IN 90 Mcw.nacva.com/PERC/Business Valuation/2015_ATVW... · CVA, CVPA, Series 63 and 79 Brian...

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2 © 2015 National Association of Certified Valuators and Analysts

Kathy Knapp MBA, CPA, CVA

Roberto Castro JD, MST, MBA,

CVA, CVPA,

Series 63 and 79

Brian Davidson CVA

3

Brien K. Jones

Assistant Editor

Mike Gregory ASA, CVA, MBA

SENIOR CORRESPONDENTS

Chris Ekimoff CPA, CFE, MAFF, MBA

Gregory Caruso JD, CPA, CVA

Cheryl B. Hyder MT, CPA,CFF,

CFE, CVA

Janae Castell CVA

Melissa Gragg CVA, CFE

Paul E. Zikmund MAcc, MBA, CFE,

MAFF

© 2015 National Association of Certified Valuators and Analysts

Marc D. Bello

Co-Editor in Chief Courtney Sparks White Co-Editor in Chief

Mark A. Felton CPA, CFE, MBA,

MAFF, CVA

TJ Liles-Tims MBA, CVA, CFE

William Malek CVA, MAFF

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Month Line Up

IN 90 MINUTES


*For a copy of prior editions of this webzine, e-mail [email protected] or visit www.ADAMdata.com

Melissa Gragg: Inside the Cross-Examining Attorney’s

Mind

Mark Felton: Working Together: Attorney and Expert

Witness

Gregory Caruso: 7 M&A Documents Demystified

Michael Gregory: BVR Wire and BV Update Highlights

mailto:[email protected]

http://www.adamdata.com/

Inside the Cross-Examining Attorney’s Mind

By the National Association of Certified Valuators

and Analysts™ (NACVA®)

QuickRead Buzz, November 2014

http://quickreadbuzz.com/2014/11/04/inside-cross-

examining-attorneys-mind/

IN 90 MINUTES

6

Melissa Gragg

CVA, CFE, MAFF


This article focuses on a series of six articles posted in a blog by

personal injury attorney Dean Brett http://washingtoninjury.com

◦ Why Cross-Examine an Expert Witness?

◦ The Four Main Advantages of the Trial Lawyer Against the Expert

Witness

◦ General Preparation for Cross-Examination

◦ Final Preparation for the Cross-Examination

◦ The Ten Commandments of Cross-Examination

◦ An Example of Cross-Examination of a Defense Economist


http://washingtoninjury.com/

“As a general thing, it is unwise for the cross-examiner to

attempt to cope with a specialist in his own field of inquiry.

Lengthy cross-examination along lines of the expert’s theory is

easily disastrous and should rarely be attempted.” Francis

Wellman, The Art of Cross-Examination, 1903.

Why then ever cross-examine an expert witness? Only

because you have no alternative.

To fail to cross-examine is to concede the heart of the claim.


Precisely because experts are so difficult to examine, your

opponent will insist on presenting the testimony of experts on

the critical issues of the case.

Those experts, because they are looked up to by the jury

and because they are often hired for the specific purpose

of destroying a necessary element of your proof, often

cause more damage than lay witnesses and thus compel

cross-examination.

Failure to examine expert witnesses may be viewed by the

jury as a surrender on the critical issues they support.


1. The trial lawyer can choose not to ask any

questions at all, or more likely, can choose not

to ask certain questions. He can avoid certain

battlefields. The task of preparing to cross-

examine an expert witness is largely one of

determining which questions NOT to ask.


2. The trial lawyer can choose to ask only

questions which require either a “yes” or a “no”

answer. He can take away the expert’s most

potent weapon—the monologue.

3. The trial lawyer can learn the specific narrow

aspect of the expert’s subject matter that is

relevant to the specific issue being tried. He

can learn that part of the territory on which the

battle will be fought.


4. And finally, the trial lawyer can analyze and

criticize the expert’s answers in the home

territory of final argument, on his own turf,

where the expert is speechless.

Effective use of these four advantages

minimizes the expert’s strength, his expertise

in the subject matter, and maximizes the trial

lawyer’s strength, the ability to question

narrowly then comment on the answer without

reply.


Put it in perspective, right at the start. The average expert witness knows as much about his or her field as you know about law.

“That means a lot of different things. It means, for example, that the knowledge and ability of nearly any expert is uneven. It means that the typical doctor knows no more about hepatitis…or coronary arrhythmia than the average lawyer knows about promissory estoppels…or the doctrine of worthier title. It means that a lawyer can learn enough... It also means that the witness—unless he has had previous courtroom experience—is going to be scared.” McElhaney, Trial Notebook, page 167.


Four stages of general preparation for the cross-

examination of the defense expert:

Learn the expert’s subject

Scout the expert

Use your own expert

Establish realistic goals


Find a teacher, perhaps a professor at a local

college, to conduct a one-on-one directed reading

course.

If you do it right the first time, you can develop your

own expertise in the subject for use in other cases.

And sometimes you can even develop your teacher

into an expert witness for your own side as he

becomes interested in the forensic aspects of the

subject matter.


Obtain and review everything the expert has

published

Index the publications:

◦ (a) for contradictory statements for use in

impeachment,

◦ (b) for general principles supportive of your theory,

and

◦ (c) for embarrassing quotations about the limits of

the expert’s knowledge.


Where the expert has not published extensively but has

previously testified, trial transcripts and depositions can be

obtained from friendly trial lawyers.

Go to the reports, call the opposing attorney and get a copy of

the expert’s deposition, listen to a few war stories on how to

approach him at trial, obtain the lawyer’s assessment of the

expert’s strengths and weaknesses, and if the case was

appealed, get a transcript of the trial testimony.

Every expert has his own little tricks to avoid a question he

does not want to answer, just like the rest of us.


Use your own expert to help you learn the subject matter, to scout

the adverse expert, and to prepare your cross-examination.

Do not let your expert take the position that he is correct based on

his superior skill, knowledge, and training. Make the expert explain

to you, in simple lay terms, precisely where the adverse expert

agrees on common ground, where he accepts different assumptions

or “factual” data, where his approaches and reasoning processes

differ, and where in each instance the opposing expert is in error.

Make it an obligation of your expert to explain to you why the

defense expert is wrong, so you can explain it to the jury.


From the moment the client first walks in the door,

everything a good trial lawyer does is focused on one

moment—the opportunity he has to stand before the

jury in final argument and explain the client’s plight.

The general goal of cross-examination is to advance

the “theme” of a case by securing the ammunition

needed for final argument.


The conceptual error made by too many lawyers is

to analyze the cross, independent of the entire trial,

and thereby to set an unrealistic goal—usually the

goal of “destroying the witness.”

Because of the witness’ combination of expertise,

stature, intelligence, and experience, it is unrealistic

to expect to “destroy” each expert.

Set an achievable goal.


Wigmore said that the goal of cross-examination

should be to “soften the impact of the witness

by confrontation.”

With an effective expert, the goal may be no more

than to prevent the expert from winning the case for

the other side. Don’t expect to win your case in

cross-examination of your opponent’s experts, you

will be doing better than most if you break even and

avoid a disastrous loss.


We will cover the final 3 parts of the series in a future webinar

◦ Final Preparation for the Cross-Examination

◦ The Ten Commandments of Cross-Examination

◦ An Example of Cross-Examination of a Defense

Economist

http://washingtoninjury.com/content/how-prepare-cross-

examine-expert-witness-dean-brett


Working Together:

Attorney and Expert Witness

By Mark A. Felton, CPA, CFE, CVA, MAFF, MBA

National Litigation Consultants’ Review, Vol 4, December 2014

23

Mark A. Felton,

CPA, CFE, CVA,

MAFF, MBA


IN 90 MINUTES


Start small and work up to

larger more complex cases

“There are lawyers at big firms, medium firms

and small firms that need experts who are more

cost effective as clients continue to rein in costs.”

Jamal Faleel, Attorney


Lunch, Dinner or

Golf?

It depends

Are they the best

venues for marketing

your practice?

“Go places you enjoy going, and do things you enjoy doing.

You will keep going to those places or doing those things

because you enjoy them and will meet people who are like-

minded and build relationships that way. At the end of the day,

it has to be genuine.”

Jamal Faleel, Attorney

4

3

Like you

Trust you

Believe you are competent


“You must have all three at a minimum!” Joe Kenyon, Expert Witness

“It’s a relationship

business at its core” Jamal Faleel, Attorney

1 Sally Field said during her 1985 Academy Awards acceptance speech for best actress 29

You like me, you really, really, like me! 1

“A big mistake experts make is to stop at the “like” step and forget to

connect on a professional level so that the attorney understands your

expertise and how it may benefit them and their clients.” Joe Kenyon, Expert Witness

Therefore, be diligent in telling the attorneys the …

1. Pertinent experience you have

2. Opportunities you are looking for, and

3. Find ways to keep your name at the top of their list!


“The most sought after experts are the ones who have all of the

attributes below, and can deliver under pressure.” Jamal Faleel, Attorney

“A word of caution, don’t create the impression that you have more

experience than you really have, because your credibility is destroyed

when the truth becomes known. Never embellish. You need to be

straight with people. They appreciate that.” Joe Kenyon, Expert Witness

Subject matter expertise

Relevant experience

Good communication

Credible

Final thoughts …

7 M&A Documents Demystified A Business Owner’s Guide to M&A Success

By AXIAL MARKET

November, 7, 2014

http://www.axial.net/wp-content/uploads/2013/11/7-MA-Docs-Demystified.pdf?983d10

31

Gregory R. Caruso

JD, CPA, CVA www.harvestbusiness.com


IN 90 MINUTES

Valuation professionals are often asked to participate in portions of

transactions

Have an understanding of “typical” process

If asked to review / explain (not as counsel) to have some understanding

Last time covered the first four documents; The Engagement Letter; The

Teaser, The NDA, The Confidential Book

This Session we cover the documents to put together a deal; the IOI, the

LOI, and the Purchase Agreement


The IOI is a non-binding formal letter that is a

preliminary almost pre-offer used to see if parties

are in same ballpark

Often provided prior to any real due diligence

Very high level outline of how deal might be done

Not a guarantee or firm commitment, JUST an

indication


Terms that may be specified

◦ Approximate price range often as a multiple of EBITDA

◦ Availability of funds and sources of financing

◦ Due diligence requirements and timeline

◦ Transaction structure—asset vs. stock

◦ Management retention & outline compensation

◦ Estimated timeframe to close


Letter of Intent is a generally non-binding formal

letter clearly outlining the business and sometimes

legal terms of the transaction

Signatures do NOT mean there will be a closing

Can be 2 to 10 pages. Some participants want

everything defined, others only an outline of

business terms


Common Terms

◦ Deal structure; asset or stock

◦ Consideration; price, methods of payment, calculation of earn-

outs, stock, seller notes, etc.

◦ Closing date; be aware this one generally moves

◦ Closing conditions; tasks, approvals, consents to be obtained

before closing

◦ Break-up Fee (over $500 M)


Terms Continued

◦ Exclusivity Period (Binding) 30 to 120 days for buyer to perform

due diligence

◦ Management Compensation; may be vague

◦ Due Diligence requirements and timeline

◦ Confidentiality (Binding)

◦ Approvals necessary by parties—boards of directors, landlords,

regulatory


Less Common Terms

◦ Escrows/offsets; protection from unknown liabilities and failure of

representations

◦ Representations and Warranties. Indemnifications and assurances from

parties. Mainly from Seller to Buyer

◦ Employment Agreements and non-competes

◦ Retention Bonuses and one-time payments

◦ Treatment of option pools, underwater options etc.

◦ Fees, generally by party incurring charge but not always


A good LOI will cover financial business terms and

path to closing. Often does not cover detailed legal

and indemnification terms

Level of completeness is always a balance as the

quote, “I will not agree to that as it was covered in

the LOI” comes up again and again

IF critical and unusual, should be covered in LOI


Binding Agreement often called the Definitive

Agreement

MUST be prepared by an experienced attorney

You MUST as a party to the transaction

understand this document

Often signed at closing table


Key Terms often not in LOI

◦ Definitions—Often skipped yet critical to understand,

all Capitalized terms, how attorneys change meaning

◦ Representations and Warranties (what the big print

gives the fine print takes)

◦ Indemnifications, including who gives them, how long

they last, floors or baskets, caps, offsets, escrows


Key Terms often not in LOI

◦ Interim and Post Closing Covenants

Restrictions on running business until closing

Post-closing covenants include non-competes, transition services, D&O

and/or Professional Liability Insurances

◦ Closing Conditions including required; regulatory approvals, landlord

consents and assignments, franchisor or supplier consents

This document governs the relationship between the parties after

closing and must be carefully negotiated.


IOI, LOI, and Binding Purchase Agreement create a series of

roadmaps of increasing detail to enter into and complete a

transaction

Everything is negotiable

Yet, experienced players understand when various terms get

negotiated and they understand normal ranges for key terms

Always have an experienced team working with you


BVR Wire and

BV Update Highlights Business Valuation Wire and Business Valuation Update

Highlights

44

Michael Gregory

CVA, ASA

IN 90 MINUTES


Fair Value and Private Companies

Capitalization Rates Down in Senior Healthcare

Market

Two new sources of information on valuing

intangibles and auto dealerships


Mark Zyla warns valuers of recommendations

from the Private Company Council

http://quickreadbuzz.com/2014/10/29/ten-things-

valuation-specialists-know-fair-value-

measurements-private-companies/

The current proposal for accounting for business

combinations has changed “fairly dramatically”

from the original proposal based on feedback

from interested parties


http://www.levinassociates.com/scardescription

◦ NOT FREE

The article discusses “The 2014 Senior Care Acquisition Report” published by Irving Levin Associates

At the site I found the 2015 edition For the quarter ended Sept 30, 2014 assisted living

rates are down from 8.7% to 8.0% For the quarter ended Sept 30, 2014 independent

assisted living rates are down from 8.5% to 7.9% For the quarter ended Sept 30, 2014 skilled nursing

rates are down from 13.0% to 12.3%




“Guide to Intangible Asset Valuation” by Robert

Reilly and Bob Schweihs

http://www.bvresources.com/bvstore/selectbook.

asp?pid=PUB25 for $114

Presents due diligence procedures and methods

for various valuation issues.


Two items for your consideration

◦ The “Automotive Buy Sell Report” by Timothy W.

York from Dixon Hughes Goodman

http://automotivebuysellreport.com/

◦ “Key Trends Driving Auto Dealership Value: A BVR

Special Report”

http://www.bvresources.com/bvstore/book.asp?pid=P

UB151 $159




http://www.bvresources.com/bvstore/book.asp?pid=PUB151



From Paul Saltzman and James Ewart (Dixon Hughes)

12 Point checklist

1. Data collected nationally or regionally?

2. For owner/employees—business profits?

3. Sampling sizes?

4. SIC comparisons

5. Job titles vs. subject owner/employee

6. Averages, medians, quartiles?


12 Point checklist continued

7. Specialties (for example forensic accountants)

8. Multiple job titles

9. How reliable are the stats and sources?

10. What about stock options, restricted stock, and

other perks?

11. Consistency of retirement plans?

12. Key person or a top performer?


Three pages of 96 industry sources by

◦ SIC

◦ NAICS

◦ Industry

◦ Source

◦ Title


Thank you for joining us! You’re invited to attend next month’s

broadcast on Monday, February 23, 2015

For registration, complete one of the following:

◦ Visit: Registration_Link

◦ E-mail: [email protected]

◦ Call: IBA/ADAM Member Services at (800) 299-4130

53 © 2014 National Association of Certified Valuators and Analysts. All rights reserved.

http://www.nacva.com/ecommerce/product.asp?pc=15WAT0223

mailto:[email protected]

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