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Hear it Here…First!™
IN 90 MINUTES Monthly webzine brought to you by the
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© 2015–2012 National Association of Certified Valuators and Analysts. All rights reserved.
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2 © 2015 National Association of Certified Valuators and Analysts
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Kathy Knapp MBA, CPA, CVA
Roberto Castro JD, MST, MBA,
CVA, CVPA,
Series 63 and 79
Brian Davidson CVA
3
Brien K. Jones
Assistant Editor
Mike Gregory ASA, CVA, MBA
SENIOR CORRESPONDENTS
Chris Ekimoff CPA, CFE, MAFF, MBA
Gregory Caruso JD, CPA, CVA
Cheryl B. Hyder MT, CPA,CFF,
CFE, CVA
Janae Castell CVA
Melissa Gragg CVA, CFE
Paul E. Zikmund MAcc, MBA, CFE,
MAFF
© 2015 National Association of Certified Valuators and Analysts
Marc D. Bello
Co-Editor in Chief Courtney Sparks White Co-Editor in Chief
Mark A. Felton CPA, CFE, MBA,
MAFF, CVA
TJ Liles-Tims MBA, CVA, CFE
William Malek CVA, MAFF
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© 2015 National Association of Certified Valuators and Analysts 4
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5
Month Line Up
IN 90 MINUTES
© 2015 National Association of Certified Valuators and Analysts
*For a copy of prior editions of this webzine, e-mail [email protected] or visit www.ADAMdata.com
Melissa Gragg: Inside the Cross-Examining Attorney’s
Mind
Mark Felton: Working Together: Attorney and Expert
Witness
Gregory Caruso: 7 M&A Documents Demystified
Michael Gregory: BVR Wire and BV Update Highlights
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Inside the Cross-Examining Attorney’s Mind
By the National Association of Certified Valuators
and Analysts™ (NACVA®)
QuickRead Buzz, November 2014
http://quickreadbuzz.com/2014/11/04/inside-cross-
examining-attorneys-mind/
IN 90 MINUTES
6
Melissa Gragg
CVA, CFE, MAFF
© 2015 National Association of Certified Valuators and Analysts
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This article focuses on a series of six articles posted in a blog by
personal injury attorney Dean Brett http://washingtoninjury.com
◦ Why Cross-Examine an Expert Witness?
◦ The Four Main Advantages of the Trial Lawyer Against the Expert
Witness
◦ General Preparation for Cross-Examination
◦ Final Preparation for the Cross-Examination
◦ The Ten Commandments of Cross-Examination
◦ An Example of Cross-Examination of a Defense Economist
7 © 2015 National Association of Certified Valuators and Analysts
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“As a general thing, it is unwise for the cross-examiner to
attempt to cope with a specialist in his own field of inquiry.
Lengthy cross-examination along lines of the expert’s theory is
easily disastrous and should rarely be attempted.” Francis
Wellman, The Art of Cross-Examination, 1903.
Why then ever cross-examine an expert witness? Only
because you have no alternative.
To fail to cross-examine is to concede the heart of the claim.
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Precisely because experts are so difficult to examine, your
opponent will insist on presenting the testimony of experts on
the critical issues of the case.
Those experts, because they are looked up to by the jury
and because they are often hired for the specific purpose
of destroying a necessary element of your proof, often
cause more damage than lay witnesses and thus compel
cross-examination.
Failure to examine expert witnesses may be viewed by the
jury as a surrender on the critical issues they support.
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1. The trial lawyer can choose not to ask any
questions at all, or more likely, can choose not
to ask certain questions. He can avoid certain
battlefields. The task of preparing to cross-
examine an expert witness is largely one of
determining which questions NOT to ask.
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2. The trial lawyer can choose to ask only
questions which require either a “yes” or a “no”
answer. He can take away the expert’s most
potent weapon—the monologue.
3. The trial lawyer can learn the specific narrow
aspect of the expert’s subject matter that is
relevant to the specific issue being tried. He
can learn that part of the territory on which the
battle will be fought.
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4. And finally, the trial lawyer can analyze and
criticize the expert’s answers in the home
territory of final argument, on his own turf,
where the expert is speechless.
Effective use of these four advantages
minimizes the expert’s strength, his expertise
in the subject matter, and maximizes the trial
lawyer’s strength, the ability to question
narrowly then comment on the answer without
reply.
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Put it in perspective, right at the start. The average expert witness knows as much about his or her field as you know about law.
“That means a lot of different things. It means, for example, that the knowledge and ability of nearly any expert is uneven. It means that the typical doctor knows no more about hepatitis…or coronary arrhythmia than the average lawyer knows about promissory estoppels…or the doctrine of worthier title. It means that a lawyer can learn enough... It also means that the witness—unless he has had previous courtroom experience—is going to be scared.” McElhaney, Trial Notebook, page 167.
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Four stages of general preparation for the cross-
examination of the defense expert:
Learn the expert’s subject
Scout the expert
Use your own expert
Establish realistic goals
© 2015 National Association of Certified Valuators and Analysts 14
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Find a teacher, perhaps a professor at a local
college, to conduct a one-on-one directed reading
course.
If you do it right the first time, you can develop your
own expertise in the subject for use in other cases.
And sometimes you can even develop your teacher
into an expert witness for your own side as he
becomes interested in the forensic aspects of the
subject matter.
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Obtain and review everything the expert has
published
Index the publications:
◦ (a) for contradictory statements for use in
impeachment,
◦ (b) for general principles supportive of your theory,
and
◦ (c) for embarrassing quotations about the limits of
the expert’s knowledge.
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Where the expert has not published extensively but has
previously testified, trial transcripts and depositions can be
obtained from friendly trial lawyers.
Go to the reports, call the opposing attorney and get a copy of
the expert’s deposition, listen to a few war stories on how to
approach him at trial, obtain the lawyer’s assessment of the
expert’s strengths and weaknesses, and if the case was
appealed, get a transcript of the trial testimony.
Every expert has his own little tricks to avoid a question he
does not want to answer, just like the rest of us.
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Use your own expert to help you learn the subject matter, to scout
the adverse expert, and to prepare your cross-examination.
Do not let your expert take the position that he is correct based on
his superior skill, knowledge, and training. Make the expert explain
to you, in simple lay terms, precisely where the adverse expert
agrees on common ground, where he accepts different assumptions
or “factual” data, where his approaches and reasoning processes
differ, and where in each instance the opposing expert is in error.
Make it an obligation of your expert to explain to you why the
defense expert is wrong, so you can explain it to the jury.
© 2015 National Association of Certified Valuators and Analysts 18
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From the moment the client first walks in the door,
everything a good trial lawyer does is focused on one
moment—the opportunity he has to stand before the
jury in final argument and explain the client’s plight.
The general goal of cross-examination is to advance
the “theme” of a case by securing the ammunition
needed for final argument.
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The conceptual error made by too many lawyers is
to analyze the cross, independent of the entire trial,
and thereby to set an unrealistic goal—usually the
goal of “destroying the witness.”
Because of the witness’ combination of expertise,
stature, intelligence, and experience, it is unrealistic
to expect to “destroy” each expert.
Set an achievable goal.
© 2015 National Association of Certified Valuators and Analysts 20
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Wigmore said that the goal of cross-examination
should be to “soften the impact of the witness
by confrontation.”
With an effective expert, the goal may be no more
than to prevent the expert from winning the case for
the other side. Don’t expect to win your case in
cross-examination of your opponent’s experts, you
will be doing better than most if you break even and
avoid a disastrous loss.
© 2015 National Association of Certified Valuators and Analysts 21
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We will cover the final 3 parts of the series in a future webinar
◦ Final Preparation for the Cross-Examination
◦ The Ten Commandments of Cross-Examination
◦ An Example of Cross-Examination of a Defense
Economist
http://washingtoninjury.com/content/how-prepare-cross-
examine-expert-witness-dean-brett
© 2015 National Association of Certified Valuators and Analysts 22
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Working Together:
Attorney and Expert Witness
By Mark A. Felton, CPA, CFE, CVA, MAFF, MBA
National Litigation Consultants’ Review, Vol 4, December 2014
23
Mark A. Felton,
CPA, CFE, CVA,
MAFF, MBA
© 2015 National Association of Certified Valuators and Analysts
IN 90 MINUTES
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© 2015 National Association of Certified Valuators and Analysts 24
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© 2015 National Association of Certified Valuators and Analysts 25
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Start small and work up to
larger more complex cases
“There are lawyers at big firms, medium firms
and small firms that need experts who are more
cost effective as clients continue to rein in costs.”
Jamal Faleel, Attorney
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© 2015 National Association of Certified Valuators and Analysts 27
Lunch, Dinner or
Golf?
It depends
Are they the best
venues for marketing
your practice?
“Go places you enjoy going, and do things you enjoy doing.
You will keep going to those places or doing those things
because you enjoy them and will meet people who are like-
minded and build relationships that way. At the end of the day,
it has to be genuine.”
Jamal Faleel, Attorney
4
3
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Like you
Trust you
Believe you are competent
© 2015 National Association of Certified Valuators and Analysts 28
“You must have all three at a minimum!” Joe Kenyon, Expert Witness
“It’s a relationship
business at its core” Jamal Faleel, Attorney
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1 Sally Field said during her 1985 Academy Awards acceptance speech for best actress 29
You like me, you really, really, like me! 1
“A big mistake experts make is to stop at the “like” step and forget to
connect on a professional level so that the attorney understands your
expertise and how it may benefit them and their clients.” Joe Kenyon, Expert Witness
Therefore, be diligent in telling the attorneys the …
1. Pertinent experience you have
2. Opportunities you are looking for, and
3. Find ways to keep your name at the top of their list!
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© 2015 National Association of Certified Valuators and Analysts 30
“The most sought after experts are the ones who have all of the
attributes below, and can deliver under pressure.” Jamal Faleel, Attorney
“A word of caution, don’t create the impression that you have more
experience than you really have, because your credibility is destroyed
when the truth becomes known. Never embellish. You need to be
straight with people. They appreciate that.” Joe Kenyon, Expert Witness
Subject matter expertise
Relevant experience
Good communication
Credible
Final thoughts …
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7 M&A Documents Demystified A Business Owner’s Guide to M&A Success
By AXIAL MARKET
November, 7, 2014
http://www.axial.net/wp-content/uploads/2013/11/7-MA-Docs-Demystified.pdf?983d10
31
Gregory R. Caruso
JD, CPA, CVA www.harvestbusiness.com
© 2015 National Association of Certified Valuators and Analysts
IN 90 MINUTES
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Valuation professionals are often asked to participate in portions of
transactions
Have an understanding of “typical” process
If asked to review / explain (not as counsel) to have some understanding
Last time covered the first four documents; The Engagement Letter; The
Teaser, The NDA, The Confidential Book
This Session we cover the documents to put together a deal; the IOI, the
LOI, and the Purchase Agreement
32 © 2015 National Association of Certified Valuators and Analysts
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The IOI is a non-binding formal letter that is a
preliminary almost pre-offer used to see if parties
are in same ballpark
Often provided prior to any real due diligence
Very high level outline of how deal might be done
Not a guarantee or firm commitment, JUST an
indication
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Terms that may be specified
◦ Approximate price range often as a multiple of EBITDA
◦ Availability of funds and sources of financing
◦ Due diligence requirements and timeline
◦ Transaction structure—asset vs. stock
◦ Management retention & outline compensation
◦ Estimated timeframe to close
34 © 2015 National Association of Certified Valuators and Analysts
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Letter of Intent is a generally non-binding formal
letter clearly outlining the business and sometimes
legal terms of the transaction
Signatures do NOT mean there will be a closing
Can be 2 to 10 pages. Some participants want
everything defined, others only an outline of
business terms
35 © 2015 National Association of Certified Valuators and Analysts
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Common Terms
◦ Deal structure; asset or stock
◦ Consideration; price, methods of payment, calculation of earn-
outs, stock, seller notes, etc.
◦ Closing date; be aware this one generally moves
◦ Closing conditions; tasks, approvals, consents to be obtained
before closing
◦ Break-up Fee (over $500 M)
36 © 2015 National Association of Certified Valuators and Analysts
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Terms Continued
◦ Exclusivity Period (Binding) 30 to 120 days for buyer to perform
due diligence
◦ Management Compensation; may be vague
◦ Due Diligence requirements and timeline
◦ Confidentiality (Binding)
◦ Approvals necessary by parties—boards of directors, landlords,
regulatory
37 © 2015 National Association of Certified Valuators and Analysts
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Less Common Terms
◦ Escrows/offsets; protection from unknown liabilities and failure of
representations
◦ Representations and Warranties. Indemnifications and assurances from
parties. Mainly from Seller to Buyer
◦ Employment Agreements and non-competes
◦ Retention Bonuses and one-time payments
◦ Treatment of option pools, underwater options etc.
◦ Fees, generally by party incurring charge but not always
38 © 2015 National Association of Certified Valuators and Analysts
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A good LOI will cover financial business terms and
path to closing. Often does not cover detailed legal
and indemnification terms
Level of completeness is always a balance as the
quote, “I will not agree to that as it was covered in
the LOI” comes up again and again
IF critical and unusual, should be covered in LOI
39 © 2015 National Association of Certified Valuators and Analysts
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Binding Agreement often called the Definitive
Agreement
MUST be prepared by an experienced attorney
You MUST as a party to the transaction
understand this document
Often signed at closing table
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Key Terms often not in LOI
◦ Definitions—Often skipped yet critical to understand,
all Capitalized terms, how attorneys change meaning
◦ Representations and Warranties (what the big print
gives the fine print takes)
◦ Indemnifications, including who gives them, how long
they last, floors or baskets, caps, offsets, escrows
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Key Terms often not in LOI
◦ Interim and Post Closing Covenants
Restrictions on running business until closing
Post-closing covenants include non-competes, transition services, D&O
and/or Professional Liability Insurances
◦ Closing Conditions including required; regulatory approvals, landlord
consents and assignments, franchisor or supplier consents
This document governs the relationship between the parties after
closing and must be carefully negotiated.
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IOI, LOI, and Binding Purchase Agreement create a series of
roadmaps of increasing detail to enter into and complete a
transaction
Everything is negotiable
Yet, experienced players understand when various terms get
negotiated and they understand normal ranges for key terms
Always have an experienced team working with you
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BVR Wire and
BV Update Highlights Business Valuation Wire and Business Valuation Update
Highlights
44
Michael Gregory
CVA, ASA
IN 90 MINUTES
© 2015 National Association of Certified Valuators and Analysts
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Fair Value and Private Companies
Capitalization Rates Down in Senior Healthcare
Market
Two new sources of information on valuing
intangibles and auto dealerships
45 © 2015 National Association of Certified Valuators and Analysts
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Mark Zyla warns valuers of recommendations
from the Private Company Council
http://quickreadbuzz.com/2014/10/29/ten-things-
valuation-specialists-know-fair-value-
measurements-private-companies/
The current proposal for accounting for business
combinations has changed “fairly dramatically”
from the original proposal based on feedback
from interested parties
46 © 2015 National Association of Certified Valuators and Analysts
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http://www.levinassociates.com/scardescription
◦ NOT FREE
The article discusses “The 2014 Senior Care Acquisition Report” published by Irving Levin Associates
At the site I found the 2015 edition For the quarter ended Sept 30, 2014 assisted living
rates are down from 8.7% to 8.0% For the quarter ended Sept 30, 2014 independent
assisted living rates are down from 8.5% to 7.9% For the quarter ended Sept 30, 2014 skilled nursing
rates are down from 13.0% to 12.3%
47 © 2015 National Association of Certified Valuators and Analysts
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“Guide to Intangible Asset Valuation” by Robert
Reilly and Bob Schweihs
http://www.bvresources.com/bvstore/selectbook.
asp?pid=PUB25 for $114
Presents due diligence procedures and methods
for various valuation issues.
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Two items for your consideration
◦ The “Automotive Buy Sell Report” by Timothy W.
York from Dixon Hughes Goodman
http://automotivebuysellreport.com/
◦ “Key Trends Driving Auto Dealership Value: A BVR
Special Report”
http://www.bvresources.com/bvstore/book.asp?pid=P
UB151 $159
49 © 2015 National Association of Certified Valuators and Analysts
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From Paul Saltzman and James Ewart (Dixon Hughes)
12 Point checklist
1. Data collected nationally or regionally?
2. For owner/employees—business profits?
3. Sampling sizes?
4. SIC comparisons
5. Job titles vs. subject owner/employee
6. Averages, medians, quartiles?
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12 Point checklist continued
7. Specialties (for example forensic accountants)
8. Multiple job titles
9. How reliable are the stats and sources?
10. What about stock options, restricted stock, and
other perks?
11. Consistency of retirement plans?
12. Key person or a top performer?
51 © 2015 National Association of Certified Valuators and Analysts
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Three pages of 96 industry sources by
◦ SIC
◦ NAICS
◦ Industry
◦ Source
◦ Title
52 © 2015 National Association of Certified Valuators and Analysts
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Thank you for joining us! You’re invited to attend next month’s
broadcast on Monday, February 23, 2015
For registration, complete one of the following:
◦ Visit: Registration_Link
◦ E-mail: [email protected]
◦ Call: IBA/ADAM Member Services at (800) 299-4130
53 © 2014 National Association of Certified Valuators and Analysts. All rights reserved.