simplified Outcomes

Joint experts offer more than just lower costs. Sharing one expert can facilitate settlement because both sides use the same data and may stipulate to key points, possibly eliminating the need to go to court. Moreover, using a joint expert can reduce hostility between the parties. This can be particularly beneficial if the parties need to work together in the future — for instance, co-parenting their children or donating time to economic development projects in their local business community.

Courts may encourage or order the use of a neutral expert, depending on the jurisdiction and circumstances, to avoid "battles of the experts" who often have divergent opinions. When both parties select the expert, the joint engagement may strengthen the perception of neutrality and increase the expert's credibility. However, the reliability of the conclusion still depends on the expert's qualifications, methods, assumptions and data.

Choosing to work with one expert demonstrates that both sides are willing to collaborate, setting a positive tone during the litigation process. The use of joint experts also tends to be less time consuming because there's only one report and one expert's testimony to review. Cross-examination may be more focused if the parties agree on the expert's qualifications or certain valuation issues. However, either party may retain the right to challenge the expert's assumptions, methods or conclusions.

Potential Downsides

Of course, you should consider some possible pitfalls before hiring a joint expert. These vary depending on the complexity of the case, the trust between parties and the nature of the assets involved.

For instance, a party that withholds or misrepresents financial information can undermine the expert's analysis. Joint engagements generally work best when the expert has access to complete, reliable information from both sides. In contentious litigation, getting the parties to agree on anything — including choosing a qualified valuation professional — can be challenging. If one party's top choice isn't selected, it can lead to distrust and a perception of bias. Failure to agree on a joint expert can also delay the valuation process and prolong dispute resolution.

Attorneys often have concerns about using joint valuation professionals who can't advocate for their clients' interests or help evaluate strategic issues during settlement. And if the parties wind up in court, communications between both parties and the joint valuation expert generally won't be granted attorney-client privilege. It may also be harder to cross-examine joint experts or challenge their findings than it would be for opposing experts who work exclusively for the opposition.

Common Use Scenarios

Despite these drawbacks, joint valuations can be especially advantageous in divorce cases, where one (or both) parties lack financial resources or access to financial data. Depending on the jurisdiction and facts of the case, a court may appoint a neutral valuator or require the parties to use one. Sharing experts also can be key to collaborative divorces, where the parties agree to settle outside of court through a series of joint meetings.

Other situations where this approach may be beneficial include shareholder disputes, buyouts, and mergers and acquisitions. Complex cases involving multiple businesses or asset types may call for a joint team that includes professionals with various specialties, such as real estate appraisers, intellectual property specialists, business valuators and forensic accountants.

Solid Foundation

If you decide to share experts, establish the ground rules up front. Factors to consider include:

• The purpose and scope of the engagement,
• The valuation date,
• The appropriate valuation standard and premise of value,
• Responsibility for paying fees,
• Preferred reporting format, and
• Access to data and business personnel.

The parties should also stipulate whether the conclusion will be binding, how the expert will communicate with the parties, and how disputed or incomplete information will be handled. A solid foundation is essential to achieving an outcome that satisfies both sides, while saving time and money.

Make an Informed Choice

Joint experts can streamline some valuation disputes, but they're not right for every situation. Contact us for help evaluating whether a joint expert might work for your circumstances. Regardless of the approach you choose, we can provide an independent opinion on the value of your business.