This case before the family court related to a couple whose fortune was stated to be in excess of £1.5 billion at the time of separation. It had since shrunk to £460 -£540 million. The husband was described as a serial entrepreneur who had accumulated significant venture capital investments. Company A had been floated on Nasdaq, generating huge wealth.
Phenomenal wealth
The family home had a stated value of £13.45m.
The respective values stated by the husband and wife respectively for the distributable assets were £464m and £545m.
The husband’s principal commercial interest was anonymised as Company C. The well known and well respected single joint expert (“SJE”) in business valuation was required to wrestle with two issues:
In addition to the above two points, the Judge also had to consider whether the shares could or should be transferred to the wife.
Reporting uncertainty
There was a material possibility that Company C would become sustainably profitable in the future. The equity therefore had value. This value was calculated by the SJE at €106.8m for the husband’s holding as at July 2024. By January 2025 this had been revised downwards to €101.7m.This revision had been caused by reductions in both the enterprise value and the cash balances.
There was also very significant uncertainty regarding the timing of any possible liquidity events through trade sale or other means.
It is clear that the SJE had the unenviable task of giving professional opinions on value and other matters in a shifting landscape, with very few fixed points.
Calibration
The challenges facing the SJE are illustrated by his valuation being 94% less than the fundraising value in November 2021. Frustratingly, the written decision gives us no more than a glimpse into possible causes for this decline.
We are told that Company C’s technology is the husband’s area of expertise. It was argued, on his behalf, that this fall was replicated in other companies, including Company A and many other investments. The Judge was not persuaded by this extremely broad brush approach, without any support from specific expert evidence on the values of the companies concerned.
Liquidity
The SJE considered that the husband was most likely to achieve liquidity from a sale of the entire company in the future to a trade buyer or financial buyer. The timing of this was shrouded in uncertainty. This was due, in part, to the wishes of the three founders of Company C, including the husband. The husband stated there were no interested purchasers of the business or his shareholding; the other two founders had also given no indication of an appetite for sale.
Decision
The multi-faceted challenges presented to Judges of the Family Court are evident in the written decision. A very large part was taken up with discussions regarding the effect of two post-nuptial agreements entered into by the parties.
Risk-Laden and Copper-bottomed
In allocating value between parties there have been various judgements regarding the application of fairness in asset allocations when some assets are liquid, with established values; these have to be weighed in the balance with assets circumscribed by valuation uncertainty, illiquidity and risk.
The Judge quoted from another case in which the written decision had stated that there was a difference in quality between a value attributed to a private company and other assets.
The Judge recognised that the husband was to hold most of the risk-laden and illiquid assets; he discounted the award to the wife by 15% of her cash lump sum to reflect that fact.
Comment
A valuation theorist may rightly argue that valuation uncertainty indicates equal potential on the upside as well as the downside.
Although valuations have to be done in the context of a notional transaction, the baked-in illiquidity of the asset is normally reflected in its value.
Despite the above, the Courts understandably consider cash, liquid investments and freehold property to be inherently more desirable, and therefore valuable, than shares in private companies, with all of the uncertainties which swirl around them.
Andrew Strickland
Consultant
