BVR Logo 2 August 2022 | Issue 41-1

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).

2022: S&P Global Inc. report that the IPO market has temporarily moved elsewhere

S&P Capital IQ released their mid-2022 summary of major global capital investment activity Thursday last. IPOs, SPACS, reverse SPACs, and the other usual categories are included in the analysis.

These transactions are rarely helpful in business valuations (even for larger enterprises), but all market participants follow them as a proxy for general business conditions. As we all know, the first half of the year has shown dramatic drops in capital flow in all sectors compared to 2021.

S&P notes that the UK and US have largely dropped out of the IPO market. The largest global IPO in the first half was LG Energy, in South Korea. The UAE had three deals in the top 10, led by Dubai Electricity and Water Authority; China had two; and India, the US, and Indonesia had one. The UK did not have a top 10 IPO in the first half of the year.

Conservative Party contest led by accountant

The race to become Conservative Party Leader concludes on 5 September when the party members chose between ex-management accountant Liz Truss and Rishi Sunak.

Truss began her career at Shell in 1996 on their accountancy graduate scheme and qualified as a CIMA, before joining Cable & Wireless, where she rose to the economic director position. She then became the full-time deputy director of Reform in January 2008.

Sunak is the departing Chancellor of the Exchequer and past Chief Secretary of the Treasury, after stints at Oxford, Stanford, and, of course, Goldman Sachs.

Enhancements to DealStats, the leading business valuation market data platform, continue

BVR’s Market Data Team recently surveyed DealStats users, and their suggestions have prompted some enhancements. For example, users indicated that it would be important to know whether the buyer in a transaction financed the cash purchase price through an SBA or bank loan. Now, the DealStats platform includes the following searchable fields:

  • “SBA/Bank Loan Included” (whether an SBA or bank loan was included in the transaction);
  • “SBA/Bank Loan Amount” (if a loan was included in the transaction, you can now see the exact amount);
  • “SBA/Bank Loan % of Amount Down” (exactly how much of the cash paid to the seller was financed through an SBA or bank loan); and
  • “Bank Name—If Available” (the name of the bank that provided the SBA loan or other financing).

More enhancements are in the works based on the feedback from users. BVR thanks all of those who participated in the survey.

Which patent valuation methods are trusted the most?

A new paper, “Qualitative and Quantitative Patent Valuation Methods: A Systemic Literature Review,” appears in the June 2022 issue of the journal World Patent Information. Authors Nil Girgin Kalip, Yaman Omer Erzurumlu, and Nur Asena Gün conclude that lack of dependable data skew valuations:

The public trade market is minimal for patents and not global. Additionally, because of confidentiality, patent trades are not publicized. Whether a patent is protected or not, new technologies involve many risks and uncertainties. For this reason alone, the selection of an appropriate and mutually accepted patent valuation method gains importance.

The new paper investigates the underlying knowledge structure and the evolution of quantitative and qualitative patent valuation methods. The authors (all from Bahçeşehir University in Turkey) searched peer-reviewed journals that resulted in a review of 129 documents between 1981 and 2021.

Holiday pay practices may create new contingent liabilities for many SMEs

Business valuers working on future cash flows should take note of any casual and part-time employees after last week’s UK Supreme Court’s challenge to rolled-up holiday pay schemes. In Harper Trust v Brazel, the court confirmed that “part-year” workers are entitled to have their statutory leave and pay calculated in line with the relevant provisions in the Working Time Regulations 1998 (WTR) and not the prevailing practice of topping up wages by the 12.07% method.

These plans may be subject to group claims for additional compensation, though, in one analysis from lawyers at Squire Patton Boggs, the future compensation adjustments may be minimal.

FRC annual enforcement report highlights valuation matters in audit failures

The Financial Reporting Council (FRC) released its review of audit enforcement actions for the year ending 31 March 2022 last week. FRC opened 69 new enquiries in the preceding year and concluded 17, an overall drop in activity. Most of the new cases were referred from the FRC’s Audit Quality Review groups.

Not surprisingly, lack of independence around issues that require specialised business valuation expertise rise to the top. The FRC Annual Enforcement Review mentions the usual suspects, including:

  • Goodwill accounting;
  • Going-concern analyses;
  • Management forecast scrutiny;
  • Contingent liabilities and risk from loss-making activities; and
  • Judgements and objectivity when making accounting estimates during volatile periods.
Dates for your diary

9 August: OBLON Relationship Between Drug Label, Patent Claims and Infringement webinar, online, 16:00-17:00

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)

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

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

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