IVSC expected to start the revamping process
At the October meeting of the International Valuation Standards Council (IVSC) in Paris, the organisation will likely adopt many of the recommendations of a special review group to restructure the IVSC, according to Steven J. Sherman, chairman of the IVSC standards board. Sherman gave an update at the meeting of The Appraisal Foundation in Washington, D.C., last week.
Reform needed: Last year, the IVSC commissioned an independent review group to assess the organisation to ensure that it is equipped for the next phase of its development. The group focused on the governance, financial stability, processes, and output of the IVSC. In a review report, the group recognised the need for international valuation standards and that the IVSC is the most appropriate organisation to develop them. However, the group concluded that “reform of the IVSC is needed if it is to fulfill its potential.”
The group makes specific recommendations, including taking steps to improve the organisation’s financial long-term viability and its profile among key stakeholders. Also, the group urges the IVSC to review its staffing model and resources as well as establish a clearer definition of purpose and vision.
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‘Redefining Value’ for Australian business
Sustainable Business Australia (SBA) and the Australian Centre for Corporate Social Responsibility (ACCSR) are introducing a new corporate reporting program, “Redefining Value,” to the Australian business community. The program is from the World Business Council for Sustainable Development (WBCSD).
In a press release, SBA says, “The Redefining Value program was established as part of WBCSD’s 2020 Vision to integrate natural and social capital measurement and valuation into corporate performance management and decision-making.” The goal of the program, they say, is to improve the effectiveness of nonfinancial internal and external reporting so that it progressively reflects the true value, profits, and costs of a company.
“The Redefining Value work stream aims to ‘change the rules of the game’ by bringing natural and social capital considerations into balance with financial capital considerations and educating the managers of financial capital on the sustainability issues implicit in their business decisions,” says SBA CEO Andrew Peterson.
ACCSR’s managing director, Dr. Leeora Black, adds, “We aim to shed light on effective reporting practices in Australia and how they contribute value to organisations and their stakeholders. We are particularly pleased that this work stream enables us to bring together several of our core competencies—social capital measurement, sustainability reporting, and capacity building—honed in over hundreds of projects with organisations across all sectors over the last decade,” she said.
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China’s SOE reform is an opportunity for business valuers
China’s central government is going through a new round of reforms related to state-owned enterprises (SOEs). With a goal to diversify ownership structure for SOEs, this round of reforms will likely spur a high volume of mergers and acquisitions, in addition to asset transfers. As reported in a Global Times article, “the new reform process could bring lots of business for the valuation profession, which will, in turn, contribute to the establishment of an efficient pricing mechanism for asset transfers so that the loss of State assets can be prevented.”
The article also reports other areas of opportunity, including an increased need for valuer involvement in financial reporting, accountancy, and China’s overseas investments, among others.
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Brand values of global retail pharmacies
Healthcare is a growing sector and is generating a lot of interest in the valuation profession because of the number of M&A deals and high levels of profitability and valuation multiples. This month’s brand value snapshot from Markables presents trademark comparable data for retail pharmacies. In a benchmarking study, the brand valuations of 14 retail pharmacy brands between 2002 and 2014 in six different countries were analysed. Firms in this industry typically operate a chain of pharmacy stores. Canadian Shoppers Drug Mart is the largest business in the sample of data. The sample does not include online pharmacies, specialty pharmacies, or chemist’s stores.
Healthy metrics: The interquartile range analysis shows a median trademark royalty rate on revenues of nearly 1.4% and a median trademark value of 9% of enterprise value, for mean sales multiples of 0.7x revenues and higher (see the table below). Six of the 14 cases have finite useful lives with an average of 11 years. Grocery store chains compare closely to retail pharmacies in certain aspects, such as location, proximity, range of products, and, sometimes, even shared premises. But it is no surprise that retail pharmacy brands show higher brand value multiples than grocery stores—although not by much (0.8% royalty rate, 7% of enterprise value).
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New edition of guide to benchmarking RULs of intangibles
The second edition of BVR’s Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations contains more new data and analysis than the previous edition. The report’s data were extracted from over 6,000 purchase price allocations that are vetted, carefully analysed, and specifically focused on useful lives of intangible assets. It includes a review of intangible-asset categories complete with detailed descriptions of valuation approaches and checklists of factors to consider. The statistics are presented by type of intangible and are also categorized by industry. “This is the first time I have seen this kind of tabular data on the lives of intangible assets. This publication can be used anywhere in the world for purchase price allocations or related valuation issues,” says William Hanlin Jr. (IACVA).
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Research examines differences in global BV theory and methodology
The CICBV recently posted a research paper that examines the global differences in business valuation theory and methodology. The paper, “Around the World in Eighty Valuations,” written by Prem M. Lobo and Matt Bottomley, finds that, “on balance, there are geo-professional differences in the approach to and the application of business valuation theory and methodology around the world.” The authors note that there are a number of differences with respect to valuation reports, including the level of detail used, the degree of disclosure of key assumptions and scope limitations, whether conclusions are arrived at by averaging different methods or using one method, among others.
Independence issues: The authors say they are “concerned” that they found that arbitrators have a “generally skeptical view” of valuation experts and their reports. “This is certainly not a view that the valuation profession should allow to linger,” they write. The authors recommend that additional standards addressing ethics and independence would help.
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Royalty rate data now available for 25 industries around the globe
Intellectual property currently represents about 80% of corporate value worldwide. With no precedent of real-world data, valuers have been faced with challenging IP valuation scenarios. BVR and ktMINE recently released BVR/ktMINE Royalty Rate Benchmarking Guide, 2015 Global Edition, which contains complete analysis of royalty rate trends in over 25 industries to help valuers quickly benchmark and value IP. Data include median royalty rates, royalty rate trends by industry, agreement type analysis, and geographic analysis.
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New issue of Business Valuation Australia available
Here’s what you’ll see:
- More M&A Activity Anticipated, Though S&P/ASX200 Index to Drop, Survey Predicts. A detailed analysis of the seven findings from KPMG’s survey of Australian valuation practices.
- Impact of the Current Environment on the Risk-Free Rate as an Input to the Capital Asset Pricing Model (Fiona Hansen). Analyses the impact of today’s economic and market environment on risk-free rates as an input to the capital asset pricing model.
- BVU Profile: An Expatriate’s Perspective on Australian BV. An interview with John-Henry Eversgerd, a valuator who trained and worked in the U.S. before moving to Australia seven years ago.
- The Misuse of Bid Premium Data to Determine Minority Discounts (Andrew Strickland and Robert Dohmeyer). The concepts surrounding the use of bid premium data in valuing private companies are like “guests who have outstayed their welcome.” The authors explain how the data have historically been misused.
- IIBV Forms Task Force on Global Designation. The IIBV is determining its role in a global business valuation designation.
- Why Valuation Experts Should Not Use the Term ‘Nonmarketable’ (Ronald D. Rudich). The author puts forth a new paradigm describing levels of value that moves away from the use of a negative term when informing clients of the value of their control or minority interest.
To read these articles, see the Q4 2015 issue of Business Valuation Australia (subscription required).
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