I have been advocating single appraiser valuation processes for buy-sell agreements for many years. This video relates the story of the genesis of the idea that has led me to write four books on buy-sell agreements and to participate in buy-sell agreement processes all around the nation.
Hello, Chris Mercer here at ChrisMercer.net and MercerCapital.com.
I remember the experience well – it was late 1988 or early 1989 because of the weather. We were located at 1503 Union Avenue in Memphis, Tennessee. The phone rang and an attorney that I knew called and he said, “Chris, I need you to value the Catfish Company.” That’s not the name of the company, but we’ll call it the “Catfish Company.” I said, “Well, give me some information and I’ll see what I can do about getting a proposal.” He said, “No, you don’t understand, Chris. You’re going to value the Catfish Company. There’s a buy-sell agreement and the buy-sell agreement says the appraisal in the event of the death of an owner will be done by Mercer Capital Management Inc. That’s you, isn’t it?” I said, “Yes, it is.” I said, “Okay, well, tell me what happened.”
He said, “You know George don’t you?” and I said, “Sure.” “Well, George just died.” And yeah, that was really tragic. “George owned 25% interest in the Catfish Company. He invested in that company a number of years ago, and when the shareholders got together, they created a buy-sell agreement and they agreed George knew you and another of the shareholders knew you and I knew you and so we agreed that you would be the appraiser in the event that there was a trigger event.” I said, “Well, that’s great.”
I got signed up and got the buy-sell agreement and the buy-sell agreement said that the appraiser would determine the fair market value of the interest. Well, the fair market value of the interest in appraisers’ levels of value chart would be the value of a non-marketable minority interest, but other reference documents – documents referenced in the buy-sell agreement – suggested very clearly that the shareholders wanted a financial control value. In other words, everyone would be created equal, or treated equal, in the event of a trigger event. Well, I got the shareholders together and I pointed out this issue and they said – well, Chris, you don’t need to make that decision. What we want you to do is give us the financial value and the non-marketable minority value which I did and then they resolved the issues apparently satisfactorily to all the parties.
At the end of that exercise, I knew a couple of things. One, I was hooked on buy-sell agreements because it was pretty nice to get a phone call for Mercer Capital to do an appraisal but I knew a couple of things.
Number one: it’s a good idea to select the appraiser first when you create a buy-sell agreement. Why is that? Because it eliminates all disagreement, or all potential future disagreement, over the selection of the appraiser. And number two: it’s a good idea to have the appraiser involved at the outset because you would avoid issues over language in the documents like this.
So, I knew then that I was hooked on buy-sell agreements and I began talking about buy-sell agreements and I’ve written about buy-sell agreements a number of times.
As a matter of fact, I wrote a book in 2007 “Buy-Sell Agreements: Ticking Time Bombs or Reasonable Resolutions.” A little bit later another book, “Buy-Sell Agreements for Closely Held and Family Business Owners.” There’s even one out on a Kindle version, and now, I’ve got a new book on buy-sell agreements. It’s geared primarily to attorneys but appraisers and business owners will want it because it talks in more depth about buy-sell agreements than anything that I’ve ever written and number two, it provides the language that will enable attorneys to create buy-sell agreements that are crystal clear if this is the value that’s wanted or if this is the value that’s wanted.
In any event, I knew when I was hooked on buy-sell agreements. I’ve been hooked ever since.
If you have a question about a buy-sell agreement, please give me a call. I look forward to talking to you about it.
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