Goodwill Valuation Approaches, Methods, and Procedures

Financial advisers are often asked to value goodwill within a corporate transaction environment. These goodwill valuations may be performed in the due diligence phase of the corporate transaction for transaction pricing and structuring purposes. These goodwill valuations may be performed in the consummation phase of the corporate transaction—as part of the preparation of a transaction fairness opinion or solvency opinion. And, these goodwill valuations may be performed within the controversy phase of the corporate transaction—to defend against dissenting shareholder appraisal rights claims or claims that the transaction resulted in a fraudulent transfer. For some transaction-related purposes, financial advisers may value goodwill as a residual amount (i.e., the residual of a total business or professional practice value minus the value of all identifiable tangible assets and intangible assets). For other transaction-related purposes, financial advisers may value goodwill as an individual, income-producing intangible asset. This discussion summarizes the generally accepted goodwill valuation approaches, methods, and procedures. And, this discussion presents an illustrative example of a goodwill valuation analysis.