Halligan & Co releases new research on control premiums
Business valuation and forensic accounting firm Halligan & Co has released Control Premium Research 2014, a paper that helps business valuation practitioners ascertain the value of control in a company.
The paper produces evidence of the takeover premiums paid in 605 takeovers of ASX-listed companies between 2001 and 2014 and helps valuers, as well as those who must understand valuation reports (i.e., corporate executives, auditors, tax professionals, lawyers, regulatory authorities, and courts), better understand control premiums.
“A shareholder who can determine the decisions a company makes can control it. These decisions can include the company’s strategic, operating, financial, investment, taxation and dividend policies. Such control is valuable if it can positively affect the amounts, timings, and risks of the net economic benefits of the company and, therefore, of the shareholder’s investment in the company,” the paper states.
Control Premium Research 2014 underlines the fact that voting rights attached to the controlling shareholder’s interest are often the main source of control. However, elements of control may also come from other specific contractual rights in a shareholder's agreement. According to the paper, control is commonly exercised by passing resolutions at shareholder meetings and by determining the composition of the board of directors.
The paper cautions, however, that the question of “how big the control premium is” is difficult to answer because it is “usually not possible to directly observe the payment of a control premium. ”The paper goes on to say that the best evidence is indirect and comes from prices paid in takeovers of listed companies.
Co-authors Mark Butterfield and Brendan Halligan say the choice of a control premium is important because it can have a material effect on value. “In making that choice the valuer will need to use professional judgement having regard to the particular circumstances. The valuer will be aided, however, by evidence of takeover premiums. Yet, evidence that is both reliable and relevant for Australia has not been readily available. Meeting this need is the purpose of our study,” they say.
Click here to download Control Premium Research 2014.
back to top
KPMG survey to present state of the BV industry early next year
KPMG’s Business Valuation Practices Survey, which provides insight into the parameters and approaches currently followed in the business valuation profession, canvassed responses from every corner of the industry throughout November 2014.
Last year’s inaugural survey found that the volatile economic environment was making assessments and assumptions around valuations very challenging.
“The challenging environment means that forecasting future growth and returns is particularly problematic. The domino effect of this uncertainty is a much more complex process for estimating the impact on the cost of capital. Textbook principles and processes are being stretched—given the uncertain prospects in most sectors, it is more difficult than ever to prepare financial forecasts,” said the survey’s executive summary.
Key findings in the 2013 study were:
- Cash is still king. The discounted cash flow approach was still the dominant methodology Australian financial analysts and corporate financiers used;
- Lack of reaction to volatility. Sixty-eight percent of participants indicated that they did not revise their equity market risk premium assumptions to reflect the recent developments in capital markets;
- Advisers took note of accounting standards. Twenty-one percent of participants critically evaluated and 74% considered the impact of accounting standards on future financial statements when advising on a deal;
- Environment, social, and governance (ESG) factors were, at best, considered only quantitatively. Only 5% of participants considered these factors quantitatively, and 32% ignored ESG factors all together;
- There was no consensus on the value of imputation credits. Participants were divided as to whether value should be ascribed to imputation credits when valuing a non-infrastructure-related business. In terms of infrastructure-related investments, the approach was significantly different; and
- Focusing in on discounts and premia. Observing and understanding discounts and premia were one of the most challenging and subjective tasks the industry faced.
The deadline for this year’s survey responses was 28 November. Business Valuation Australia will report on the results and analysis of the new survey early next year.
back to top
First-ever guide to private company multiples in the UK
Looking for a source for the latest transaction multiples being paid for UK private companies? A new guide, BVB Insights: Data and Analysis on UK Private Company Multiples, 2014 edition, has this information in over 50 industry categories.
Key insights: The highest multiples paid were in the telecommunications, healthcare, and IT sectors, according to the guide.
The consumer discretionary and consumer staples sectors also show relatively high multiples paid.
Some of the key drivers of multiples in this space include: private equity firms acquiring strong branded companies, North American buyers in the private education space, and consolidation in retail automotive by the UK’s three largest players.
The lowest multiples were paid in the materials sectors (mainly UK manufacturers), “largely due to the relatively low margins in this sector (5.6%), being the lowest amongst the 11 industry categories,” says the guide.
The guide, compiled by Business Valuation Benchmarks Ltd., is available from BVR. Click here for details and how to order.
back to top
Get financial details of 22,000-plus acquired private companies with Pratt’s Stats
Pratt’s Stats is a prominent private-company merger and acquisition (M&A) transaction database with complete financial details on 22,000-plus acquired private companies in Australia and several other countries, including the U.S.
With up to 100-plus data points that include six valuation multiples and 13 financial ratios, the database includes detailed data needed to apply the market approach, derive a selling price and benchmark performance, or perform a fairness opinion analysis. View sample reports here.
Pratt’s Stats helps you:
- Defend your value conclusions with evidence from 22,000-plus, 100% sold private-company transactions;
- Bolster your research with the Pratt’s Stat’s Analyser, an Excel-based tool that computes valuable statistics and ratios and applies various regression formulas and valuation multiples to a subject company;
- Perform customised searches by buyer type, business type, and more;
- Get a detailed transaction report with seller details (when available), source data, income data, asset data, transaction data, and more; and
- Receive Pratt’s Stats Private Deal Update, a quarterly publication with analysis of acquisitions by private buyers from the Pratt’s Stats database.
Business Valuation Resources is building the Pratt’s Stats private deal data for the Australasian market, and we need your assistance to collect additional financial and private-company sale details for Australia and New Zealand.
If you have been involved in business transfers and have the details of those sales, please click here to learn more about submitting deal data and the benefits you will receive from your participation.
Who to contact: If you have any questions about our deal database and the process of submitting deal data, please email BVR financial researcher Zac Cartwright at zacc@bvresources.com.
back to top
Have you downloaded your issue of Business Valuation Australia?
Remember to subscribe to Business Valuation Australia (BVA), our quarterly journal for Australian and New Zealand business valuation practitioners. With BVA, you will keep up with the latest patterns and trends in business valuation, analysis of new methodologies, regulatory and standards updates, and much more. Highlights of the our latest issue include:
- “Valuer’s Q&A Corner”: Advice from Bob Morrison, ASA, who taught the International Institute of Business Valuators (IIBV) course in Australia earlier this year;
- Key valuation issues arising in family court, by Trevor Vella;
- Applying the size premium, by Matthew Ashby; and
- Five tips to enhance the valuation analysis, by Bob Morrison.
Subscribe ASAP! The January issue will be distributed on 19 January 2015. Highlights of the upcoming issue include a summary of the key takeaways from the recent Business Valuation and Forensic Accounting Conference as well as in-depth guidance on tax adjustments for claims adjustments, control issues in a legal context, valuation regulation, and much more.
Learn more and subscribe today.
back to top
