Court approves expert’s use of "rules of thumb
Most courts have expected expert witnesses to provide documents "comparables" when calculating the value of a business in dispute. So it's noteworthy that a source which averages "rules of thumb" multiples by industry has just been accepted in a recent California divorce.
In the case, a joint expert valued the husband’s physical therapy practice between $450,000 and $550,000, using a multiplier of roughly .42 derived from the Business Reference Guide: The Essential Guide to Pricing a Business (BRG)(Business Brokerage Press), an excerpt of which he attached to his report. The trial court approved the source but adjusted the expert’s multiplier upward to 1.0 based on the firm’s historic growth rates, good location, and well-established clientele.
On appeal, the husband challenged the trial court’s reliance on the BRG for: 1) lack of foundation for the author’s expertise; 2) lack of evidence that the joint expert included the BRG’s method in his appraisal or that the court understood it; and 3) lack of support that the BRG method was “reasonable.” The husband also claimed that the negative factors underlying the joint expert’s selection of a lower multiplier were more credible. The appellate court rejected all these reasons, finding that the BRG was a reliable method used by an “undisputed” expert. Read the complete digest of In re Marriage of Bauer, 2011 WL 4337093 (Cal. App.)(Sept. 16, 2011) in the Dec. 2011 Business Valuation Update; the court’s unpublished opinion is currently posted at BVLaw.
New updates to BRG: In addition, BVR has just received the new Business Reference Guide online, in which 65% of the content was just updated—including its sections on Industry Trends, Rules of Thumb, Pricing Tops, General Information, and Expert Comments. Benefits of subscribing to the BRG Online include: 1) the ability to search for businesses using keywords and SIC codes; 2) access to continual updates throughout the year; 3) ease of adding BRG data to reports; 4) access to current industry reports, and more.