Even A Shark Requires A Business Valuation, Does Your Firm?

January 2019 – Abhi Mathews

Mr. Herjavec, recently, got separated and had to divide up his assets for net family property. As usually typical, the most challenging part of determining the net family property was the business interests, specifically, The Herjavec Group Inc. While this is a sad time for the Mr. Herjavec and his family, it often is a learning experience for most of us practitioners, given the various business interests Mr. Herjavec has accumulated in his life, to date. Since our initial post, it appears Mr. Jeff Bezos has had a similar separation situation play out with his wife of over 25 years.

Given that we have advised public clients around The Herjavec Group Inc.’s size and larger and that most of our private clients do not have as large a business, at least by sales, we felt it was appropriate to comment from a valuation perspective given that most business owners do not have such a large business interest. The valuators / business appraisers for a family law case like this (i.e. well publicized celebrity) are often the top firms in the country, or in North America, and feature some of the top valuators that North America has to offer, in our opinion. This brings many learning opportunities for family law practitioners, M&A advisors, business owners, accountants and lawyers, as to what judge(s) and the best experts view as appropriate in various circumstances.

We will avoid the intricate details of Mr. Herjavec’s income calculations, including the fact that Mr. Herjavec became a non-resident of Canada in 2016. We note that the summary made no mention of Mr. Herjavec’s “deemed disposition” on the date of departure; We suspect that Mr. Herjavec used the business valuator’s opinion to reverse into a proceeds of disposition on the date of departure, since it was after the date of separation.

Justice Mebur appears to have ruled on some key business valuation differences between the applicant and the respondent’s business valuation experts – two of the best in the country, I think. The following were some of the key issues, some of which are complex, that Justice Mebur had to rule on:

  • Market Approach Value Methodologies;
  • Cash Infusion and Impact on the Valuation;
  • Differences in cash flows between the two expert reports;
    • Discretionary expenses;
    • Capital expenditures;
    • Loss of a key media customer and its impact, thereon;
    • Impact of a business acquisition, post – separation date; and
    • Private aircraft & automobile expenses.
  • Venture Capital Investments (i.e. Dragon’s Den / Shark Tank);
  • Other discretionary expenses;
  • Phantom stock Options for employees of Mr. Herjavec’s main entity; and
  • Payments to Mr. Herjavec’s current spouse and the market value of compensation, thereon.

Refer to the case summary as published, recently.

Overall, the case appeared to cover some unique issues on both the valuation and income front as is expected, given Mr. Herjavec’s wealth and business success. One thing appears to be true, among various family law matters involving business interests, the Bigger the Shark the larger and more complex the Business Valuation. Justice Mebur, like any judge or justice, is trying to help both parties find justice, in their troubling times.

As mentioned above, since we wrote this, the biggest shark on the planet – Mr. Jeff Bezos – has had a separation. We will not comment on Mr. Bezos separation, now or when the time comes, given that we do not practice in North West nor would we expect that Mr. Bezos’ separation details to be made publicly available. However, we will utilize any public reporting for our own private firm files to learn, as we feel that a day without learning is a dull day.

We leave off with quote from Albert Einstein “The important thing is to not stop questioning. Curiosity has its own reason for existing.”

Geek’s Note

Mr. Herjavec’s tax return should have include two special schedules: A T1161 (which is a listing of assets owned on emigration) and a T1243 (which reflect the deemed disposition). There is an election to defer payment of tax to the actual date of disposition; we understand that this election is made by filing out form T1244. Please note that none of this is tax advice, as we are not tax advisors or tax experts, please consult a Tax CPA for more on this.

 

At Minerva Valuation Advisors, we are trained, as business valuators, appraisers, mid-market bankers and financial analysts, in a variety of settings including in tax planning valuations, family law valuations, shareholder disputes valuations and merger & acquisitions valuations and advisory. We are not your typical business valuator or appraiser, as we attempt to connect the dots using a variety of perspectives to give you some of our best insights.

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