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The Process of a Business Valuation – Engagement by Multiple Parties

August 18, 2020

Blog

The Benefits and Pitfalls of Jointly Retained Engagements

This blog outlines the six important steps to your business valuation joint engagement with Davis Martindale Advisory Services.

Chartered Business Valuators (“CBV”) are often jointly retained by parties in an attempt to identify and resolve issues in dispute. When properly conducted, joint engagements may create a stronger perception of fairness and foster a conducive climate for settling financial matters. We discuss the benefits and pitfalls of joint engagements in a previous blog: Process of a Business Valuation – Engagement by One Party.

Once opposing parties have agreed to jointly engage a CBV, it is important for all parties to understand the engagement process. We outline the six important steps to your joint engagement with Davis Martindale Advisory Services:

1. Engagement Letter and Retainer

The engagement letter is our contract with all parties. It is the starting point, and often the ending point of the process. Our engagement letter sets out the nature and instructions of the assignment, the purpose, the fees and the terms and conditions. At the same time, we will send out a conflict check to ensure the file would not put any parties in a conflict of interest position.

For all joint engagements, we will adhere to the jointly agreed instructions listed in the engagement letter. New or revised instructions will not be adopted unless accepted by all parties involved in the matter. Before we begin the engagement, we request a signed copy of the engagement letter from all parties. We also request a retainer, which usually consists of the quoted engagement fees.

2. Preliminary Request

The timing of issuing our report is dependent on when we receive all of the preliminary information. Although one party usually has more knowledge of the business, our information request will be sent to all parties involved. Likewise, in the spirit of full disclosure, all information received in connection with the matter from one party will be shared with the other party – no information may be kept confidential.

3. Follow-up Questions

After we receive the signed engagement letter, retainer, and responses to our preliminary requests, we begin drafting the report. When preparing the report and reviewing the information you provided, there may be additional questions. Similar to the preliminary request, all correspondence and information received from one party will be shared with the other parties.

When conducting joint engagements, our preference is for all parties to attend telephone calls. If, however, one or more parties are unable to attend a call, notes will be taken and circulated.

4. Draft Report

Upon receiving the answers to our preliminary request, we will typically have a draft completed in 3-4 weeks for a Calculation Valuation or Income for Support engagement, and 4 weeks for an Estimate Valuation.

Draft reports for joint retainers will redact the final conclusion. The purpose of a draft is for the parties to read the report and confirm they agree with the methodology and the assumptions included therein. We welcome any questions or comments from either party. Once again, all correspondence to and from the CBV may be distributed to ensure everyone has equal access to information.

5. Representation Letter

The representation letter is different from the engagement letter. It is signed at the end of the process and confirms that we have relied on information and discussions with both parties, and confirms that neither party is aware of any errors, omissions or misrepresentations that would have a significant impact on the conclusion of our report. The representation letter will be sent with the draft report and must be returned to us before we can issue a final report.

6. Final Report

Once all parties have approved the draft report and signed the representation letters, we can issue our final report, unredacted.

If you are interested in undertaking a valuation assignment, give the professionals at Davis Martindale a call. We would love to work with you.

Co-Authors

Louise Poole - Valuation & Litigation Partner - Davis Martindale
Louise Poole

CPA, CA, CBV, CFF
Partner
Valuation & Litigation

Tyler Kelly - Valuation Associate - Davis Martindale
Tyler Kelly

CPA
Associate
Valuation

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