Agree or Disagree? On the Role of Negotiations for the Valuation of Business Enterprises

Abstract

In the division of labor, economizing valuations require an appraisement of the structure of market prices of goods beforehand. Yet, investment decisions concerning the purchase of an entire business enterprise, for example, necessitate considerations beyond appraisement. An economizing valuation of businesses must be based upon both appraisement and a genuine investment appraisal which provides the valuing person with the marginal price he can barely accept. However, even though the computation of this marginal price is a necessary step towards an economizing investment decision, it is still not sufficient. In case of a company purchase, the price to be paid is unknown beforehand. Therefore, an economizing valuation of firms not only requires both appraisement and investment appraisal but also a negotiation of the final price to be paid. Because the corresponding negotiation process must be characterized as a terra incognita in Austrian economics, this paper investigates in depth the negotiation between the involved parties as the final step towards their economizing valuations and discusses purposive negotiation tactics.

The sky is the limit?! Evaluating the existence of a speculative bubble in European football

“…Significant effect of player age and experience as well as selling and buying club's divisional status on transfer fees Carmichael et al (1999) 2029 observations from English football in 1993/1994 Probit model and Tobit model/censored regression Significant effect of age; Higher transfer probability for players with more experience and good scoring talent Muehlheusser et al (2004) 1308 player contract observations for the German Bundesliga from 1994 to 2001 OLS regression, Heckman two-step model Significant effect of age, nationality and remaining contract length on transfer fees Franck and Nüesch (2012) Still, despite numerous studies evaluating the determinants of transfer fees, the final price (so-called arbitration value, Matschke 1979) is the outcome of the negotiations (Follert et al 2018) between the club that would like to buy a player and the selling club. If the negotiating parties respect their individual agreement conditions, both clubs increase their welfare.…”

Squeeze-Out and Business Valuation in Germany – A Law and Economics Analysis of Judicial Decision-Making

“…Valuation theory, especially in the German-speaking world, can be differentiated into two competing schools of thought (as an overview Behringer, 2020;Follert, 2020a;Hering, 2004;Quill, 2016). The investment-theoretical approach (or German School, Hering, 2004, Olbrich, 2016 is based on the fundamental insights of Austrian economics in general and the Wiener Grenznutzenschule in particular (Follert et al, 2018;Herbener & Rapp, 2016;Olbrich et al, 2015Olbrich et al, , 2020Rapp, Olbrich, & Venitz, 2018). In German business economics 8 the investment theoretical approach was introduced for example by Schmalenbach (1917) 9 , Busse von Colbe (1957), Jaensch (1966), or Münstermann (1966a, and extended for example by Matschke (1972Matschke ( , 1975, Hering (1999), Klingelhöfer (2006), or Olbrich (2014).…”

“…Today, the investment-theoretical valuation approach is defended by the Cologne Functional School, which was founded especially by Manfred J. Matschke, Günter Sieben, and Thomas Schildbach. This school distinguishes three valuation functions depending on the respective purpose (on the dependence the purpose see also Moxter, 1983;further Matschke & Brösel, 2013): Additionally to the "decision function" which provides the marginal price based on investmenttheoretical models, there is also an "argumentation function" with an argumentation value (Follert et al, 2018;Matschke, 1976;Wagenhofer, 1988), which is used in negotiations to influence the final price. Moreover, Matschke (1979) develops the "mediation function" with an arbitration value, which is determined by an expert between the marginal prices of buyer and seller.…”

“…Therefore, it is essential that the judicial valuation estimates both the marginal price of that minority stockholder and the decision value of the main stockholder (V Main ). If there is no agreement interval because V Min > V Main (e.g., Follert et al, 2018), the judge must fix the compensation at V Min to protect the minority (as an overview Follert, 2020a). So, it should be clear that investmenttheoretical approaches are necessary to calculate these (subjective) marginal prices and finally set the compensation at {V Min ; V Main } or at V Min if there is no agreement interval.…”

“…From the point of view of the German School, the methods of finance theory are deemed to be suitable at best for determining argumentation values, that is, baseline theoretical values for negotiation (e.g., Hering, 2000Hering, , 2014Matschke et al, 2010). In fact, within the framework of modern Functional Valuation Theory (see e.g., Follert, Herbener, Olbrich, & Rapp, 2018;Matschke & Brösel, 2013;Matschke et al, 2010) these values are already integrated in the argumentation function which provides values that are useful within the final negotiation. Obviously, these models that abstract away from reality are not able to include subjective and local conditions, a critical peculiarity of the valuation methods based on neoclassical finance theory.…”