When is an offer a reasonable substitute of value?

In a recent commercial litigation matter, we were asked to consider whether an offer for the business was a reasonable reliable reflection of the fair market value of the business and a reasonable substitute for the value of the entity.

Often, there is uncertainty about whether a non-binding indicative offer (that may later be withdrawn) is relevant to the value of an entity when preparing a valuation for a litigation matter.

Generally, an offer received from a third party may be an appropriate basis on which to value a business if:

1. The offer is on an arms-length basis
2. The offer is genuine
3. The offer is being made for the same assets and liabilities, or business, that is being valued