A new study by Alexander Davie (FTI Consulting) offers the best available analysis of “The Use of Relative Valuation Methods in Investment Arbitration.” Not only does Davie fully compare the differences in the use of all valuation methods when specifically applied to arbitration, but UK business valuers will all benefit from his complete review of investment arbitration awards in which tribunals considered the use of relative valuation methods.
The article appeared in the 17 November 2021 issue of Global Arbitration Review, and it considers both the practical difficulties in the application of relative valuation methods as well as the response to relative valuation methods by investment arbitration tribunals.
While relative valuation methodologies using comparables and multiples are the most common means of determining value in commercial situations, they are often overlooked or underused in investment arbitration, Davie reports. This places increased emphasis on DCF analyses, “the method most commonly used to calculate ‘forward looking’ market values in investment arbitration,” Davie concludes.
Arbitration cases may rely on customised interpretations of both EV/EBITDA and EV/revenue multiples, he says.
To draw his conclusion, Davie references the following cases for guidance on what business valuers can expect from the courts in arbitration situations:
- Tidewater Investment SRL and Tidewater Caribe, CA v the Bolivarian Republic of Venezuela (ARB/10/5);
- Sistem Mühendislik Insaat Sanayi ve Ticaret AS v Kyrgyz Republic (ARB(AF)/06/1);
- Waguih Elie George Siag and Clorinda Vecchi v The Arab Republic of Egypt (ARB/05/15);
- Yukos Universal Limited (Isle of Man) v The Russian Federation (PCA Case No. AA 227);
- OI European Group BV v Bolivarian Republic of Venezuela (ARB/11/25); and
- Crystallex International Corporation v Bolivarian Republic of Venezuela (ARB(AF)/11/2).