Page 74 - Bankruptcy and Reorganization Services

If significant adjustments are required to align the indicated guideline public company or transaction
multiples to the subject company, the reliability of the market approach may be significantly diminished.
With that in mind, the practitioner will need to assess whether this approach genuinely captures some
aspect of value of the subject company that the other methods are not able to and whether another ap-
proach is needed.

Asset Approach

Practitioners who are electing to use the asset approach to arrive at a conclusion of value should consid-
er, among other factors, the following:

a. The subject company’s prospects for the future. Is the company likely to remain a going concern
or is it likely to be liquidated?

b. The nature of the subject business. As noted in the "Asset (Asset-Based) Approach" section,
some businesses are more suited to the asset approach than others. If the subject business is a
capital-intensive business, the asset approach can be relatively straightforward and reliable. If the
subject business is a service-based or technology-based business with mostly intangible assets,
the individual assets can be difficult to identify and value, making the asset approach more spec-
ulative. Moreover, the commonly used methods for measuring the value of such intangible assets
and goodwill rely on discounting of projections of economic benefits — an exercise that is large-
ly duplicative of the results from the income approach. If the subject business is newly formed
with no earnings history, the asset approach may be the most practical approach.

c. The quality of information on the underlying assets and the degree of asset specificity. As with
the other two approaches, the reliability of the information used to prepare the valuation is an
important factor to consider when weighting the asset approach.

d. The purpose of the valuation. For example, the asset approach is typically used to estimate value
for the best interest of creditors test under Section 1129(a)(7) of the Bankruptcy Code, which is
discussed in chapter 6 of this practice aid.

Reaching a Conclusion

After fully evaluating the qualitative and quantitative aspects of each component of the valuation report,
the practitioner will need to construct a logical, cohesive, and well-written thesis on the conclusion of
value. This may require the practitioner to reassess inputs and assumptions used throughout the engage-
ment, especially when confronted with highly disparate indications of value from the various methods
used during the engagement. Regardless of any differences that the various approaches may yield, the
practitioner must, at a minimum, ensure the final product presented to the court (1) thoroughly recon-
ciles and supports differences that may exist between approaches and methods as necessary and (2)
highlights similarities between approaches and methods where appropriate. This will help strengthen the
practitioner’s conclusion of value presented in the valuation report.

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