In last week’s BVWire, we presented thoughts from some members of the editorial advisory board of BVR’s Business Valuation Update. Here are a few more comments looking back at 2014 and looking ahead to the rest of 2015.
Cost of capital: “The most significant new thought developments that caught my attention are both related to cost of capital,” says Christine Baker (Meyers, Harrison & Pia LLC). “First is the work done by Nancy Fannon and Keith Sellers, ‘Valuation of Pass-Through Entities: Looking at the Bigger Picture,’ regarding the impact individual tax rates have on equity rates of return. I acknowledge the paper wasn’t new this year, but certainly has been getting a great deal of media time. Second is the IPCPL/IPCPM, the implied private company pricing line/model. This too has received a fair amount of attention.”
Will either of these developments gain long-term traction? “Who knows?” says Baker. “But both are based on real data that has not previously been considered in the same manner.”
Early-stage, high-tech firms: Neil J. Beaton (Alvarez & Marsal Valuation Services) offers thoughts from his perspective, which is performing valuations for early stage, high-tech companies, “The two big developments shaping valuations for these firms were new platforms for funding companies and a significant increase in the ability of founders and early employees to sell their shares before the company has a liquidity event,” he says. He’s referring to the crowdfunding platforms that emerged through the Jumpstart Our Business Startups (JOBS) Act. He’s also talking about new mechanisms for the sale of ownership interests created by some innovative law firms.
As for his outlook for 2015, he observes: “More of the same! IPOs are on the rise, oil prices are dropping, and we have a new Congress and Senate.” He continues: “China is taking off as a start-up mecca and the newly minted Alibaba billionaires can be expected to plow that new-found wealth back into new companies like we see in Silicon Valley all the time. The Indian start-up scene is also heating up as the tech economy has matured significantly into a business base of its own versus the ‘offshore, cheap labor source’ India was known for in previous years. I expect to see a lot more IPOs in India, which, of course, will spill over into the U.S. markets as competition for dollars heats up. I’m already seeing increases in average pre-money valuations (see PitchBook’s 2014 VC Overview), and that trend can be expected to continue through 2015 if the economy stays on track.”
More next week!