The credibility of a business valuation expert’s entire opinion can hinge on a handful of assumptions. Growth rates, discount rates, normalization adjustments, and premiums or discounts applied to value are where business valuations can be vulnerable to challenge. “Extreme” assumptions even more so. However, extreme assumptions can be built and defended (or dismantled) from both the plaintiff’s and defense’s sides.
What Makes an Assumption “Extreme”?
There are recurring red flags that signal an assumption may be vulnerable to challenge:
- Aggressive growth projections that outpace historical performance or industry norms
- Unusual discount or capitalization rates not clearly tied to risk factors
- Excessive normalization adjustments to earnings
- Unsupportable control or marketability premiums/discounts
- Applying discounts in multiple places for the same underlying attribute
- Overstated synergies in M&A-driven valuations
- Selective or unusual weighting of historical earnings periods
These issues surface most often in shareholder and partner disputes, divorce and marital dissolution cases, commercial damages and lost-profits claims, bankruptcy/solvency analyses, and tax valuation controversies.
The Legal Backdrop
Any discussion of expert credibility runs through a few foundational legal concepts: the Daubert standard and Federal Rule of Evidence 702. These govern admissibility of expert testimony, the differing burdens of proof carried by plaintiffs and defendants, and the courts’ emphasis on reasonableness, objectivity, and consistent methodology. An assumption doesn’t need to be conservative to survive scrutiny, it needs to be defensible and well-supported.
For defending extreme assumptions:
- Rely on independent, third-party data
- Maintain consistency in methodology throughout the analysis
- Document every assumption thoroughly
- Preempt likely criticisms during direct testimony
For attorneys attacking extreme assumptions:
- Benchmark assumptions against industry norms
- Anchor challenges in authoritative third-party sources
- Look for internal inconsistencies within the report itself
- Use hypotheticals on cross to test the limits of an assumption
- Challenge credibility without becoming combative
What should I do?
Hire an expert (like us). Reasonableness beats aggressiveness. Every core assumption in a valuation report should be built to withstand challenge, and both directs and crosses can decisively shift how much weight a factfinder ultimately gives an opinion. Ultimately, rebuttal isn’t just a numbers exercise. It’s a test of credibility and evidentiary support, and the expert (or attorney) who can demonstrate the most rigorous, well-documented reasoning tends to prevail.