Client Success Stories
Risk Elimination Instantly Creates
Over $10 Million in Value
The Challenge
The case involved a contentious dispute between a tenant and landlord over a 45-year leased fee interest in agricultural property in Florida. The tenant’s real estate appraisers produced a valuation of approximately $10 million, while the landlord’s appraiser quantified about $20 million. Thus, there were $10 million at stake in this case. The tenant hired two well-respected independent business appraisers to value the lease and augment the low conclusions of his real estate appraiser.
The opposing appraisers assumed the lease was very risky, resulting in a high discount rate (16%-18%) and a low valuation of just $10 million. Their findings were well-researched and well-documented, and it seemed as if the case was closed.
The Solution
The landlord engaged AVGI’s expert witness services to assist in the litigation. In AVGI’s review of the opposing valuation reports, we discovered a crucial fact the other appraisers hadn’t given much weight: the landlord was locked into the last 45 years of a 60-year lease with no Cost of Living Adjustments (COLA). Digging a little deeper, we asked a key question: “What would happen if the tenant defaults?” The answer was simple: It would require six months of lost income and $50,000 in legal fees to regain title to the property, and the landlord could then rent it out at current market rates with COLA.
The total loss of income and the legal fees would be insignificant compared to the present value of the rent increases over 45 years.
The Result we get
In fact, the lease was very low risk for the landlord, and AVGI’s valuation came to $22 million, instantly doubling the value of the lease. Our client settled quickly out of court on very favorable terms.
How can our expert valuation
insight help your litigation case?
We’ve compiled a list of the most common questions our customers ask. If you can’t find the answer you’re looking for here, please don’t hesitate to contact our customer support team, and we’ll be happy to assist you.
A business evaluation is not necessarily the same as a business valuation. Business evaluation is a much broader term that can refer to auditing any aspect of a business, such as business processes, phone systems, or overall efficiency, but does not explicitly refer to evaluating the monetary value of the business.
In contrast, business valuation refers exclusively to establishing the firm’s monetary value. Colloquially, people often use the two terms interchangeably, so someone looking for a business valuation may search online for business evaluation services.
When your business is already in transition – either through a planned sale, takeover, merger, transfer, or bequest of a business entity – it is often too late to make strategic changes to influence the business or increase its value. Value enhancement, therefore, must begin some time before so the business growth consultant can value your business and suggest value enhancement opportunities. AVGI suggests connecting with a business growth consultant at least 2 years before selling a business.
Key value drivers are the aspects of a business that drive its success and profitability. Some value driver examples include the customer base, the skilled staff, or the business’s technology. A business consultant identifies drivers by looking at financial statements and asking, “What drives productivity here?” and what factors drive those drivers. The base drivers of a business are the capital and operational factors. The business consultant examines the effect of changes in each driver on the overall value of the business. This important step enables the consultant to determine and reexamine management priorities. A business growth consultation with a valuation expert enables the business owner to understand what the future business landscape may look like through various calculations, which helps make a decision about managerial priorities to chart a path to increase business value.
To increase the value of your business until you sell it, you must formulate a plan of action that will maximize its sales price. Part of this plan will be identifying factors that might be pulling down the value of your business, and reducing their effect as far as possible. Another part of the strategy will be identifying opportunities to increase its value and pursue them energetically. Examples of draining factors might be concentrating sales to a limited number of customers, debt, and relying heavily on key individuals to keep the business running. Factors that could increase the value of a business often include goodwill, intellectual property, and having excellent customer relationships.
Obviously, it is important to track how effective each strategy is in increasing the value of your business, especially since you will need this information when demonstrating the marketability of your business to prospective buyers.
When the owner of a business prioritizes activities that will increase profitability, security, and business growth, and so on, the business becomes appealing to an investor (or, potentially, a buyer). It is easier for a business to grow, such as by increasing the number of stores, healthcare facilities, restaurants, or some other assets, when the business demonstrates active value driving. It will be easier to get a loan, and people will be more willing to listen to your ideas. The value of a business is determined by business valuation, which considers key value drivers and business growth plans. If you want your business to grow, you must focus on value driving.
Different types of businesses can expect results from a business growth strategy after different amounts of time. Some businesses need a 5-year business growth plan; however, other businesses expect to see some return on investment after as little as 6 months. True value enhancement in a business often requires long-term campaigns that must run for some time to demonstrate results that can withstand buyer or investor scrutiny. An effective business growth strategy will consider typical sales cycles for that product type and whether the business markets a high-end product, as these take longer to show accurate results.
Some businesses hire a business growth coach who will help put a business growth plan in place and remain connected, to support business growth until there are reliable, powerful results.