How to Handle Valuation Disputes in Mergers or Sales

One of the most critical aspects of a business sale or merger is valuation; it’s also one of the most contentious. Disagreements over a company’s valuation can derail deals, create friction between buyers and sellers, and ultimately lead to failed transactions. Understanding common causes of valuation disputes and strategies for handling them effectively can set you up for success.

Common Causes of Valuation Disputes

Misaligned Financial Assumptions

Revenue projections, asset valuation methodologies, and cost structures vary based on your perspective and interpretation. While a seller may view future growth optimistically, a buyer might take a more conservative approach. Without standardized financial assumptions, disagreements between buyers and sellers are inevitable.

Differing Methods of Valuation

There is no one-size-fits-all approach to business valuation, evidenced by the sheer number of valuation methods available, including:

• EBITDA multiples
• Asset-based valuation
• Comparable transaction analysis
• Discounted cash flow analysis

Each valuation method can yield a different figure, which can easily lead to discrepancies in the perceived worth of the business.

Disputes Over Intangible Assets or Liabilities

Intangible assets can be challenging to quantify. Without the proper experience and industry expertise, pricing customer relationships, intellectual property, and brand reputation can be difficult.

Pending litigations and contingent liabilities can be just as challenging to nail down how they will influence valuation. When disagreements arise over how such factors should be accounted for, tension can build between both parties.

External Factors

External factors can also create corporate valuation disputes. If a business was valued at a premium in a booming market, it may need to be reduced due to current market conditions. Buyers and sellers may disagree on how external factors, such as regulatory changes and industry trends, should be weighted.

How to Prevent Valuation Disputes

Successful deals require more than just numbers—they require strategic planning and trust, which we offer here at True North Mergers & Acquisitions. Partner with our team of experts to minimize valuation disputes. Our transparency, accuracy, and collaboration at every stage set clear expectations while keeping all parties aligned.

Comprehensive Quality of Earnings Analysis

We conduct an in-depth financial analysis, reviewing earnings trends, working capital adjustments, and non-recurring revenue or expenses. We go to such great lengths because an in-depth earnings analysis is fundamental to establishing a fair valuation.

The level of scrutiny we offer here at True North Mergers & Acquisitions allows both buyers and sellers to clearly understand the company’s true earnings power. Such clarity greatly reduces the potential for disputes.

Rigorous Financial Due Diligence

We bring the same level of dedication to the due diligence process. We’ll uncover potential issues or discrepancies before they turn into dealbreakers. By working closely with business owners and financial advisors to verify operational risks, tax liabilities, and financial statements, we can proactively address potential areas of contention.

Our thorough due diligence process at the start of negotiations can help prevent valuation disagreements.

Aligning Expectations

A tried-and-true way to prevent valuation disputes is to ensure alignment between buyers and sellers from the outset. Allow our team to facilitate open, strategic conversations that help bridge any gaps in valuation perspectives. Through industry-benchmarked, agreed-upon valuation methodologies and reviewing market conditions, we help set expectations early in the process.

No Disputes—Just Deals

We don’t just facilitate deals; we guide business owners through significant life transitions, whether that be exiting a company and cementing a legacy or growing a business portfolio. Let's start the conversation if you’re considering a business sale or merger. Contact True North Mergers & Acquisitions President Michael Hubsmith today.