The government responded to proposed changes to audit rules last month, suggesting significant reductions to proposed changes in financial statement review—and requirements for nonfinancial audits as well. What remains will include additional environment, social, and governance (ESG) workload, yet few business valuers have found a convincing way to include ESG data or analyses into their work.

A Big Four panel discussion in New York recently agreed that there is no empirical evidence to support including the impact of ESG factors in the cost of capital “denominator” when completing a business valuation. New studies about the relationship between value and ESG (all with regard to listed enterprises) have come to inconsistent conclusions, and, since most ESG factors are already contemplated in risk analyses, the likelihood of overvaluing a small enterprise because of social or environmental improvements is high.

The panel (Josh Putnam (Ernst & Young LLP), Manish Choudhary (Deloitte), Martin Mazin (KPMG), and Adam Smith (PricewaterhouseCoopers), with Myron Marcinkowski (Kroll) as moderator) agreed on one thing: that ESG quality should be reflected in the “numerator,” or cash flows, and not elsewhere. “If you can’t measure the benefits in improved operating results, ESG should not impact value,” one attendee commented.

The discussion was part of the recent ASA New York Fair Value Conference. A full recap of the conference is in the September issue of Business Valuation Update.

Hayden Bailey, a partner at Boodle Hatfield, wrote recently that, if the UK wants to be seen as a thriving base for young entrepreneurs to grow value, tax reliefs must serve owners of businesses rather than investors in business. He says, “[T]here is a perception that the UK is an unbeatable hive for start-ups. The UK is getting there but it’s not quite there yet in terms of incentivising young entrepreneurs.”

In one regard, tax protection for founders and entrepreneurs who sell their businesses has decreased, in fact. In March 2020, the Entrepreneurs Relief programme, which reduced capital gains taxes from the sale of businesses to 10%, ended and was replaced by a less generous Business Asset Disposal Relief (BADR).

Bailey says the UK faces increasing challenges for small enterprises in the months ahead “and it’s clear that greater help is needed to encourage longer-term investment in growing a business.”

The restructuring plan (RP) procedure set out in Part 26A of the Companies Act 2006 has been widely considered to be out of the reach of SMEs due to excessive cost. So, the 22 July 2022 Houst Limited [2022] EWHC 1941 (Ch) decision, which involves a small property management enterprise, opens the doors for more Part 26A actions.

The “Interim Report on the Corporate Insolvency and Governance Act 2020” (published in March 2022) focused on the excessive costs (for valuations, two court hearings, and other filings) limiting its usefulness for SMEs. The Houst case illustrates that the court is open to being flexible as to the level of valuation evidence required from SMEs.

This new decision also impacts HMRC’s status as a secondary preferential creditor, since their claims were “crammed down” after the bank voted to approve the plan. Liabilities to customers, critical suppliers, and employees were excluded from the plan and paid in full.

New Section 901G of CA 2006 gives the court power to “cram down” a dissenting class when the court determines that the members of the dissenting class would be no worse off under the plan than if the relevant alternative (condition A) and that the plan has been approved by the requisite number of creditors voting in any class that would receive a payment, or have a genuine economic interest in the company, in the relevant alternative (condition B).

In this case, HMRC would likely receive 20 pence on the pound, according to the valuation analysis, which was greater than in the relevant alternative.

ICAEW’s annual Valuation Conference is virtual again this year and offers a full day of general and specialised business valuation content. The full-day session is £190.

Sessions include:

• Jenny Nelder on the last 10 years of business valuation;

• Common errors and best practices in the income approach with Andrew Strickland;

• Latest HMRC update;

• A review of the current use of CAPM in UK business valuations;

• Further discussion of the current size effect on small stock;

• An update from the IVSC’s director of technical standards; and

• A discussion on how inflation is impacting discount rates.

Kronenbourg, which had dropped off the list of the world’s most valuable beer brands, saw its brand value grow 40%, to $601 million, according to “Beers 50 2022,” an annual report from Brand Finance. The company launched new product and invested in other brand-enhancing campaigns last year.

Corona has retained the No. 1 spot on the list of the world’s most valuable beer brands. Corona’s value jumped 21%, to $7 billion. Not far behind Corona is Heineken in the No. 2 spot, with Budweiser, Bud Light, and Modelo Especial rounding out the top-five valuable brands.

Sydney-based PwC partner Richard Stewart has been appointed as the next chair of the IVSC’s Business Valuation Board (BVB). Richard joined the board as a member in March 2019 and takes over from Andreas Ohl, who steps down after a seven-year contribution to the IVSC’s standard-setting boards. Richard will also take over from Andreas as the BVB representative on the Standards Review Board, which oversees the IVSC’s standards agenda.

Stewart is familiar to many UK valuers, having spent much of his career at PwC in London. Currently, he’s also an adjunct professor in this area in the Business School of the University of Technology, Sydney, and a member of the Australian Valuation Standards Committee.

6 September: ICAEW Practical Business Valuation, four days, virtual classroom (repeated 1 December)

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

15-16 September: ICAEW Advanced Valuation Techniques, virtual classroom (repeated 2-3 November)

27 September: ICEAW Annual Business Valuation Conference, virtual, 9:15-17:15

28 September: Kroll Webinar on Cost of Capital in the Current Environment, online, 16:30

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, 17:30-19:00 BST

10 November: Prevailing in an Unpredictable Market: the 15th Annual Houlihan Lokey Alternative Asset Valuation Symposium, New York City

7 December: Society of Shares & Business Valuers’ Causation and Financial Losses: Factors to Consider With Prem Lobo, London and virtual, 17:30-19:00 BST

Want to share a news item? Have feedback or comments? Please contact
David Foster at ukeditor@bvresources.com.