Do you remember that rush job valuation we mentioned two weeks ago?

April 22, 2025

How you can help your clients reduce the risk to the valuation they will achieve when they sell their businesses, by pre-empting the share scheme bombshell that buyers’ advisers love to drop at the last minute.

It’s happened again!  The corporate finance adviser (an accountant) to a trade buyer within a week before signing the deal, has suddenly attacked a prior valuation prepared for a share incentive scheme.

You all know this happens.  I do too . It happened to me when we were selling our family publishing business.  And it’s never nice for the selling management team and shareholders.

Of course, with years of experience in doing M&A and acting for buyers, one might wonder why these advisers (who must also be well aware of the issue) don’t raise it much earlier in DD? But they don’t and it’s a tactic and we must deal with it quickly and professionally.

When this happens to an Athla client, we have a playbook.  Our reports are detailed, evidence-based and we are very confident we can prove our case each and every time because we follow a detailed and consistent process.  We simply refer back to the report and explain why it is unlikely to be challenged.

Typically, this is sufficient for the transaction to proceed.

It’s why we never do “lite” jobs.  We would rather do a full job at a discounted rate if money is tight at the client end, than do a job which is subsequently open to challenge.

However, the reason for the rush job in question was because the company had prepared a valuation for a growth share scheme without an expert independent valuation.  So it became urgently necessary to check whether there was a weakness in the original exercise (hence our need to review and opine) as well as produce a report that showed an independent valuer would have come up with the same answer at the time.

Why am I writing about this?

There are a few things our experience suggests where you could add value as the company’s legal advisers (and change the rules of M&A!)

1. When advising on activity that involves issuance of new share capital or even an actual or proposed transfer or shares (such as writing an option over an existing shareholding) get an independent valuer in.
2. Encourage your client to capture the contemporaneous evidence at the time of the transaction to support the valuation metrics that were used and pop it into a safe place in the data room, so it can easily be found.
3. Don’t let your client ignore valuation metrics that are inconvenient to the valuation exercise prepared for the share issuance. Tell the valuer even if it is an in-house valuation. Write it all down.
4. Make sure the valuation report references the metrics that are inconvenient – either by giving a reason for dismissing them OR including them in a weighted valuation exercise OR by considering them as a validation (or not) of the main valuation exercise.
5. Don’t let 3^rd parties such as certain shareholders try to bear undue influence on the valuation exercise to twist the valuation. This is especially true for in-house valuations where the FD could well be susceptible to pressure.
6. If your client is moving towards a sale, pick up this issue immediately.  Look at what was done contemporaneously.  Decide if in YOUR professional opinion the exercise was comprehensive and watertight.  If not, pull in an expert and pre-empt the acquiror’s challenge by back filling as necessary.
7. Finally, when the DDQ arrives – if it does not raise the issue, again pre-empt the challenge by offering up the answer voluntarily.

That should spike the guns of buyer’s advisers in this a particularly infuriating element of a trade sale process.

I know that you lawyers never have a spare moment, but as the summer crop of interns start to arrive, it might be worth putting one or two of them onto your client files to see if there is any vulnerability around historical valuations exercises for share issuances.

After all, this might give you a reason to catch up with an important client where you can make a real difference to the risks they could face in the future to the realisable value of the company’s equity.

We find preparing historical valuations one of the most fascinating projects we undertake and are always happy to take a call on the issue.