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Situation
CAS' valuation practice has been particularly useful in providing clients with industry specific support in litigation cases. Most recently, a client sought CAS' expertise in the midst of a divorce litigation. The client owned and operated a law firm that focused on legal collections and purchased debt as part of its business model. Our client was seeking a valuation analysis to combat an aggressive, high valuation from a generalist valuation practice his separated spouse hired who had no familiarity with the accounts receivable (ARM) industry.
The case was not proceeding well for our client, as the court was not being presented with a sufficient and persuasive argument to apply a moderate value to the law firm. While the counsel was appropriately conveying the transfer limitations, as well as the negative value factors applicable to a collection law firm, he was not able to convey to the court the industry specific nuances related to this matter.
CAS was engaged to provide this industry specific education to the court. To present an accurate depiction of the law firm's value, we prepared a report for the court detailing industry factors which supported a far lower entity valuation for divorce purposes.
Positive Outcome
To do so, CAS demonstrated that the existing valuation did not take into account the quality of earnings issues that are uniquely germane to the ARM industry. Specifically, the other valuation firm assumed that the existing revenue stream from placements
had a high quality of earnings that would be likely to continue in the future. However, the revenues for the last few years were generated from liquidating the inventory of placements that had been primarily received 2-4 years in arrears. There had been little, if any, new incoming placements in the last 1-2 years. As such, a realistic forecast of future revenues should reflect a marked decrease as compared to the historical results.
CAS' clarification of the reality of the situation of the law firm allowed the court to internalize and agree with our narrative. We provided sufficient education to the counsel regarding the revenues to appropriately present the industry nuances integral in this case. Combined with the presentation of the report to the court, CAS provided counsel with multiple teleconference sessions to prepare counsel to appropriately present the industry nuances integral in this case.
The court provided a highly favorable valuation for our client, and the counsel indicated that the CAS report and litigation support were integral to the favorable resolution.
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