Business valuers who comply with the IVSC’s International Valuation Standards (IVS) will have a new update effective the end of the year. BVWire—UK has reviewed the relatively minor updates to IVS 200, the section specific to business and business interests valuation. Primarily, section 200 now clarifies the expected business valuation methods in companies with complex capital structures including forms of equity beyond common stock.

The new ‘complex capital structure’ paragraph 130.5 states:

[V]aluers may use any reasonable method to determine the value of equity or a particular class of equity. In such cases, typically the enterprise value of the business is determined and then that value is allocated between the various classes of debt and equity. Three methods that valuers could utilise in such instances are discussed in this section, including:

(a) current value method (CVM);

(b) option pricing method (OPM); and

(c) probability-weighted expected return method (PWERM).

In addition, the January 2020 update includes the new intangible asset standards chapter ‘IVS 220 Non-Financial Liabilities.’

BVWire—UK will provide updates and analysis regularly as the effective date of the new IVS approaches.

The new ‘ICC Handbook on Valuation of Intellectual Property Assets’ is the work of the ICC Task Force on Valuation and Monetisation of IP Assets, co-chaired by Dominika Boehm, strategy and business manager, Siemens UAE (previously senior IP counsel, Siemens Germany), and Paul Bevan, founder of Central Value Worldwide (Spain). ICC recognised that both investors and organizations are confronting business valuation issues more regularly ‘as part of financial reporting, taxation, mergers and acquisitions (M&A), research and development (R&D), and the sale or purchase of technology licensing.’ The new guide recognises basic cost, income, and market approaches for IP valuation—familiar territory for business valuers. It’s particularly useful, however, in addressing:

• The variables that may influence the value of IP assets—including the types of IP rights at stake, the larger valuation context, the purpose of the valuation, and the moment in time in which it takes place;

• The definitions of IP valuation adopted by relevant organisations, such as the World Intellectual Property Organisation (WIPO), the International Organization for Standardization (ISO), the Organisation for Economic Cooperation and Development (OECD), the International Accounting Standards Board (IASB) or the International Valuation Standards Council (IVSC), and, of course, the British Standards Institute (BSI);

• The evolving international regulatory environment, including the fair value standards from IFRS 13; and

• The importance of IP valuation in international taxation.

Jon Shelley, a deals partner in the Aberdeen office of PwC, writes optimistically that ‘indications suggest political, economic, and regulatory uncertainty will continue over the next year, though this is not expected to further dent the market given the availability of capital and pressure to make a return in spite of the scale and pace of change.’

Shelley adds: ‘Given the pressure for corporates to deliver growth together with the wall of capital that is out there looking for a return, we don’t think waiting is a viable option for many. So, despite the continued uncertainty we do expect transaction activity and pricing to be resilient at around the current levels, representing a really healthy and vibrant deals market involving Scotland’s businesses for the coming year.’

As elsewhere around the globe, Scotland’s private capital community has an increasing amount of capital, which is making the market hugely competitive and a genuine struggle to invest billions of pounds.

‘Funds are trying to win the favour of good businesses seeking investment by differentiating—meaning it is not accurate to cluster “private equity” together under one banner. From buyout funds to growth capital, hybrid capital, flexible capital, family or partnership funds, there are more than a dozen different investment propositions out there,’ Shelley says. The result is good for owners, who are likely to see more potential buyers or funders going forward.

Among other deal trends emerging over the past year, PwC has noted an increase in warranty and indemnity insurance and in the ‘locked box’ completion mechanism—whereby the purchase price is agreed and fixed at the date of signature of the transaction agreements based on a historical point in time.

Shelley adds: ‘Both these trends provide additional certainty for buyer and seller, and we aren’t surprised to see an increase given the uncertainty in the marketplace. It’s great to see innovation continue in our sector and we are now in fact seeing both these elements featured in more than half of mid-market deals.’

The Hong Kong Inland Revenue Department (IRD) has released Departmental Interpretation and Practice Notes (DIPNs) No. 58 with new transfer pricing filing examples for UK-based enterprises. Generally, the deadline for these filings is 12 months after the close of the annual accounting period. In addition, the new DIPN No. 59 clarifies how IRD interprets the arm’s-length principle and transfer pricing rules, and DIPN No. 60 discusses profit allocation principles for ‘permanent establishments’ in Hong Kong. Finally, DIPN No. 28’s provisions relating to foreign tax deductions were revised to align with new provisions from last year’s Inland Revenue (Amendment) (No. 6) Ordinance 2018.

ICAEW Practical Business Valuation, 11 and 25 September, and 11 and 25 November, London

IVSC Annual General Meeting and IVAS/IVSC Business Valuation Conference, 7-9 October, Singapore

ACG UK Chapter Trends in Alternative Capital, 15 October, London

ICAEW Annual Business Valuation Conference, 23 October, London

ICAS New April 2019 Corporate Insolvency Rules for Scotland Course, 31 October, Glasgow; 1 November, Aberdeen; 7 November, Edinburgh; 15 November, Perth

ICAEW Forensic and Expert Witness Conference, 7 November, London

UK200 Group Annual Conference, 13-15 November, Liverpool

Claire Reid, who began with PwC in Glasgow, has replaced Lindsay Gardiner as the Big Four firm’s regional lead partner for Scotland. PwC has nearly 1,000 employees in Scotland, with new offices in Edinburgh and Aberdeen. Mark Thompson has rejoined KPMG after 15 years at the Serious Fraud Office (SFO), most recently as COO during a period of increased investigations and public review. Thompson joins the firm’s Forensics division.

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