Seeing It Firsthand: The Importance of the Site Visit

In many ways, performing a valuation is like being a detective. You have to find and interpret the clues to get a good picture of what’s going on. This is particularly true in hostile situations such as a dissenting shareholder case, litigation or a marital dissolution, where the opposing party is reluctant to share information with the business valuator.

Like the intrepid detective, a business valuator sometimes has to hit the streets to look for clues. When each party involved in the company is presenting opposing information, there may be gaps in the value picture. A site visit often provides the missing pieces that will make the picture come together.

The Case of the Dissenting Shareholder

To understand the important role a site visit can play in a successful business valuation, let’s look at a dissenting shareholder situation.

Lee Ving was a minority shareholder in Boxes, Inc., a small company that manufactured corrugated cardboard products. Because he only held a minority interest in the company, Lee had almost no control over the board’s decisions. The board made a series of decisions that left Lee very uneasy about the direction the company was taking, so Lee decided to sell his shares and get out while he could.

Unfortunately, Lee’s partners contested his right to sell under the provisions of their buy-sell agreement and would only purchase the shares back at a fraction of what they were worth. Lee decided to take the case to court.

At the center of this case was a large discrepancy in the value Lee was placing on the company and what the remaining board members claimed it was worth. While Lee contended the company was doing quite well financially, the board maintained that the company was on the verge of financial disaster. Lee’s attorney decided to have a professional valuation performed.

On paper, the company’s financial picture did seem rather grim, but Lee’s business valuator, Dee Tecktive, didn’t trust the documents provided by Boxes, Inc. alone. She decided that, to truly determine the value of the company, she needed to spend some time on-site. After getting permission from the company’s lawyers, Dee went to Boxes, Inc. to take a look around.

Although she hadn’t found anything during the first part of her visit to contradict the company’s assertions of financial decline, Dee was still unconvinced. Employees seemed uncomfortable and wouldn’t make eye contact, generally a sign that everything is not running smoothly. Dee’s group decided to take a walk through the plant and around the buildings before she left.

Within the plant, everything seemed normal, but once they got outside, Dee’s group found the clue that unlocked the value puzzle for their case. Boxes, Inc. was undergoing a major expansion. Obviously, if the company had the money to expand its facility in this way, it couldn’t be on the verge of financial disaster.

The Critical Difference

Although this case has been greatly simplified, it serves to highlight the importance of a site visit as part of the valuation process.

Finding the value of a company involves more than scrutinizing the books and crunching the numbers. Sometimes it involves some old-fashioned detective work. An accurate assessment of a company’s value will consider all aspects of the case, not just what is present in the company’s books. By taking the time to visit the company and see the situation firsthand, Dee was able to uncover information that she wouldn’t have found otherwise.

Performing an accurate valuation requires a solid knowledge of the methods to apply and the experience necessary to make sound judgments. Valuation also requires a commitment to accuracy that can make a critical difference in the outcome. We have the knowledge, experience and professional commitment necessary to provide accurate, dependable valuation services. Let us know how we might meet your need for expert valuation.

February 1998