Valuation clause: Copy, customize, and use instantly
Introduction
A valuation clause outlines the method and process used to determine the value of an asset, service, or business for the purposes of the agreement. This clause ensures both parties are clear on how the valuation will be conducted and what factors will be considered in determining the final value.
Below are templates for valuation clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Standard valuation clause
This version includes a general method for valuation.
The value of [Asset/Service] will be determined by an independent, third-party appraiser selected by the [Company], in accordance with generally accepted valuation standards. The appraisal will consider factors such as market conditions, comparable assets, and any other relevant factors. Both parties agree to accept the final valuation as binding.
Valuation clause with fair market value
This version includes fair market value for valuation.
The [Asset/Service] will be valued at its fair market value, as determined by an independent appraiser chosen by the [Company]. The appraiser will consider the current market conditions, comparable assets, and any relevant industry standards. The fair market value will be used to determine the purchase price or settlement amount under this Agreement.
Valuation clause with replacement cost
This version includes replacement cost valuation.
In the event of a loss or damage to [Asset], the valuation will be based on the replacement cost, which is the amount required to replace the [Asset] with an equivalent item of similar quality, taking into account depreciation. The [Company] shall use an independent appraiser to determine the replacement cost.
Valuation clause with earnings-based valuation
This version includes an earnings-based valuation method.
The value of the [business/asset] will be determined based on a multiple of the [Company]’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the last [X] years, as calculated by an independent appraiser. The multiple will be agreed upon by both parties based on current market conditions and comparable businesses.
Valuation clause with cost-based valuation
This version includes cost-based valuation.
The value of [Asset/Service] will be determined by calculating the total costs incurred in the creation or acquisition of the [Asset], including direct and indirect costs. The valuation will include a reasonable markup for profit, as agreed upon by the parties, and will be verified by an independent appraiser.
Valuation clause with option for alternative appraisers
This version includes options for alternative appraisers.
In the event that the [Company] and the [Government Agency] disagree on the selection of the independent appraiser, each party may select one appraiser, and the two appraisers will jointly select a third appraiser to determine the final valuation. The decision of the third appraiser will be binding.
Valuation clause with multiple valuation methods
This version includes multiple valuation methods.
The value of [Asset] will be determined by considering the following methods, as agreed by both parties: (1) fair market value, (2) replacement cost, and (3) income-based valuation. The final value will be the average of the three methods, or as otherwise mutually agreed upon by the parties.
Valuation clause with periodic revaluation
This version includes periodic revaluation.
The [Asset] shall be subject to revaluation on an annual basis to reflect current market conditions and depreciation. The [Company] agrees to appoint an independent appraiser to perform this revaluation, and the results will be used to adjust the terms of this Agreement as necessary.
Valuation clause with cap or floor on valuation
This version includes a cap or floor on the valuation.
The value of [Asset] will be determined in accordance with the method outlined in this Agreement; however, the value shall not exceed [$X] nor fall below [$Y]. Any valuation exceeding or falling below these limits will be adjusted to the respective cap or floor amounts.
Valuation clause with discount rate
This version includes a discount rate for valuation.
The valuation of the [business/asset] will be based on discounted cash flow (DCF) analysis, using a discount rate of [X]%. This discount rate will reflect the [risk profile, cost of capital, or industry standard], and the future cash flows will be adjusted accordingly.
Valuation clause with liquidation value
This version includes liquidation value.
In the event of a liquidation or sale of [business/asset], the value will be based on the liquidation value, which is the estimated amount the [Asset] could fetch in a distressed sale, considering all liabilities and liquidation costs. An independent appraiser will calculate this value.
Valuation clause with specific asset identification
This version includes specific asset identification for valuation.
The valuation of [Asset] will be based on the following items, which will be specifically identified and assessed by an independent appraiser: [list of assets]. These items will be individually valued, and the total valuation will be the sum of their individual values.
Valuation clause with tax-affected valuation
This version includes tax-affected valuation.
The value of the [Asset/Service] will be determined on a tax-affected basis, which takes into account the potential tax liabilities and benefits associated with the transaction. The final value will reflect the net value after accounting for any applicable taxes, as determined by an independent tax advisor.
Valuation clause with market comparison method
This version includes a market comparison method.
The valuation of the [business/asset] will be determined based on a comparison to similar businesses/assets in the same market. The independent appraiser will consider recent sales, valuations, and trends in the industry to determine a fair market value for the [business/asset].
Valuation clause with fixed valuation date
This version includes a fixed valuation date.
The value of [Asset] will be determined as of the fixed date of [Date]. Any changes to the value of the [Asset] after this date will not be considered in the valuation for the purposes of this Agreement.
Valuation clause with third-party auditor oversight
This version includes third-party auditor oversight.
The valuation process will be overseen by a third-party auditor selected by the [Company]. The auditor will ensure that the valuation is conducted in accordance with industry standards and provide an independent report confirming the accuracy of the valuation.
Valuation clause with goodwill consideration
This version includes goodwill consideration.
The valuation of the [business] will include a consideration for goodwill, based on the company’s reputation, customer base, and market position. The goodwill component will be calculated as a percentage of the overall value, as determined by an independent appraiser.
Valuation clause with floor and ceiling adjustment
This version includes floor and ceiling adjustments.
The value of the [Asset] will be subject to adjustment if it falls below [X] or exceeds [Y]. If the valuation is lower than [X], it will be adjusted upwards to [X]. If the valuation exceeds [Y], it will be adjusted downward to [Y]. These adjustments will be based on the appraiser’s report.
Valuation clause with approval of valuation by parties
This version includes approval of valuation by parties.
The final valuation of the [business/asset] will be submitted to both parties for approval. If either party disagrees with the valuation, they may request a second independent appraisal. Both parties must agree on the final valuation before proceeding with any action under this Agreement.
Valuation clause with valuation based on net book value
This version includes net book value for valuation.
The valuation of the [Asset/Company] will be based on its net book value, calculated by subtracting the total liabilities from the total assets, as per the most recent financial statements provided by the [Company]. The final net book value will be confirmed by an independent auditor.
Valuation clause with discounted cash flow (DCF) methodology
This version includes DCF methodology.
The [Company] agrees to use a discounted cash flow (DCF) methodology to determine the value of the [business/asset]. The DCF model will factor in projected cash flows, risk-adjusted discount rates, and the company’s capital structure. An independent financial expert will be engaged to perform the valuation.
Valuation clause with market capitalization method
This version includes market capitalization method.
The value of the [business] will be determined using the market capitalization method. The market capitalization will be based on the most recent share price multiplied by the number of outstanding shares as of the valuation date. Any changes in share price will not affect the final valuation if the valuation date has passed.
Valuation clause with historical cost method
This version includes the historical cost method.
The [Asset/Service] will be valued using the historical cost method, which considers the original purchase price, adjusted for depreciation, amortization, and any impairment losses. This method will be verified by an independent appraiser to ensure accuracy.
Valuation clause with liquidation basis valuation
This version includes liquidation basis valuation.
In the event of liquidation, the [business/asset] will be valued based on its liquidation value, which is the estimated amount the [Asset] can be sold for in a distressed sale. An independent appraiser will determine this value based on the market’s response to such a sale.
Valuation clause with book value of tangible assets
This version includes book value of tangible assets.
The [Company] agrees that the valuation of the tangible assets under this Agreement will be based on their book value, as reflected in the most recent balance sheet. Tangible assets will include equipment, real estate, and inventory, and will not consider intangible assets.
Valuation clause with profit-based valuation
This version includes a profit-based valuation.
The [business/asset] will be valued based on its profits over the last [X] years. The profit-based valuation will consider net income, adjusted for non-recurring items and tax effects. An independent financial expert will determine the appropriate profit multiple for the final valuation.
Valuation clause with tax-affected earnings valuation
This version includes tax-affected earnings.
The valuation of the [business/asset] will take into account tax-affected earnings. The value will be based on after-tax profit projections for the next [X] years, adjusted for tax rates and any applicable tax credits. A tax advisor will be engaged to confirm the tax impacts.
Valuation clause with asset-based approach
This version includes asset-based valuation.
The [Company] agrees to use an asset-based valuation approach, which will determine the value of the [business] based on the total value of its assets, less its liabilities. This approach includes both tangible and intangible assets, as assessed by an independent appraiser.
Valuation clause with capitalization of earnings method
This version includes capitalization of earnings.
The [business] will be valued using the capitalization of earnings method. The value will be calculated by capitalizing the expected future earnings based on a selected capitalization rate, which reflects the risk and return profile of the business.
Valuation clause with comparable sales analysis
This version includes comparable sales analysis.
The value of the [Asset/Company] will be determined through a comparable sales analysis, where recent sales of similar assets or companies in the market will be analyzed. The selected appraiser will use these sales as benchmarks to determine a fair value.
Valuation clause with premium for control
This version includes a premium for control.
The value of the [business] will include a premium for control, reflecting the additional value that a controlling interest provides in terms of decision-making authority, profitability, and management of operations. The control premium will be applied based on industry standards.
Valuation clause with restriction on valuation date
This version includes a restriction on valuation date.
The valuation of [Asset/Company] must be conducted as of a specific date, [Date], and will not take into account any market changes or other factors that arise after this date. Any changes occurring after the valuation date will not be included in the final valuation.
Valuation clause with negotiation of final valuation
This version includes negotiation of the final valuation.
The parties agree to negotiate the final valuation in good faith, based on the results of the appraisal process. If the parties cannot reach agreement on the final value, they will submit the dispute to arbitration, as outlined in [Schedule X].
Valuation clause with prorated value
This version includes prorated value.
The [Asset] will be valued on a prorated basis if the ownership or usage is transferred mid-term. The prorated value will be determined based on the time elapsed during the term, calculated from the beginning of the valuation period to the transfer date.
Valuation clause with equity-based valuation
This version includes equity-based valuation.
The value of the [business] will be determined based on its equity value, calculated by subtracting all liabilities from total assets, adjusted for any recent changes in capital structure. This value will be verified by an independent financial expert.
Valuation clause with floor and ceiling limits
This version includes floor and ceiling limits for valuation.
The parties agree that the value of the [business/asset] will not fall below [$X] or exceed [$Y]. Any valuation that falls outside of these limits will be adjusted accordingly to meet the agreed-upon floor and ceiling.
Valuation clause with adjustment for goodwill
This version includes adjustment for goodwill.
The valuation of the [business] will include an adjustment for goodwill, calculated based on the business’s reputation, customer base, and market position. The goodwill adjustment will be based on market data and calculated by an independent appraiser.
Valuation clause with adjustment for intellectual property
This version includes adjustment for intellectual property.
The [Company] agrees that the value of intellectual property, including patents, trademarks, and proprietary technology, will be factored into the overall valuation of the [business/asset]. The valuation will consider the market potential and legal protections of the intellectual property.
Valuation clause with valuation for liquidation purposes
This version includes liquidation purposes.
If the [business/asset] is being valued for liquidation purposes, the value will be based on its net liquidation value, taking into account the immediate sale value of all assets, after considering any costs and liabilities associated with the liquidation process.
Valuation clause with third-party advisory firm involvement
This version includes third-party advisory firm involvement.
The [Company] agrees to appoint an independent advisory firm to assist in determining the final value of the [business/asset]. The advisory firm will consider all relevant factors, including market conditions, financial performance, and the industry landscape.
Valuation clause with asset depreciation
This version includes asset depreciation.
The valuation of [Asset] will account for depreciation based on the asset’s useful life. The [Company] agrees to use the straight-line depreciation method, where applicable, to calculate the asset’s current value as of the valuation date.
Valuation clause with adjustments for liabilities
This version includes adjustments for liabilities.
The value of the [business/asset] will be adjusted for any liabilities as of the valuation date. All outstanding debts, obligations, and other liabilities will be deducted from the total asset value to determine the final valuation.
Valuation clause with annual valuation review
This version includes an annual valuation review.
The [Company] agrees to conduct an annual review of the [business/asset] value. The review will take into account changes in market conditions, asset depreciation, and any other relevant factors. The revised valuation will be used for ongoing contractual purposes.
Valuation clause with market-based adjustments
This version includes market-based adjustments.
The valuation of the [business/asset] will include an adjustment for current market trends and conditions. The appraiser will assess the market environment and adjust the value accordingly, considering supply and demand factors, comparable transactions, and industry standards.
Valuation clause with revenue-based valuation
This version includes revenue-based valuation.
The valuation of the [business] will be based on a multiple of annual revenue, where the revenue multiple will be determined by market conditions and the historical performance of similar businesses. The multiple will be agreed upon by both parties before the valuation is finalized.
Valuation clause with profit margin consideration
This version includes profit margin consideration.
The valuation of the [business/asset] will take into account the profit margins achieved by the company over the past [X] years. The appraiser will adjust the valuation to reflect historical profitability, adjusting for non-recurring income and expenses.
Valuation clause with option for independent review
This version includes the option for independent review.
If either party disagrees with the initial valuation, they may request an independent review by a third-party expert, whose valuation will be final and binding. The costs of the independent review will be shared equally by both parties.
Valuation clause with liability cap adjustment
This version includes a liability cap adjustment.
The value of the [business/asset] will be subject to a cap based on existing liabilities. Any increase in liabilities, such as outstanding legal claims or debts, will be deducted from the valuation up to a maximum of [$X].
Valuation clause with post-transaction valuation review
This version includes post-transaction valuation review.
After the execution of the transaction, the final valuation will be subject to review within [X] months to account for any changes in market conditions or the value of assets. Any discrepancies between the initial and final valuation will be addressed by adjusting the payment terms accordingly.
Valuation clause with consideration of intellectual property value
This version includes intellectual property value consideration.
The valuation of the [business/asset] will include an assessment of all intellectual property, including patents, trademarks, copyrights, and proprietary software. The value will be based on the current market value of these intellectual property rights, as determined by an independent appraiser.
Valuation clause with historical data adjustments
This version includes historical data adjustments.
The [Company] agrees that the valuation will reflect historical performance data, including profit margins, revenue growth, and asset appreciation over the past [X] years. Any fluctuations in performance will be adjusted for consistency and accuracy in determining the final value.
Valuation clause with third-party accounting firm verification
This version includes third-party accounting firm verification.
The valuation of the [business/asset] will be verified by an independent accounting firm selected by the [Company]. The accounting firm will ensure that the valuation process follows industry standards and accurately reflects the financial condition of the [business/asset].
Valuation clause with agreed-upon method for goodwill
This version includes an agreed-upon method for goodwill.
The value of goodwill will be determined based on a pre-agreed method, which may include a multiple of earnings before interest, taxes, depreciation, and amortization (EBITDA) or any other method mutually agreed upon by both parties prior to the valuation.
Valuation clause with fairness opinion
This version includes a fairness opinion.
An independent financial advisor will be engaged to provide a fairness opinion on the valuation of the [business/asset]. The advisor will assess whether the proposed valuation accurately reflects the market value of the [business/asset] based on industry standards and comparable transactions.
Valuation clause with cap on revaluation adjustments
This version includes a cap on revaluation adjustments.
Any adjustments to the valuation of the [business/asset] will be capped at [X]% of the original valuation. If the revised valuation exceeds this cap, both parties must agree to the adjustment, and the [Company] will issue a revised payment schedule based on the new value.
Valuation clause with adjustment for debt restructuring
This version includes adjustment for debt restructuring.
The valuation of the [business] will include any adjustments required due to debt restructuring. If the company’s debt structure changes before the valuation, the appraiser will account for the new debt terms and adjust the valuation accordingly.
Valuation clause with discounted value for distressed sale
This version includes discounted value for distressed sale.
In the event of a distressed sale of the [business/asset], the value will be discounted by [X]% from the market value to account for the urgency and conditions of the sale. The final discounted valuation will be determined by an independent appraiser.
Valuation clause with adjustments for currency fluctuations
This version includes adjustments for currency fluctuations.
The valuation will be adjusted to reflect any significant fluctuations in currency exchange rates between the valuation date and the date of the transaction. These adjustments will be made by an independent financial expert to ensure the valuation is consistent with current exchange rates.
Valuation clause with variable payment based on valuation
This version includes a variable payment based on valuation.
The purchase price of the [business/asset] will be subject to a variable payment based on the final valuation. If the valuation exceeds [X] amount, the purchase price will be adjusted upwards by [X]%. If the valuation is lower than [X], the purchase price will be adjusted downward accordingly.
Valuation clause with expert determination in case of dispute
This version includes expert determination.
In the event of a dispute regarding the valuation, the parties agree to appoint an independent expert to determine the final value. The expert’s determination will be binding on both parties, and the cost of the expert will be borne equally by both sides.
Valuation clause with contingent valuation based on performance
This version includes contingent valuation based on performance.
The value of the [business/asset] will be adjusted based on the future performance of the [business/asset]. If the [business] meets or exceeds certain performance metrics by [Date], the valuation will increase by [X]%. If the performance metrics are not met, the valuation may decrease accordingly.
Valuation clause with consideration of market conditions at time of sale
This version includes consideration of market conditions.
The valuation of the [business/asset] will take into account prevailing market conditions at the time of sale, including demand for similar assets, economic factors, and industry trends. The valuation will reflect current conditions to ensure an accurate assessment of the asset’s value.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.