Appraiser Disagreement Resolution

The good news is that there are lots of options between those two extremes.

The first order of business is a self-check. Where did your idea of your company’s value come from? Was it an informed perspective from someone with deep knowledge of your company, its industry, and the capital markets? Or was your idea of value based on what you heard or read about a transaction in your industry? Was somebody bragging on the golf course or in the cocktail lounge? If the latter, rather than being frustrated, you might be learning something about your business.

If you pass your self-check and still have a high degree of confidence in your value position, the next step is to have a conversation with your appraiser. If you haven’t done so already, walk through the valuation line by line, number by number, if you must. Make sure you understand the appraisal and the path taken to produce it. The walkthrough can be tedious, but in that walkthrough, you may discover that the appraiser misunderstood some of the information provided to them. Or you may discover that you misunderstood one or more questions asked of you. The client may discover that company personnel were providing surprising answers to key questions.

Sometimes, this process reveals a mechanical error, such as data entry, math, or formula. I wish I could tell you this never happens, but it does. We and other good firms have many procedures to prevent such errors, but once in a while, they sneak through. I can tell you from experience when that happens, it’s one of the worst feelings in the world for the appraiser. This is why once that happens, we invest a LOT of effort to make sure it never happens again (but it still will.)

Sometimes the disconnect happens because the client didn’t fully understand the standard of value applied. On the front end, to the client, the standard of value seems to blend in with all the legalese gobbledygook in the engagement letter, but it’s quite meaningful. For example, the standards of fair value and fair market value, for the most part, ignore synergies that a specific buyer might pay for – like when Alphabet buys a seed-stage startup for hundreds of millions of dollars. So, if you had that billion-dollar payday in your head and the valuation came back a comma or two short, that could be why. If the synergistic value is what’s most useful, the valuation might be re-cast as investment value, which means, “the value to a specific buyer or buyer set.” Note that this can require a lot more work and mimics the sort of valuations that investment bankers perform for their clients and prospects.

Finally, you may have a disconnect on the company’s risk. Sometimes you and your appraiser will disagree on the overall risk profile of the company. That can be overcome with frank, deep conversations as to why you and your appraiser have taken the positions that they have.

Perhaps the most important thing to remember about the appraisal process is that the first version you receive is almost always a first draft unless you’re in a litigation matter. The draft invites discussion, debate, clarification, thought, corrections, research, and other useful intellectual activities that usually ultimately lead to an improved work product. Remember that your appraiser, while usually not your advocate, is also not your adversary. While there’s no guarantee that you will be able to close the valuation expectation gap, in our experience, the need for a client to either accept a valuation they don’t believe or repeat the process is quite rare.