Business Valuation in UK Litigation: Methodology Guide

Valuation Methodologies

Business valuation expert witnesses apply three primary methodologies depending on the business type and legal context:

Maintainable Earnings

The most common method for stable trading businesses. The expert normalises historical earnings (adjusting for non-recurring items, related-party transactions, and owner remuneration), determines maintainable EBITDA, and applies a sector-appropriate multiple. The multiple is justified by reference to comparable transactions and quoted company multiples.

Discounted Cash Flow

Used for growth companies with predictable cash flow projections. The expert projects future cash flows, selects an appropriate discount rate (typically WACC), and calculates terminal value. DCF is sensitive to assumptions and requires careful justification of inputs.

Net Asset Value

Applied to property companies, investment holding companies, and businesses where asset value exceeds earnings-based value. Assets are adjusted to fair value (particularly property and investments) and liabilities are deducted.

S994 Fair Value

In unfair prejudice proceedings, courts typically order valuation at fair value without applying a minority discount. The expert must address whether a minority discount is appropriate on the specific facts and justify the chosen valuation approach.

Matrimonial Context

Business interests in financial remedy proceedings are valued at fair value as at the relevant date. Personal goodwill must be distinguished from business goodwill. The expert should address the impact of the valuation on both parties' financial positions.

HMRC SAV

HMRC's Shares and Assets Valuation team challenges business valuations for IHT, CGT, and ERS purposes. Independent expert evidence is essential to counter SAV's methodology, which may apply different assumptions on maintainable earnings, multiples, and minority discounts.

Expert Independence

Under CPR Part 35 and the Ikarian Reefer principles, the business valuation expert's duty is to the court. The expert must state assumptions clearly, address alternative methodologies, and not adopt a partial approach to the evidence.