Avoiding Over-Optimistic Projections: Key Takeaways from the Magarik Case

ARTICLE | January 06, 2025

Authored by Vasquez + Company

The recent case Magarik v. Kraus USA, Inc. highlights the dangers of relying on overly optimistic projections when valuing a business for litigation purposes. In this buyout dispute, the shareholder's expert based his valuation on unrealistic projections from a loan application, which led to a stark discrepancy in value conclusions between the parties. The court rejected the shareholder's expert's valuation, emphasizing the importance of using credible, market-based data. This case serves as a reminder for business valuation professionals to exercise caution and ensure that projections are realistic, particularly when they are repurposed for legal matters.

Key Points:

• Unrealistic Projections Lead to Flawed Valuations: Projections based on optimistic loan applications can skew business valuations in litigation.
• Court Expectations for Credible Data: Courts demand valuation conclusions grounded in sound, objective evidence and professional skepticism.
• Lessons for Valuation Experts: Relying on credible, market-based data and avoiding overly optimistic projections are essential for a defensible valuation.

For more details, read the full article here.

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