Valuation Trends in Appraisal Litigation – Delaware courts

The state of Delaware is the leading jurisdiction for US and international companies: over 2/3 of the leading Fortune 500 entities have made Delaware their home. The Delaware courts have written, according to many, the U.S. corporation case law. Accordingly, we summarize a review of the business valuation and appraisal trends from these courts, as per various publications.

The 2018 year saw the amount of appraisal petitions filed by shareholders decline to 26, after the number of petitions had been rising since 2009. For the period 2006 to 2018, a total 433 appraisal petitions were filed in Delaware; out of which, 34 or approximately 8% went to trial in Delaware.

As it related to the takeaways, the period has provided many data points of value to appraisers and litigators. 

  • Timing The average trial lasted five days and the average time from the trial to issuance of the initial opinion was 8 months. The cases took on average 25 months from the filing of the petition to trial. 
  • Sales Process – An auction or a “go-shop” process was commonly used in increasing frequency since 2011 in the cases that went to trial.
  • Premiums Proposed – For private firms, the average and median premium to deal prices were approximately 380% and 122%, respectively, by petitioner experts. Whereas for public firms, the average and median premium to deal prices were approximately 75% and 55%, respectively, by petitioner experts. The respondent experts, on the other hand, had average and median premium to deal prices of approximately (17%) and (12%), respectively, for private firms. For public firms, the respondent experts had average and median premium to deal prices of approximately (17%) and (13%), respectively.
  • Premiums Awarded By Judges – The premiums awarded by the courts varied whether the firm was a public or private firm; as former investment bankers, this intuitively makes sense. For private entities, the average and median premium to deal prices were approximately 47% and 29%, respectively. On the other hand for public entities, the average and median premium to deal prices were approximately 0% and 8%, respectively. 
  • Valuation Methodologies – The three main methodologies that were used to determine fair value were the discounted cash flow (DCF), comparable companies and/or precedent transactions, and deal price. Both the petitioner expert and the respondent expert utilized the DCF in over 90% of the cases for the period 2006 to 2018. The comparable company approach was utilized by the petitioner expert and the respondent expert in approximately 35% and 45% of the cases, respectively, for the period 2006 to 2018. The courts have utilized the DCF approach in approximately 60% of their verdicts and the deal price in approximately 38% of the verdicts. It is interesting to note that the comparable company and/or precedent transactions approach, over the period 2006 to 2018, are never utilized by the courts in issuing their verdict.

                                               Source: Delaware Chancery Court, Delaware Supreme Court, Thomson Reuters Westlaw, Harvard Law

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