We provide a practical and cost-effective mechanism for legal professionals to access leading edge analytical methods, covering financial modelling, decision-support, risk modelling, valuation, and related services.
Our services cover many areas that are of potential relevance to legal professionals, including:
- Supporting commercial negotiations using advanced financial modelling, analytics, valuation and risk assessments. We work on both the buy- and sell-side; for example, often a seller can achieve a quicker and higher-priced transaction if they provide up-front and transparent models, which:
- Are simple to understand.
- Highlight the key value drivers of the business.
- Align with key legal or financial elements or constraints of potential transactions.
- Allow for important sensitivities (on value/strategic drivers) to be run.
- Are up-front and transparent about key risks, which can help to generate goodwill, trust and credibility, and may often result in a more successful and less adversarial process.
- Core business valuation. We conduct valuation assessments, such as the use of market-based (comparables’), income-based (cash flow), or asset-based approaches. However, we tend to desire to generate additional insights into the valuation, and to improve the understanding of the valuation range and the influencing factors. This requires an analysis of the external and internal value-drivers and risks. Thus, we use modern valuation techniques that allow to create insight and innovation in valuation; many of these are standard in theory, but may not applied by larger establish valuation firms for reasons of tradition (the requirement to use approaches consistent with those previously used significantly hinders the ability of such firms to innovate, so they often claim to use “standard” techniques, even though these are outdated by several decades!). Such analysis can also be paramount in the contexts of commercial negotiations and/or potential conflict.
- Risk-Based Valuation. The uses of risk assessment and modelling is a core element of our philosophy and approach to valuation. In this respect, it is interesting to note the following:
- The topic of valuation is tightly linked to risk (uncertainty) analysis: Not only are forecasts inherently uncertain, but also any forecasting technique that uses only base case assumptions (such as most likely values), will inherently be populated with biased output values (for example, this covered in one of my books concerning “the fallacy of the most likely”). In any case, economic valuation depends at its core on the mean (average) payoff of a situation, which is something that in fact can usually be determined by a proper uncertainty analysis (the use of a few probabilistic scenarios defined around a pre-set base case is insufficient, and still biased). However, many valuation practitioners/experts seem to have a lax attitude in their own work, and are happy to work using single base case forecast and simplistic sensitivity analysis techniques. They compensate for cash flow risk by attempting to adjust discount rates, even as such adjustments are arbitrary (since they have not established the extent to which a base forecast is biased), and not in conformance with basic economic theory (which says that the discount rate should not compensate for company-specific risk factors).
- No legal team would ever choose to overlook risk or ignore uncertainty when designing and writing core legal contracts (whose essence is fundamentally a risk management process). In “Damages in International Arbitration under Complex Long-Term Contracts”, Woess et al. note that “an understanding of the risk allocation mechanisms contained in complex long-term contracts is of utmost importance for the awarding of damages” (Section 1.09), and that “This book underlines the fundamental necessity for arbitral tribunals to learn to deal with uncertainty and not to spare any effort to make a learned, fair and well-reasoned estimate of income or profits lost…” (Section 1.31). Further, in Mark Kantor’s excellent work “Valuation for Arbitration” (page 7) he states that “Valuation is in essence a prophecy as to the future” (so that it is inherently uncertain).
- The approaches we use ensure that there is an alignment and consistency not only between the legal and quantitative analytics, but also that the underlying methods used are genuinely in line with modern economic and financial theory. Thus, whilst the link between uncertainty/risk and valuation has been well identified both for legal purposes and in economics, much of the valuation industry has been slow to adapt. Fortunately, our innovative approach is supported by other well-known authorities, such as those quoted above as well as in many other works published by respected authorities on the topic of valuation (e.g. Damodaran).
- Valuing specific contract clauses (such a guarantees, contingent liabilities, or options/real options-related clauses), which may become active only in specific circumstances. In such cases, complex issues need to be made more transparent, structured, and require complex modelling or analytics.
- Supporting the taking of optimal decisions around litigation or arbitration actions, in order to create transparency of the assumptions, and to quantify each potential course of action, the scenarios and risks. There may also be a potential to increase the robustness of one’s case by conducting robust analysis, or to reduce the credibility of an opponent’s case by highlighting key biases, omissions or oversights in their analysis.
- Expert Witness services. Michael Rees can provide expert witness services in specific areas, such as Monte Carlo simulation, risk model evaluation, and risk-driven valuation. Michael has many characteristics which make him ideal to support such legal activities and processes:
- Genuine expertise in his chosen areas.
- A very strong academic and publishing record.
- A level of independence that is appropriate to the circumstances.
- An ability to explain extremely complex quantitative issues in very simple terms (this is a natural talent which has been honed through training thousands of people in quantitative risk modelling, quantitative finance and advanced financial modelling).
- A mathematical mind-set, which in many ways is similar in logic to that which many legal teams possess, and hence can facilitate more effective work and communication with such teams. He also has experience of working with legal teams, including in contract design and negotiation, and in building financial models which align with (and inform the wording of) precise contract clauses.
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