Shareholder disputes often arise from differing valuation perspectives—an objective valuation approach in mediation lays the foundation for lasting solutions. This structured approach combines professional business valuation with proven mediation techniques and offers German SMEs a pragmatic way out of costly legal disputes.
Valuation-based mediation combines objective business valuation with structured negotiation processes. Unlike traditional mediation, this approach begins with a neutral, professionally sound valuation of the disputed company or shareholdings. This objective foundation reduces emotional debates and creates a fact-based negotiating platform.
For shareholder-managing directors in the German Mittelstand, this method is particularly relevant because it meets cultural expectations of objectivity and professional expertise. “Mediation is regarded as one of the most effective methods for joint problem-solving,” confirm industry experts—and the statistics support this: 80% of all mediation proceedings are successful..
The valuation-based variant goes one step further: it eliminates the most common point of contention in shareholder conflicts—the subjective assessment of the company’s value.
Severance arrangements upon a shareholder’s exit top the list of dispute triggers. When corporate agreements contain vague valuation clauses or refer to outdated valuation dates, conflicts are inevitable. The departing shareholder seeks the highest possible severance payment, while the remaining shareholders prefer lower valuations.
Divergent company valuations in strategic decisions arise when shareholders must decide on investments, financing, or growth strategies. Without an objective valuation basis, each party argues with its own figures and assumptions.
Sales and transfers of shares to external investors or family members also require consistent valuation standards. Here, business-economic perspectives often collide with emotional value perceptions—especially in multi-generational family businesses.
Choosing the right valuation method determines the acceptance and sustainability of mediation. German standards offer clear guidance, with different methods suitable depending on the company type and conflict situation.
The income approach according to IDW S1 is considered the preferred method for valuing GmbH shares in the German Mittelstand. This method focuses on the company’s future earning power and is regularly recognized by German courts.
The valuation process follows a structured procedure:
Its practical use in mediation benefits from the broad acceptance of this method among German tax advisors, auditors, and courts.
The Discounted Cash Flow (DCF) method has been recognized by the IDW as equivalent to the income approach since around 2000 and is particularly suitable for high-growth companies with volatile cash flows.
Free cash flow modeling offers several advantages:
• Transparent cash flow presentation: Clear separation between operating and financing-related cash flows
• Flexible planning periods: Adjustable detailed planning horizons depending on the business model and forecast reliability
• International comparability: Compatibility with global valuation standards for international investors
Calculating the WACC (Weighted Average Cost of Capital) requires careful risk analysis and capital structure planning. In mediation processes, detailed documentation of all assumptions builds trust and reduces disputes over valuation parameters.
In valuation-based mediation, the asset-based method often serves as a “safety net” and minimum valuation. This method values the company based on the market value of all assets minus liabilities.
Areas of application include:
• Companies in crisis with uncertain earnings development
• Asset-heavy businesses with valuable land and buildings
• Holding structures primarily consisting of passive assets
• Liquidation scenarios as a benchmark against going-concern valuations
Assets are valued at market value, with specialized experts engaged for real estate, machinery, and other significant assets.
A successful mediation process follows a systematic five-phase model that intelligently links valuation and negotiation.
The quality of preparation determines the success of mediation. This phase requires 4–6 weeks of intensive work and professional coordination among all parties.
The valuation phase provides the factual foundation for all subsequent negotiations. Transparency and traceability are paramount to avoid later debatesover valuation parameters.
With the objective valuation as the foundation, structured mediation talks begin. The focus is on objective discussion of the valuation results and the development of solution options.
The negotiation phase uses the objective valuation as an anchor to develop practical compromises. Win-win solutions emerge through creative structuring within the valuation-based framework.
The conclusion of mediation requires legally secure documentation to safeguard the agreed solutions long term. Enforceability and binding effect are paramount..
Successful valuation-based mediation requires the right partners and a well-considered approach. The following best practices have proven effective in practice.
The mediator must possess both legal and business expertise. This dual qualification is crucial, as valuation-based mediation closely integrates both fields.
Required qualifications include:
• Legal background: Corporate law, mediation training under the German Mediation Act of 2012, contract law
• Business expertise: Business valuation, financial planning, industry understanding for SMEs
• Industry experience: Specific knowledge in mechanical and plant engineering, understanding the “Hidden Champions” mindset
• Regional grounding: Familiarity with the culture of medium-sized enterprises in NRW and neighboring regions
Neutrality and objectivity are ensured through conflict-of-interest checks and transparent mandates. The mediator should have no existing business relationships with either the shareholders or their advisors.
The decision between using a joint valuer or separate valuers affects both costs and the likelihood of success in mediation.
A joint valuer offers advantages:
• Uniform valuation basis for all parties
• Cost savings compared to separate expert reports
• Reduced complexity in mediation discussions
• Higher acceptance of the valuation results
Separate valuers are advisable when:
• There are extreme differences in initial valuation positions
• Company structures are complex and require different valuation approaches
• There are fundamentally different views on valuation methods
• Conflicts have already escalated and trust is low
Transparency requirements include full disclosure of all valuation assumptions, access to working papers for all parties, and comprehensible documentation of the valuation process.
Cost allocation should be agreed upon before the valuation begins—typically proportionate to shareholdings or split equally when there are two main conflict parties.
The legal integration of valuation-based mediation requires careful consideration of corporate-law requirements and mediation regulations.
The German Limited Liability Companies Act (GmbHG) sets clear parameters for valuation requirements in cases of shareholder withdrawal and severance arrangements. Section 29 GmbHG governs the transfer of shares, while Federal Court of Justice (BGH) case law has developed standards for appropriate compensation.
Severance clauses in articles of association must comply with BGH case law on adequacy. Rigid valuation clauses without update mechanisms are often invalid if they lead to obviously inappropriate results. Valuation-based mediation can have a preventive effect here by establishing flexible valuation procedures.
The fiduciary duty of shareholders obliges all parties to exercise their rights with due consideration for one another. This supports mediated solutions over confrontational court proceedings and provides legal backing for cooperative valuation processes.
Mediation outcomes become legally binding through notarization or attorney certification. The German Mediation Act of 2012 provides a clear legal framework for this.
Enforceability arises from:
• Notarial deed: Mandatory for transfers of company shares
• Attorney certification: Sufficient for payment obligations and other performances
• Court recording: As a court settlement with immediate enforceability
• Expert-determination clauses: For future valuation disputes
Revision clauses should be предусмотрed for significant changes in valuation fundamentals, such as fundamental market shifts, regulatory interventions, or extraordinary business developments that were not foreseeable at the time of mediation.
Economic analysis shows clear advantages of valuation-based mediation over litigation.
Mediation entails significantly lower direct costs. Mediator fees range from EUR 150–500 per hour plus VAT, with full-day mediation sessions often costing EUR 1,000–2,000. In addition, costs are incurred for the business valuation, which vary depending on complexity.
Court proceedings incur multiple types of costs:
• Court fees: Significant fees depending on the amount in dispute, pursuant to the Court Costs Act
• Attorney fees: Substantial per-party costs at each instance
• Expert witness fees: EUR 15,000–40,000 per opinion
• Multiple instances: Costs multiply with each level of appeal
Time savings further increase cost advantages. Civil court proceedings last on average 7 months in local courts, 15 months at first instance before regional courts, and 22 months on appeal, whereas mediation is typically concluded within a few months.
Indirect cost advantages often significantly exceed direct savings:
Reputation protection and preservation of business relationships prevent long-term damage. Public court proceedings can strain relationships with customers, suppliers, and financing partners. Mediation is confidential and protects the reputation of all involved.
Avoidance of business disruptions ensures operational continuity. Lengthy legal disputes tie up management capacity and may block strategic decisions. Mediation enables swift conflict resolution without operational impairment.
Preservation of management capacity for value-creating activities. Shareholder-managing directors can focus on their core business instead of spending time in law firms and courtrooms.
This anonymized example illustrates typical challenges and solution approaches in valuation-based mediation.
A medium-sized mechanical engineering company with three shareholders faced a valuation conflict. The senior owner wished to retire due to age and sought a fair severance arrangement. The two younger shareholders planned to continue running the company.
Valuation expectations differed significantly:
• Departing shareholder: EUR 4.2 million based on offers from potential buyers
• Remaining shareholders: EUR 2.5 million based on a simplified asset-based view
• Articles of association: Outdated valuation clause tied to book values
Positions had hardened, and litigation appeared inevitable.
The valuation-based mediation followed the structured five-phase process:
Phase 1 (Preparation – 4 weeks):
Joint engagement of an experienced business valuer with mechanical engineering expertise. Complete document collection and agreement on the income approach under IDW S1.
Phase 2 (Valuation – 6 weeks):
Detailed company analysis and valuation. The objective valuation resulted in EUR 3.1 million based on sustainable earnings expectations and market-standard valuation parameters.
Phases 3–4 (Mediation – 3 weeks):
Four mediation sessions of 4 hours each with a professional mediator. Discussion of valuation ranges (EUR 2.8–3.4 million) and development of creative solution options.
Phase 5 (Documentation – 1 week):
Notarial certification of the agreed solution and amendment of the articles of association.
The negotiated result of EUR 3.3 million fell within the valuation range and reflected both objective valuation and subjective factors.
Key success factors included:
• Early involvement of neutral valuers before positions hardened
• Structured five-phase process with clear milestones
• Focus on long-term business relationships rather than short-term maximization
• Win-win structuring through earn-out clauses if planning targets were exceeded
Total costs amounted to approximately EUR 35,000 compared to estimated court costs exceeding EUR 100,000. More importantly, business relationships remained intact, and the generational transition proceeded smoothly.
Despite high success rates, valuation-based mediation has its limits. An honest assessment of these limits prevents unrealistic expectations.
An extreme imbalance of power between parties can make mediation impossible. If one party is economically dependent on the other or has significantly superior resources, negotiation positions become skewed. Mediation relies on voluntary participation and willingness to compromise.
Lack of willingness to compromise by one or more parties blocks any chance of success. This manifests in rigid maximum demands, refusal to acknowledge objective valuations, or fundamental rejection of joint problem-solving.
Cases requiring legal precedent make court proceedings unavoidable. When fundamental legal questions must be clarified or a precedential effect is sought for similar cases, mediation does not offer the necessary legal authority.
Arbitration with a valuation component combines objective valuation with a binding decision by neutral arbitrators. This solution is suitable for high-conflict situations where parties are still willing to pursue out-of-court dispute resolution.
Litigation remains the last resort in the event of irreconcilable differences. The valuation reports prepared during a failed mediation can often be reused, saving time and costs.
Shareholder exclusion proceedings under Section 34 GmbHG provide a legal framework for removing shareholders in cases of serious breaches of duty. Valuation-based mediation can also contribute here to determining fair compensation.
The overall process usually takes 3–6 months, depending on complexity and the parties’ willingness to cooperate. The business valuation typically requires 6–8 weeks, and the mediation sessions themselves consist of 2–4 meetings over 4–6 weeks. This is significantly faster than court proceedings, which average 7 months in local courts and up to 22 months on appeal before regional courts.
Total costs vary depending on company complexity and conflict intensity. Mediator fees range from EUR 150–500 per hour plus VAT; full-day sessions cost EUR 1,000–2,000. Additional costs arise for the IDW S1-compliant business valuation. Court proceedings typically cost three to five times as much as mediation.
The income approach under IDW S1 is considered the German standard for medium-sized enterprises. It focuses on sustainable earnings expectations and is regularly recognized by German courts. The DCF method has been recognized as equivalent since around 2000 and is particularly suitable for high-growth, internationally oriented companies.
Yes. Through notarization, mediation agreements become enforceable. Notarial certification is legally mandatory for transfers of company shares. For other agreements, attorney certification is sufficient for enforceability. The German Mediation Act of 2012 provides a clear legal framework.
If mediation fails, all legal options remain open. The valuation reports prepared can be reused in subsequent court or arbitration proceedings, saving time and costs. However, statistics show that 80% of all mediation proceedings are successful, so the prospects of success are very high.
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Copyright © 2025 Peter Littau
Copyright © 2025 Peter Littau
