Preview: Business Valuation Update Yearbook 2022

The year 2021 was defined by unexpected economic events; from the GameStop Rebellion to changes in how goodwill cases are handled in Florida, 2021certainly was an interesting time to be in the valuation profession. To kick off a new year, BVR has just released the Business Valuation Update Yearbook, 2022 edition, with 454 pages of the biggest events in valuation from the last year. Take a look at this preview taken from the section, "COVID-19 Just a Speed Bump in Hot M&A Market."

So how do M&A pros assess value for innovation-driven acquisitions? A “tough question,” a panel remarked, noting you can’t rely just on historical revenue and hockey-stick projections. Panel members were Sanjay Kacholiya, vice president, strategic business development, at Citrix; Tim McBride, director, M&A strategy and integration, Google Cloud (Google); and Don Dawson, managing director—North American M&A practice lead, Accenture. They say the focus is on several things, including an assessment of the technology and IP assets and whether the firm will be a strategic and cultural fit with the acquirer. Another important matter is whether the sales force will be able to sell the product that emerges out of the innovation process. Can it be further developed either as a stand-alone product or integrated with existing products?

Getting past these big-picture issues, M&A experts “struggle the most” with the valuation of these firms. There is virtually no value in cost savings from operating synergies because they typically are “really small.” One thing they will examine is the possibility of new or enhanced revenue streams, says the panel. In the end, it comes down to negotiations, which the panel likens to trying to buy a house in today’s crazy real estate market where there can “no logic.” Also, like the real estate market, valuations for these types of firms are now very high so, at some point, you have to know when the price no longer makes sense. That’s where a value range comes into play.

Here are some interesting takeaways from the other sessions:

  • As COVID-19 vaccinations evolve, some firms will end up doing well financially and others will not, which may impact the timing of deals as some acquirers may take a wait-and see attitude in some cases;
  • In a virtual world, it’s more difficult to assess whether the target’s culture will successfully mesh with the acquirer—being on-site gives a better feel for this; and
  • Retaining talent in the target is not an issue in the short term, but, after three years, a significant amount of the acquired staff takes off, which impacts long-term value creation, especially in a relationship-type business.

Make sure that you are up-to-date on all the most important valuation events from 2021 with this must-read book. Learn more about this essential read here; while you’re at it, make sure that you’re up-to-date on all the most impactful valuation law cases of 2021 by checking out the Business Valuation Case Law Yearbook, 2022 edition.