Case Study: Business Valuation for a Partnership Dispute
Establishing a defensible valuation methodology for a partner buyout
Executive Mandate Summary
Key Transaction & Governance Challenges
- •The partnership deed established 50:50 ownership but did not specify how an exiting partner's interest should be valued.
- •Partner A estimated the business at Rs 1.5 crore, while Partner B estimated it at Rs 4 crore.
- •Reported profit of Rs 52 lakh included personal expenses and non-recurring project income that needed to be normalised.
- •Partner A handled client relationships, design work and project supervision, while Partner B managed procurement and site coordination.
Northrop Execution Architecture & Methodology
Section 1 - The Central Issue
The partnership agreement established equal 50:50 ownership, but the partners' contributions had diverged over five years. Partner A managed client relationships, design work and project supervision, while Partner B managed procurement and site coordination.
When Partner B decided to exit, neither partner had an agreed methodology for determining the value of the business.
Section 2 - The Valuation Disagreement
Partner A estimated the business at Rs 1.5 crore, while Partner B estimated it at Rs 4 crore.
The difference reflected fundamentally different views about what should drive the valuation: tangible assets and role replaceability on one side, versus revenue, growth and client relationships on the other.
Section 3 - Financial Verification
Before valuing the business, Northrop conducted a compressed forensic review of the financial records.
Personal expenses of Rs 9.4 lakh per year were identified and removed. Partner drawings were reconstructed from bank statements, capital accounts were reconciled, project revenue was verified through client confirmations and work-in-progress was valued at verifiable cost.
The resulting normalised annual profit was Rs 38 lakh.
Section 4 - Earnings Capitalisation
Using a 5x capitalisation multiple on Rs 38 lakh of normalised profit produced an indicative valuation of Rs 1.9 crore.
The multiple reflected the business's size, sector, client concentration and founder dependency.
Verifiable Institutional Outcomes & Value Realized
- Three valuation methodologies established an evidence-based valuation range.
- Sustainable annual profit established at Rs 38 lakh rather than relying on reported profit of Rs 52 lakh.
- Partner B's 50% interest was ultimately acquired for Rs 90 lakh.
- Buyout consideration structured across three instalments over 12 months.
Gopal Banka
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