Buy-Sell Agreement Business Valuation Services
Exit Strategies provides business valuation, consulting and expert witness services to closely-held company shareholders and attorneys, to create, fix and administer buy-sell agreements (BSA’a). Business owners beware! In our experience valuing companies for buy-sell transactions, there are more faulty BSA’s out there than good ones.
Buy-Sell Agreement Setup
Good buy-sell agreements provide (a) a means to liquidate interests at a fair and reasonable price upon certain trigger events, (b) a funding plan that is affordable for the company and realizable by the selling shareholder, (c) restrictions on who can own shares, and (d) certainty for tax and other planning purposes.
Exit Strategies will review your BSA draft from valuation, economic and business perspectives. In a few hours time we can spot issues and make appropriate suggestions. We can also educate you on the pros and cons of different pricing approaches, and recommend an approach that’s appropriate for your business, circumstances and budget.
Most buy-sell agreements (BSA’s) call for one, two or three appraisers to determine value when a trigger event occurs. The multi-appraiser approach is more common with larger companies and joint ventures. Smaller company BSA’s often name just one appraiser to value the shares at the time of a trigger event. We often recommend the “Name One Appraiser and Appraise Now” approach. This includes an initial “benchmark” valuation, which takes mystery and fear out of the valuation process for the shareholders, while their interests are still aligned.
Appraise Upon a Trigger Event
Exit Strategies routinely values company shares upon trigger events. We’re either selected after a trigger event occurs or named in the BSA.
Some buy-sell agreements call for annual or bi-annual valuations to maintain a current share price. Exit Strategies is often named in the BSA to provide valuation services.
Price Formula Design
Some buy-sell agreements, particularly with very small businesses, use a price formula. There are pros and cons of using a price formula in a BSA. The advantage of a formula is that it is easy and inexpensive. Clients that choose a formula approach often engage Exit Strategies to perform a benchmark valuation and design a formula that is robust (better tracks future value) and replicable. As part of this process, we typically meet with all shareholders to explain our valuation and formula, answer questions and incorporate any feedback.
Buy-Sell Agreement Review
All buy-sell agreements, regardless of how well-written, lose relevance over time; and should be reviewed, tested and updated now and then. We can review your buy-sell agreement, from business, economic and valuation perspectives, and identify potential problems and recommend solutions. Performing an independent business valuation as part of this review can provide certainty and avoid surprises and time delays later on. Sometimes this includes testing a buy-sell price formula by performing the prescribed calculations or providing a business valuation for comparison.
Shareholders sometimes end up litigating over poorly designed, ambiguous or outdated buy-sell agreements. When this happens, Exit Strategies can provide expert witness and litigation support services.
Contact an Exit Strategies professional to discuss your buy-sell agreement, confidentially.