BVWire Australia Issue #12-1 | 16 July 2015

 

Making sense of confusing definitions when applying standards of value

In the recently released July issue of Business Valuation Australia, Hugh McPharlin decodes the often confused meanings of “fair value,” “market value,” and “fair market value.”

“A valuer’s client may specify which standard of value they want applied. They may also use language that is ambiguous as to the standard of value or simply request a valuation. Ultimately, a business valuer must understand the context of the valuation and ensure that the standard of value that underlies the valuation opinion is appropriate for the circumstances,” McPharlin says.

McPharlin goes on to explore the range of reasons business valuations are conducted—from company constitutions and trust deeds to financial reporting and statutory purposes.

To clarify the meanings of the terms and their differences, as well as how and when to use them, McPharlin has examined a number of relevant materials, professional definitions, and legal decisions.

Subscribe to Business Valuation Australia to get McPharlin’s insights and tips on confusing business valuation definitions.

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International Institute of Business Valuers announces 2015-2016 board of directors

The International Institute of Business Valuers, a world leader in business valuation education, announced its 2015-2016 board of directors. IIBV is an umbrella organisation of business valuation professional organisations working together internationally to increase the preeminence of the business valuation field through professional education. IIBV promotes the sharing of best practices in business valuation through its program of education courses delivered globally.

Members of the incoming IIBV board of directors represent a strong mix of global business valuation professionals. The new board includes:

  • Chairman of the board, Robert B. Morrison, ASA BV/IA (US);
  • Mary Jane Andrews, CBV (Canada);
  • Laurent Després, CBV (Canada);
  • Paul Gill, CBV (Canada);
  • Liying Han, CPV (China);
  • Soltan Aljorais (Saudi Arabia);
  • Ray Moran, ASA (U.S.);
  • Bill Stamatis, ASA (Canada); and
  • Edwina Tam, ASA (Hong Kong).

During its annual general meeting held 20 May 2015, the member valuation professional organizations (VPOs) of the IIBV elected Robert B. Morrison as chairman of the board. Morrison is the managing director of Morrison Valuation & Forensic Services in Orlando, Florida (U.S.), and is also the elected chairman of the Business Valuation Committee of the American Society of Appraisers.

Morrison thanked past chair Mary Jane Andrews for her significant leadership contribution to the IIBV and welcomed her to the council of past chairs that includes Lee Hackett, FASA, and Carl Merton, CBV.

The IIBV, together with its member associations, leads the business valuation profession globally by providing educational opportunities, promoting consistent professional ethics and standards, facilitating the exchange of information and ideas, and encouraging international cooperation and communication.

Current members of the IIBV include the American Society of Appraisers, the Canadian Institute of Chartered Business Valuators, the China Appraisal Society, and the Saudi Authority for Accredited Valuers (TAQEEM).

For more information, visit www.iibv.org or contact Michael Badham, IIBV executive director, at michaelbadham@iibv.org.

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IVSC and TAF will bridge gaps in standards

The International Valuation Standards Council and The Appraisal Foundation are working to harmonise any remaining differences between the IVSC's International Valuation Standards (IVSs) and TAF's Uniform Standards of Professional Appraisal Practice (USPAP).

‘Bridge document’: The two groups recently met to establish joint objectives and a long-term plan to collaborate and execute upon a memorandum of understanding (MoU) signed in October 2014. This will be accomplished, in part, through a document that will act to bridge the two sets of standards. Appraisers using this "bridge document" will be able to develop appraisals that are compliant with both the IVSs and USPAP, keeping the core principles intact.

"The MoU has reinvigorated our long-term relationship between the IVSC and TAF,” says Sir David Tweedie, chairman of the IVSC board of trustees. “We are now determined to capitalize on the wealth of expertise we have at our disposal in our common goal of establishing a globally accepted set of valuation standards. Bringing USPAP and the IVSs together is an extremely important step towards achieving this goal."

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Global control premium data

The median control premium across the globe ranges from zero in Hong Kong to 33.2% in England, according to data BVR recently studied from the FactSet Mergerstat/BVR Control Premium Study. BVR has released a valuable reference sheet that highlights the database’s global reach. The reference sheet lists control premium statistics by country, including both median control premiums and implied minority discounts. Click here to access the sheet as a free download.

With over 17 years of detailed transaction data, the FactSet Mergerstat/BVR Control Premium Study is a robust online tool that generates empirical support for quantifying control premiums, implied minority discounts, and public company valuation multiples. You can search over 9,800 transactions that contain up to 57 data points, including up to five valuation multiples for each transaction, as well as the control premium and implied minority discount. The majority of transactions in the database are mergers and acquisitions with 100% shares acquired.

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If CAPM is ‘absurd,’ why is it still so prominent?

In a candid interview, Pablo Fernandez (University of Navarra, Spain), the author of a recent paper, “CAPM: An Absurd Model,” was asked why the model—which has also been criticised by others over the years—still has a prominent place in business schools and in valuation practice. “I did a survey eight or nine years ago of professors and asked them why they were still teaching the CAPM and beta,” he recalls. “They gave me two main reasons. First, the CAPM fills seven class sessions, so, they asked me, ‘What do we otherwise do in those seven classes?’ The other answer is that the students like recipes, so they keep teaching it.”

A lot of inertia: Fernandez believes the affinity for using recipes is partly the reason valuation practitioners continue to use the capital asset pricing model. For consulting firms and regulators, there's also a lot of inertia and still enough of a mass of firms using it that you can justify its use by showing a list of all of those firms and people who still use it,” he says.

“From the point of view of consulting firms, the beta impresses clients and people who are not in finance because it gives a sense of something magical and difficult going on. Also, it's very easy to copy the last valuation your company or colleague did when you are doing a new one, so that can perpetuate it.”
Learn more from Fernandez in his interview in the July 2015 Business Valuation Australia (subscription required).

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Video event on benchmarking and supporting international cost of capital estimates

Learn what's new and how to use the 2015 International Valuation Handbook – Guide Cost of Capital together with the 2015 Valuation Handbook – Guide to Cost of Capital to benchmark, support, and augment your own international cost of capital estimates.

The 2015 International Valuation Handbook – Guide to Cost of Capital provides country-level risk premia, relative volatility factors, and equity risk premia, all used to estimate country-level cost of equity capital globally, for up to 188 countries, from the perspective of investors based in up to 56 different countries.

Join Jim Harrington and Carla Nunes of Duff & Phelps for this highly anticipated free webinar. Click here to register now. The recording of this event will also be available soon.

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We welcome your feedback and comments. Contact the editor, Sonia Nair, at editorau@bvresources.com.
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In this issue:

Making sense of fair value

IIBV new board of directors

Global BV standards

Global control premium data

CAPM 'absurd'

International cost of capital


 

 

 

 

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