BVR Logo 19 April 2022 | Issue 37-2

BVWire—UK is a free service from BVR focusing on the business valuation profession in the United Kingdom. We offer news and perspectives from valuation thought leaders, the High Courts, HMRC, the standard-setters, ICAEW, RICS, IVSC, and more.

Please be in touch with your perspectives, news, and ideas—and pass this issue along to colleagues (complimentary sign-up instructions are here).

Deal volume slowed down last month, but big transactions continue

The April issue of the FactSet Mergerstat Monthly Review is now available. Highlights of the report include:

  • Global M&A activity declined 5.6%;
  • Nineteen of the 21 tracked sectors saw declines in M&A activity over the past three months compared to the same three months one year prior;
  • The two sectors that saw increases were industrial services and transportation;
  • Topping the list of the largest deals announced in March were:
    • Berkshire Hathaway Inc. agreeing to acquire Alleghany Corp. for $11.5 billion; and
    • Thoma Bravo LP's deal to acquire Anaplan Inc. for $9.9 billion.

The FactSet Mergerstat Monthly Review is included with the purchase of the annual FactSet Mergerstat Review publication.

Change in leadership at IVSC Financial Instruments Board

KPMG Canada partner Thomas Lee will take over as chair of the Financial Instruments Board of the International Valuation Standards Council (IVSC), taking the reins from Gavin Francis (HSBC Holdings PLC), who steps down after three years in the role; Lee has over 20 years of experience in public practice and leads the KPMG Valuation Services’ Financial Instruments team. “I believe in the importance of IVS 500 and the role that it will play in the IVSC’s pursuit of high-quality international valuation standards and I am honoured by the opportunity to lead this part of the objective,” Lee said.

6 April marked the start of no-fault divorce (and business valuations) in the UK

Divorces filed prior to 31 March remain subject to the Matrimonial Causes Act of 1973, but, as highlighted in BVWire—UK previously, as of 6 April, the Divorce, Dissolution and Separation Act 2020 went into effect. No longer will those seeking a divorce need to attribute their separation to adultery, unreasonable behaviour, desertion, two years’ separation under consent, or five years’ separation.

Many experts have spoken out against the manipulations of the previous statute not only on both the parties, but also on the court system and frequently on financial experts hired to sort through contested assets. Still, it had been delayed seven years from its initial introduction by the government.

The changes apply equally to the dissolution of civil partnerships, which eliminates some particularly outdated aspects with regard to same-sex marriages and a reliance on routine definitions of “unreasonable behavior.”

Instead, the new act enables applications to the court for an order that dissolves the marriage on the sole ground that it has broken down irretrievably. The new act also includes a 26-week cooling-off period, including a conditional order and a final divorce order.

Recriminations aside, the valuation work financial remedies remain unchanged, and a legal order in those proceedings will still become effective on receipt of the final divorce order.

A new free model helps business valuers expand their DCF analyses

“DCF is much more than simply an explicit forecast plus terminal value,” argue the authors at The Footnotes Analyst in their most recent article. And, in “Analytical Insights From DCF Value Analysis,” they include a free model valuers can use to take their “DCF calculation a step further and analyse the resulting value into four components.”

Their objective is to show that “there is more to DCF than simply an explicit forecast and a terminal value and that, by analysing value in this alternative way, additional insights can be obtained.” Their model derives a DCF enterprise value based on post-tax operating profit, or net operating profit after tax (NOPAT). This aligns with income approach best practices in the valuation profession, though earnings and PE ratio analyses are still common.

The authors remind financial experts that both exceptional income and expenses must be normalised and that NOPAT is often artificially depressed if large intangible asset investments are not capitalised.

As always, the authors include an explanation of the model and the underlying math in Interactive Model: Target Enterprise Value Multiples.”

Their four components of value each represent the value contribution from different periods. The four components are:

  1. Current operating value;
  2. Short-term growth value;
  3. Medium-term investment value; and
  4. Long-term franchise value.
Houlihan Lokey updates its PPA study

Analysts at Houlihan Lokey have released their 2019 and 2020 Purchase Price Allocation Study, which examines key data points of purchase price allocations (PPAs) recorded by U.S. public registrants. Among the findings:

  • The median allocation of purchase consideration (PC) to intangible assets in 2020 was 34% (unchanged from 2019);
  • The median allocation of PC to goodwill in 2020 was 47% (also unchanged from 2019); and
  • Healthcare was the only industry with intangible assets and goodwill percentages above the mean and median in 2019 and 2020.

The study reviewed public filings, of which 560 transactions formed the basis of the 2019 study and 475 transactions formed the basis of the 2020 study. The study also provides statistics, other annual data, and a comparison to certain results from its 2018 study. To download a complimentary copy, click here.

Extra: A PPA case study was recently presented during a BVR webinar by Nene Gianfala (Chaffe & Associates). Click here for a recording (free to holders of BVR’s Training Passport Pro).

Dates for your diary

27-28 April: RICS UK Valuation Conference 2022, virtual

15 June: Society of Shares & Business Valuers’ Minority Interest Discounts With Sandra Mossios,
London, 5:30 p.m.-7 p.m.

21-29 June: ICAEW Practical Business Valuation, virtual classroom

9 July: Society of Shares & Business Valuers’ The Absence of Size Effect With Clifford Ang, London and virtual, 5:30 p.m.-7 p.m.

13-15 September: IVSC Annual General Meeting, Fort Lauderdale, Fla.

3-5 October: 12th Annual International Valuation Conference, Riyadh, Saudi Arabia

19 October: Society of Shares & Business Valuers How to Lose at the Tax Tribunal With David Bowes, London and virtual, 5:30 p.m.-7 p.m.

7 December: Society of Shares & Business Valuers’ Causation and Financial Losses: Factors to Consider With Prem Lobo, London and virtual, 5:30 p.m.-7 p.m.

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David Foster at

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