Neutral services were required following the buy-out of a minority interest in a leading home security and monitoring company. The company was approached by the CEO/founder to purchase his 20% ownership interest in the company when he retired. After negotiation, the parties were unable to agree on a mutually acceptable transaction, triggering a valuation process outlined in the shareholders’ agreement. The shareholder agreement provided that each party hire a credentialed business appraiser to value the 20% interest at “fair market value” without consideration of discounts for minority interests or lack of marketability.

Business Challenge

The CEO/founder hired an investment banking firm with substantial experience selling home monitoring businesses. The company hired a regional CPA firm with a substantial business valuation practice as its expert. Both firms reached significantly different conclusions regarding value. After a year of failed negotiations and litigation, the experts reverted to the shareholders’ agreement which required that both experts mutually agree on a third, neutral appraisal firm, which was Baker Tilly.

The Baker Tilly Approach

A multidisciplinary team performed a neutral evaluation of the competing valuation opinions, and in doing so:

• Established and administered the parameters of the neutral evaluation process
• Performed detailed analyses of the submissions from both parties
• Conducted multiple in-person meeting with the parties
• Performed an independent analysis of the fair market value of the company and the 20% ownership interest held by the CEO/founder

Business Impact

The shareholders’ agreement required that one or the other valuation opinions be chosen. Our analyses yielded a conclusion of value that was different from both, but which most closely aligned with that of the company’s expert. Upon delivery of our report and findings the matter was resolved.