Business Valuation Update
- How to Review a Report’s Valuation Methodology
- Ideas for Solving Two Problems in the BV Profession
- How Do Your Firm’s Benefits Stack Up?
- Using Rule of Thumb Data to Uncover Cooked Books
New Degree Program at Macquarie U. Connects Corporate Finance and Valuation Professions
Macquarie University’s Applied Finance Centre is launching a Graduate Diploma of Applied Finance for Business Valuation program in Sydney and Melbourne in 2016. The program, which will take students 12 to 15 months to complete, combines classroom teaching from leading valuation experts with hands-on and real-world-based valuation exercises. The program is a specialised offering for practitioners who wish to develop their valuation skills for finance careers.
How Top M&A Practitioners Are Using DCF Techniques
Major investment banks routinely use discounted cash flow techniques to determine company value in mergers and acquisitions. However, the actual application of the methods is “far from routine,” say the authors of a study published in the Journal of Applied Finance. The study’s results “serve as yet another reminder that analytic techniques such as DCF do not make decisions but only inform them.”
Seven Models for Estimating the Cost of Equity in a Global Setting: The Pros and Cons
What is a good method for developing the equity component of international cost of capital using the capital asset pricing model (CAPM)? Jim Harrington, director at Duff & Phelps (U.S.) and co-author of the 2015 International Valuation Handbook – Guide to Cost of Capital, explains that you can use a number of models to estimate the cost of equity capital in a global environment, but there is no consensus among academics and practitioners as to the “best” model to use.
Why Valuation Experts Should Not Use the Term ‘Nonmarketable’
For the past two years, our firm has not used the term “nonmarketable” as a descriptive for a conclusion of value. We feel it is completely inappropriate to use a negative term when informing clients of the value of their controlling or minority interest. Rather, we use more positive terms that are part of a new paradigm of describing levels of value.
IIBV Forms Task Force on Global Designation
Last year, the International Institute of Business Valuers (IIBV) and Business Valuation Resources (BVR) hosted a “lively debate” on the topic of a global business valuation designation. Participants contributed a wide range of opinions that supported the need for such a designation but questioned how this could be accomplished.
The Misuse of Bid Premium Data to Determine Minority Discounts
Bid premium data, as evident in the U.S. and the U.K. (and in various other developed economies with liberal investment markets), have historically been misused in business appraisal of private companies in the following ways ...
BVA Profile: An Expatriate’s Perspective on Australian BV
BVA recently spoke with John-Henry Eversgerd, a valuation specialist in Australia with over 20 years of valuation and financial analysis experience. In the interview, Eversgerd, who is from the United States but has worked and lived in Australia since 2008, talks about the valuation industry here and makes comparisons to the larger valuation scene in America. He is one of the founders of the BVA and has launched and led a valuation practice at an Australian boutique advisory firm. He is also an Accredited Senior Appraiser—Business Valuation of the American Society of Appraisers, a Chartered Financial Analyst charter holder, and holds a Masters of Business Administration from the University of Michigan Ross School of Business.
Impact of the Current Environment on the Risk-Free Rate as an Input to the Capital Asset Pricing Model
The risk-free rate is the rate that compensates an investor for the time value of money and the expected inflation over an investment period. Valuers typically use Australian Commonwealth Government Securities as a proxy for risk-free rate when valuing assets with AUD-denominated cash flows.
More M&A Activity Anticipated, Though S&P/ASX200 Index to Drop, Survey Predicts
A recently published survey by the financial advisory services firm KPMG predicts that merger and acquisition deals in Australia will be on the increase this year, even as many respondents believe companies from a number of sectors have been overvalued in the recent past.
More Common Sense—Less Theory and Fewer Models—Needed in Business Valuation
Pablo Fernandez is a professor in the department of financial management at the University of Navarra—IESE Business School in Spain (ranked No. 5 in the world for full-time MBAs by The Economist). A widely published author, he conducts a survey of market risk premiums and risk-free rates used in countries around the world. His recent paper, “CAPM: An Absurd Model,” created a stir in the business valuation community.
Insights Into Private Company Multiples in the United Kingdom
The latest information on transaction multiples being paid for U.K. private companies is included in the new 2015 edition of BVB Insights: Data and Analysis on UK Private Company Multiples. The guide, published by Business Valuation Benchmarks Ltd., includes details on about 250 private-company transactions in over 40 industry categories.
Valuer’s Q&A Corner— Richard Stewart
Q: How does the choice of standard of value affect discounts and premiums?
Key Takeaways From S&P Capital IQ’s Australian Q1 2015 Market Data
S&P Capital IQ analyses capital markets, observing trends and market performance to provide key insight and perspective into the Australian and New Zealand markets. Of particular interest was the especially strong start outbound mergers and acquisitions (M&A) seen in the year-to-date 2015 and the continuing upward ascent of the initial public offerings (IPO) market.
10 Chickens and a Cow . . . Swap Transactions in Mineral Projects: Valuation Considerations
A swap transaction is basically a barter transaction. I give you a cow, and you give me 10 chickens. What value did I receive for my cow? I received the value of 10 chickens. What value did you receive for your chickens? I paid you the value of one cow. Both of us thought that what we received—in my case, chickens—was worth an amount equal to or greater than what we gave up, in my case, a cow.
Making Sense of Confusing Definitions When Applying Standards of Value
Determining and applying the proper standard of value is essential to any valuation. All valuers are familiar with the common standards—fair value, market value, and fair market value. Yet contradictions abound, and making the right choice is not always easy even for the experienced practitioner. A business valuation that applies an inappropriate standard of value can be misleading and lead to adverse consequences for both valuers and their clients.
A Perfect Valuation Report for Tax Purposes: Missing Pieces of the Puzzle
Many articles have been written and many debates had about what makes a good business valuation report, especially when determining a market value for Australian taxation purposes. Like many valuation professionals, I believe this is not just a matter of high mathematics, where each input and variable can be easily defended by the logic of readily available theorems. Compiling a good business valuation report requires extensive knowledge of businesses and industries; an understanding of economic, financial, and political environments; technical proficiency in applying both quantitative and qualitative judgment; and wisdom in writing a meaningful report.
Top 8 Nontechnical Trends of the 2015 Business Valuation Industry
KPMG’s second Business Valuation Practices Survey, which provides insight into the parameters and approaches currently followed in the business valuation profession, canvassed responses from a wide range of professionals. For the first time, the survey also covered tangible asset valuations and real estate valuations.
Valuer’s Q&A Corner—Richard Stewart
Q: Can the distributor method be used to value the primary asset of the business? What if there is no highly comparable market data? What do you do with contributory asset charges and attrition and life?
RICS Guidance Note on the Valuation of Intellectual Property
We live in an age of intangible assets. Brands, technology, and artistic content are core assets of many companies. The ability to protect the competitive advantage created by these assets is dependent on the strength of the supporting intellectual property rights. This has resulted in an increased need for robust intellectual property (IP) valuations. Applications of IP valuation include financial reporting, tax compliance, litigation, financing, mergers and acquisitions (M&A) planning, and strategy development.
Indefinite Is Not Infinite—Solving a Dichotomy in Trademark Valuation
The valuation of an intangible asset is based on its useful life. For trademarks, appraisers regularly opt for an indefinite life, when no obvious factors exist that would limit the future economic life of the trademark. Almost all brands are however finite, and assuming indefiniteness can have two serious effects: one on value and one on accounting. The following article discusses such effects and suggests some guidelines and tools for how to analyse the life cycle of a brand and how to estimate its remaining useful life (RUL).
Financial Distress and Valuation Impacts: Lessons From the REIT Sector
Over the course of their careers, valuers will need to confront the valuation of distressed businesses. Because distressed organisations are rare compared to financially stable ones, there is often a limited data set from which to draw inferences about the impact of financial distress.
Demand Is Rising for SME Valuations
Editor’s note: The following is an excerpt from RSM Bird Cameron partner Andy Gilmour’s SME Valuations presentation, given at the Chartered Accountants Australia and New Zealand 2014 Business Valuation and Forensic Accounting Conference.
Valuer’s Q&A Corner
This column is your opportunity to get answers on your most pressing business valuation questions with tips and advice from BV thought leaders. Please email your questions to editorau@bvresources.com and look for responses in each issue of BVA. In this issue, Richard Stewart (partner at PricewaterhouseCoopers) offers his advice on using IPO studies and restricted stock studies for discounts.
Roundup From the 2014 Business Valuation and Forensic Accounting Conference: A Reflection of an Evolving Industry
The 2014 Business Valuation and Forensic Accounting Conference last October brought interesting trends to the surface and featured an array of both international and local business valuation leaders who touched on the important issues affecting the Australian business valuation industry.
The Useful Life of Trademarks
Trademarks are often deemed indefinite simply because they can be continually renewed. However, almost no asset is imperishable, and the indefinite life assumption has serious consequences for the values ascribed to trademarks.