If you want to know about how to grow a large BV practice, you can't be anywhere better than Loew's Miami Beach this afternoon. The first panel on growing international BV practices ever, designed by ASA and CICBV, has brought together practice leaders from Duff & Phelps, Deloitte, and KPMG to talk about how they've succeeded and grown internationally.
Jeff Harder (National Valuation Services Leader for Canada, Deloitte and Touche) began by commenting on the differences between open markets like the US, or closed markets like Germany, where other professions own the valuation market.
Frank Bollman, who began the valuation practice for Duff & Phelps in Germany (and who has worked in the Silicon Valley and elsewhere), commented that he's followed many of the accounting trends as he's "crossed the pond. I was in Silicon Valley during the time that 141 came into being, and then in Europe when IRFS started, so I followed the changes in business combination across contintents."
But, he sees differences, too. For one thing, he finds more resistance to third party advice in Europe than he does in the US. Second, the US market is more diverse--compared in particular to Germany where "the valuation practice is dominated by the big accounting firms." There isn't as much room for independent consultants, he believes.
Kevin Moss (Deloitte FInancial Advisory) agrees. "You can't assume that markets behave the same. In Australia, there's a lot of work for business combinations. In Europe, we do more work for business modeling," he reports. "Don't forget how much work is needed for other purposes than financial reporting and IFRS," he advises practice leaders. He cites the myth that "E&Y globalized off the back of Coca-Cola globalizing. I'm not sure that myth is really true, but I'd also recommend that valuation firms that want to expand overseas follow a large client" rather than starting from scratch.
Bollman has seen both models. D&P's Tokyo office definitely was founded to support one large client. Other D&P offices have started more as strategic investments.
Doug McPhee (Deputy Chair of KPMG's Global Valuation Service) commented on some of the risk issues that occur. One simple issue is whether a qualified partner-in-charge can even sign off on his work in a new country. "I ran across this with a Johannesburg regulator on a project initiated in London," he recalls. "I think representational risk is probably bigger than litigation risk," he concluded. "As much as possible, we try to standardize practice no matter where it's delivered."
"Be careful in particular of unintended uses of your valuation opinions elsewhere in the world," McPhee commented, citing his experience in the middle east particularly. "You'll find less understanding about this issue, so there's a larger potential risk that later investors or others will get their hands on your work and try to make decisions based on it."
While litigation might not be a big issue, Moss points out that the IRS and international tax authorities are "increasingly throwing out valuation reports on smaller technical issues." Since the international clients tend to be large, the dollars involved if a report is thrown out can be immense. "You could have a very embarrassing client situation even if you don't end up in court," Moss said, referring to a $5 billion tax liability one client had to face based on a valuation.
Bollman said that tax rules are different and "not just because some country might allow you to deduct bribes since they were necessary for business."
You'll be competing globally against the Big 4--but they have problems too. It's nice to have an existing global network, but as Moss said "when I started, I had 51 national practice leaders, and many people reporting to them." This made knowledge management very complicated--making sure that you have consistent product and brand compliance is no joke, either.
"You need local execution with global leadership to do well," concluded Harder. "There's also differences in billing and fees," said McPhee. "There are fee caps and resistance to any expenses, and you may face different recovery rates and problems." He said this is even true when you're working for the same client in different nationalities. "Be careful if a US partner sells a global valuation engagement," warned Bollman. "The US partner won't know the local pricing and you'll miss" both on the under- and over-priced side. The general sense however is that there's a big motivation for international practice; both the types of work, and the client relationship, lead every one to believe that non-US work is more profitable than US-based work. Moss said "typically, the expectation is that you'll do fair value work in the US and make profits on ancillary spin-off work."