FMI Warns Valuation Errors May Lead to Lawsuits

RALEIGH, N.C. (Jan. 12, 2015)—The Department of Labor has filed 28 lawsuits, recovering more than $241 million, against businesses offering employee-stock-ownership plans. Inaccurate company valuations are the primary cause. In the Q4 Mergers and Acquisitions Advisor report by FMI, Curt M. Young, managing director for FMI Capital Advisors, Inc., provides recommendations on how to avoid legal action by the DOL. Young provides insight into what the DOL expects from ESOP Trustees in his review of a $5.25 million settlement with GreatBanc Trust Company in 2012. 

“A common practice of basing valuation on projected cash flow is speculative. It generally should not be given much weight when valuing companies in highly cyclical industries, such as engineering and construction,” said Young.

Complementing Young’s article is “Building Value Through Acquisition” by Daniel T. Shumate, associate with FMI Capital Advisors, Inc. Shumate demonstrates how a strategy of acquiring businesses that possess rare, hard-to-imitate or imperfectly-mobile resources can improve the long-run economic performance of companies. Additional strategy and scenario planning techniques are covered in the report with an excerpt from “Visionaries: How today’s leaders are using future contingencies to plan strategically.” To download a copy of the Q4 Mergers and Acquisitions Advisor, click here.

For more information, visit FMI.