BVWire Australia Issue #8-2 | 15 March 2015

 

ESOP changes spell growth for BV industry

The last two issues of BVWire—Australia (read here and here) have reported on the new business valuation opportunities on the horizon as a result of the government’s draft legislation to change how employee share option plans (ESOPs) are taxed.

Chris Galway (Ernst & Young) tells BVWire—Australia that companies will most certainly require the expertise of business valuers, even though the rules for business valuations themselves are not changing.

“Rules around valuing private companies/shares for the purpose of employee share plans are not changing. There is no obligation on companies to undertake a valuation,” Galway says.

“However, most private companies that we work with carry out some sort of valuation and, in many cases, get specialist valuation input to fine-tune how the share valuation is done,” he continues.

“In that way, the position they have taken is supportable (where a share value at grant is needed) if the ATO asks questions later (e.g., when an employee who has acquired shares includes a capital gain in their individual return when the shares are eventually sold).”

Galway says the situation becomes more complicated with startup businesses. “In the case of ‘start-ups,’ a valuation is more difficult as there may be little or no earnings or easily valued assets on which to base a traditional valuation. Hence, although there will still be no obligation for such companies to get a valuation done, it may be appropriate to get some expert advice on the approach they could take.”

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Demand is rising for SME valuations

In the January issue of Business Valuation Australia (subscription required), RSM Bird Cameron partner Andy Gilmour discusses the increased demand for valuations in the small and medium-sized enterprises (SME) sector as well as an increased awareness of what a competent business valuation should comprise.

In particular, Gilmour refers to the “competition chartered accountants face from business brokers in the areas of valuations for financiers and in the family law courts.”

Drawing upon his experience, Gilmour says the major sources for demand for valuations in the SME market are:

  • Banks/financiers;
  • Family law;
  • Other litigation/dispute resolution;
  • Taxation/reorganisation;
  • Acquisitions/disposals; and
  • Share schemes.

Gilmour explains, in depth, how SME valuations are sought in each area. Subscribe to Business Valuation Australia to find out how the trend for increased SME valuations is playing out in the market and to what extent.

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Lawyers as valuation clients present a unique challenge

What is it like to have a lawyer as a client? Sylvia Golden, Business Valuation Resources’ legal editor, spoke with both an attorney and a valuation expert about this and particularly about representing a lawyer who is going through a divorce. In an interview in the U.S. Family Lawyer Magazine, Golden spoke with Washington, D.C.-based prominent attorney Sanford K. Ain (Ain & Bank) and Rockville, Maryland.-based business valuator Stuart Rosenberg (Aronson LLC’s Forensic & Valuation Services Group) about divorce and valuation-related issues.

“Representing lawyers is challenging at times, but also easy in many respects,” says Ain. “Lawyers tend to be bright and inquisitive; if you educate them about divorce law, they can be very helpful in bringing their case to a successful conclusion. Education is the principle ingredient in representing lawyers: the more you educate them, the better client you have.”

Grave error: Ain also talked about when a valuator should be brought into a case. “Many lawyers do not hire experts until they’re well into the case: sometimes, so shortly before the trial that discovery has ended. That’s a grave error,” he says. “I often engage an expert at the initial meeting with the client. Once the client and I have decided to work together, I will frequently call an expert during the course of that meeting and engage them. That’s part of the education process in representing lawyers, but it’s important in representing any client.”

Says Rosenberg: “As far as controlling an attorney-client, I leave that completely up to their attorney—other than trying to convince a Type A personality attorney that their situation isn’t unique, that the judges have seen it before, we have seen it before, and the lawyers involved have seen the issues before. It might be overwhelming or unique to them because they’re emotionally involved, but it’s not unique to the experts, lawyers, and judges involved in the case.”

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Cost of capital workshop

Fundamentals and advanced concepts of cost of capital estimation will be addressed in a special four-hour Web-based program, Advanced Workshop on Cost of Capital, conducted by Roger Grabowski (Duff & Phelps) on 17 March. Some of the questions he will address include: Has the risk-free rate lost its meaning as a building block in cost of capital models? What is the current estimate of the equity risk premium? What are alternative risk measures? Grabowski will also refer to data contained in the Guide to Cost of Capital and Industry Cost of Capital literature.

If you cannot attend in person, please choose the training pack option, which includes the webinar recording, reading materials, and full transcript. Training packs are delivered via email three weeks after the event.

Important note to webinar attendees: To ensure that you receive your dial-in instructions to BVR’s training events, please make sure to whitelist bvreducation@bvresources.com.

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Outcome of BVWA survey

A few weeks ago, we asked readers what they would like to see BVWire—Australia cover in 2015. The most popular answers are:

  • Summaries of recent court cases where valuation issues have been debated;
  • Quarterly movements in valuation multiples for Australian companies; and
  • Overview of M&A activity for the last quarter.

Thank you so much for participating in our survey. We will respond to your suggestions in future issues. Please email us at editorau@bvresources.com with your questions and requests.

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Coming up in the April Business Valuation Australia

The next issue of Business Valuation Australia (BVA), our quarterly journal for Australian and New Zealand business valuation practitioners, is coming soon. With BVA, you keep up with the latest patterns and trends in business valuation, analysis of new methodologies, and regulatory and standards updates.

Highlights of our upcoming issue include:

  • Characteristics of a good business valuation report, by former AVO head Elena Saarbrucken;
  • “Valuer’s Q&A Corner”: Advice from PwC partner Richard Stewart on whether the distributor method can be used to value the primary assets of the business, what happens if there is no highly comparable market data, and what valuers can do with contributory asset charges, attrition, and life; and
  • Much more!

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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:

ESOP opportunity

Rising SME valuation demand

Lawyers as valuation clients

Cost of Capital workshop

BVWA survey outcome

April BVA


 

 

 

 

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