This is a class action lawsuit involving the termination of a franchise. It was alleged that the parent company terminated the franchise in violation of the California Franchise Act, which states a franchisor must have good cause to terminate a franchise. By definition, good cause for termination is limited to a franchisee’s failure to substantially comply with the lawful requirements of the parties’ franchise agreement. However, it was alleged that the franchise did not violate the terms of this act, thus rendering the termination unlawful. It was also alleged that the parent company failed to look at the net value or expected future profits when paying out the franchisees. An expert in business valuation was sought to determine the value of all the franchises that were terminated and develop a uniform method for calculating the value, including damages.
Question(s) For Expert Witness
- 1. Please describe your experience in the valuation of franchises.
- 2. Please describe how you would calculate the projected financial value of the franchise.
Expert Witness Response E-146580
I have extensive experience in business valuation and damages in commercial litigation disputes, with 25+ years of experience in financial and economic consulting and public accounting. My practice is focused exclusively on dispute analysis, business valuation, and forensic accounting. I have specific experience in valuing franchisee ownership interests. For example, I have valued franchisee ownership interests in a dispute involving a leading game rental company in the United States. This dispute involved an alleged wrongful termination of the franchise. The methodology for valuing a franchise involves the determination of fair market value under generally accepted business valuation approaches mainly focused on the income approach in consideration of price/earnings and other market multiples, discounted cash flows, and applicable adjustments. To the extent that franchisee interests are being individually valued, the methodology would vary in consideration of ownership of intangible assets and their allocation, control and specific rights on transferability and restrictions, locations, tangible assets including the value of fixed assets, inventory, and other current assets that would be returned. The measure of estimated seller’s discretionary income of a hypothetical sale also is considered. Beyond a determination of fair market value, there may also be other elements of damages.