Once the valuation firm and management personnel responsible for coordination of the valuation project have completed an initial communication, the valuation firm will request a limited amount of financial and qualitative information. Frequently the valuation firm will execute a non-disclosure agreement, as maintaining strict confidentiality at all stages of an engagement is critical. Identifying the interest to be valued, the rights and benefits associated with the interest, the date of value and the purpose of the valuation are key facts for the appraiser to confirm so that the appraiser might appropriately determine the scope of the project and provide a fee proposal.

Once the valuation firm and the company reach a basic agreement as to the scope and related fee arrangements, the valuation firm prepares an engagement letter that sets forth the key elements of the valuation engagement. These elements include, but are not limited to, the name of the party who will engage the appraiser, the interest to be appraised, the relevant standard of value, the proposed valuation methodology, report type to be produced, as well as fees (inclusive of a request for an initial retainer) and timing consideration. Importantly, the engagement letter will commonly include an information request consisting of both financial and non-financial information. From a practical standpoint the receipt of both the information and the initial retainer requested in the engagement letter is the key event when substantive work most often begins on the valuation project.

Once the valuation firm receives and reviews the information, the valuation firm will typically set up a due diligence meeting with management, so that the valuation firm is able to gain a thorough understanding of the company being valued. Major topics discussed at this meeting include a review of the company’s history, governance, industry, business operations, financial position and prospects for the future. The management interview is a critical step in the valuation process as management’s opinions on the topics indicated above are considered when the valuation analyst makes judgments about key factors necessary to form an opinion.

Once the management interview is complete, the valuation analyst on the project will conduct the research of the relevant capital market evidence needed to apply the appropriate approaches to value. This capital market evidence is then analyzed in the context of the business or business interest being valued so that the opinion of value is well supported.

Next, the valuation analyst on the project will form an opinion of value, which is most often reviewed by a senior analyst, at which time the conclusion of value and supporting schedules and exhibits will be sent to the client. The final step in the process is the submission of the written report, which documents the opinion of value that has previously been provided.