To help support the inquiries we’ve been receiving from our customers about how to address the coronavirus in the valuations they are working on, BVR has created a new COVID-19 business valuation resource website where we offer links to current news, past articles and webinars, third-party articles, and more to help BVWire—UK readers. As always, you can use the page to reach out to us and let us know how we can help cover the impact on business valuations.

RICS, iiBV, BVR, ICAEW, IVSC, and others have already delivered multiple resources for valuers, and those are included here, or in the new website. One example is last week’s Extreme Uncertainty: How Valuation Experts Should Respond to Today’s Volatility and Risk, which featured Gary Trugman (Trugman Valuation Associates), Harold Martin (Keiter, Stephens, Hurst, Gary & Shreaves PC), Michelle Gallagher (Gallagher & Associates CPAs), and Stacy Preston Collins (Financial Research Associates).

Another great resource is the iiBV’s Impact of COVID19—Global Perspectives, created in collaboration with the International Valuation Standards Council (IVSC), Singapore Accountancy Commission (SAC), Duff & Phelps, and Leadenhall. iiBV’s recorded webinar features: Yann Magnan, IVSC European Board chair, UK; Andre Toh, deputy chair of IVAS—Standards & Technical Committee, Singapore; Carla Nunes, Duff & Phelps, USA; and David Pearson, Leadenhall, Australia.

Among the topics these panels of leading BV professionals covered were:

• What’s known or knowable now? If you have an effective valuation date at 31 December 2019, and your report date is now, many appraisers are adding information about known dates, which are meaningful to the user and should be disclosed, about the coronavirus. Some valuers are including subsequent information in their cover letters rather than in the valuation reports themselves. One example: a family law case dated last November when the business interest was in full swing—but now the business is closed and unlikely to emerge as a going concern after the virus. So, ‘as a matter of equity the challenge is to try to move the valuation date,’ at least in matrimonial situations, said Trugman. Martin commented that, while this might be true in matrimonial cases, in other areas, valuation dates may remain much more fixed. For example, one BVWire—UK reader commented that their firm is doing a 31 December 2019 valuation for a construction firm with a report date of 11 March 2020. Collins said that experts should look to solicitors for instructions on what date to use as values change so rapidly.

A sample timeline from the ASA’s Bob Morrison on COVID, with footnotes, is available to BVWire—UK subscribers at the BVR COVID-19 resource page link above.

• When did COVID become known or knowable? As with many things in BV, the answer is not simple. It could be the first day that the global markets dropped—21 February 2020. ‘But it could be the day that customers were influenced, or the day that the government ordered a business to shut down, or other direct factor on the business,’ said Trugman. ‘You have to talk to the business’—it may not have anything to do with what the FTSE did that day, said Gallagher.

24 February is the week the markets really started to crash, so a lot happened very quickly between 20 February and 15 March. Within that period, most businesses were affected within a very short window, said Collins.

Martin says they’re ‘trying to separate knowledge of the health crisis vs. the point when the economic impacts began to be felt.’ Collins described a client with a distribution chain in China who knew in mid-January that their business was feeling the pain. ‘It’s a business-by-business and industry-by-industry situation’ when values changed dramatically, she concluded.

• How about forecasting the timing and magnitude of any recovery? Trugman asked whether, in certain industries, there will ever be recovery. ‘We see a lot of small businesses that will never reopen, so we can’t even speculate on the possibility of recovery. If a business is closed now, would anyone ever buy them? Can someone reasonably conclude that business has any fair market value,’ Trugman asked.

‘In this concept we can look back to the economic damage of the last quarter of 2008,’ says Martin. ‘Like then, we need to look at each company within an industry to do alternative cashflow projections and then conduct a weighted scenario analysis to reach a conclusion of value. We look to management to provide assumptions. They are the most knowledgeable about the sector, though we provide our professional judgment to critique the reasonableness of their projections.’

Keep in mind that various parts of the world are not forecasting the peak of the pandemic until midsummer or even beyond, several of the panelists warned. ‘The mere fact that we have an extended period of time of exposure to volatility is different than 2008-9. No one knows if we’re looking at months or years. We have to do stress tests on businesses,’ said Gallagher.

‘You’re going to have to assume different periods of recovery and different post-depression growth rates,’ Martin agreed.