BVR Logo 4 June 2019 | Issue 3-1

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Nelder discusses trends in fiscal business valuations for HMRC

As most British business valuators know, HMRC Shares and Assets Valuation (SAV) reviews (and sometimes questions) fiscal valuations. Staff at SAV have shrunk by about half over the years, but they still deal with many valuations (approximately 12,500 a year). The result for those preparing valuations for the Revenue? ‘This is all about risk assessment and you’re actually on the front foot, if you like,’ says Jenny Nelder (Bruce Sutherland & Co.).

‘What they need from valuators is something they can tic quite easily,’ she says. In fact, Barry Roland (HRMC) confirms the fact that HRMC is looking for speed and clarity, particularly in areas where they’ve been slow to settle filings in the past. He confirms their internal goal is to settle 80% of the valuations they receive within 15 days, and 90% within 40 days of receipt.

Nelder advises business valuers to ‘stick to multiples only’ when submitting fiscal valuations. Of course, there are exceptions, but her experience indicates that earnings forecasts and discounted cash flows can ‘cause the man at the Revenue to go blank. One said to me, “Do you think we could talk multiples?”,’ she told the ICAEW Spring BV Conference group last month.

Nelder notes a relatively rare—but problematic—price-versus-value challenge for fiscal valuations. It starts if clients have tried to sell the business or raise rounds of financing. ‘They’re going to come out with a price, not a value, which is the result of a negotiation designed to not dilute the existing shareholders and provide sufficient funds,’ Nelder explains. Buyers, either control or minority, understand the history and ‘why previous rounds of financing are at prices needed for fundraising, and not value.’

Nelder says she’s ‘hearing that there has been pushback from the Revenue that private funding values should stand, but I disagree. Those are pricings, and I slap a discount on them of 70% or more.’


Last chance to participate in BVWire—UK's survey of business multiples sources

BVWire—UK’s spot two-question survey on sources for valuation multiples in your business valuations will close in a few days. Please take a minute to add your perspective, and we’ll report on the results in our next fortnightly issue.

Valuators now have 90-day extension option
for HRMC employment income or share
scheme filings

Accountants and valuers file a significant number of extension requests for existing Enterprise Management Incentives (EMI) agreements. Until now, shares and asset valuation (SAVs) would grant an extension to filed values for a 60-day period, and an additional period of 30 days if requested, by the end of which a new valuation and submission was required. Beginning last month, HRMC withdrew the 30-day extension and now provides an agreement for the full 90-day period. After the 90-day period has expired, the full resubmission will still be required.

Filing for an extension for these valuations does not preclude challenges to the values submitted (particularly if the share valuation is nil, which HMRC has been increasingly challenging even when shares have no voting rights). EMI agreement letters specify that valuations have not been subject to a detailed review. So, for example, SAVs may revisit an EMI valuation if it is felt that the information provided was misleading or a misrepresentation of the facts.

Acuris/Mergermarket sells to Ireland's ION

The British private equity firm BC Partners is selling its majority stake in the financial data firm Acuris, which owns Mergermarket and Debtwire, to the ION Investment Group (Dublin). It’s a great exit for BC Partners, which acquired it, with support from the Singapore sovereign wealth fund (GIC), from Pearson in 2013. Reuters estimates the current value at 15x EBITDA, or over £1 billion.

Reuters further reported that both Moody’s and Fitch (not to mention the News Corp) were involved in the bidding initially. Both the consideration and the earnings multiple reflect the fact that ‘fintech’ is popular with acquiring firms, and ION has been one of the most aggressive internationally in this segment for many years.

Many BVWire—UK readers use, or have used, Mergermarket over the years. While the prime focus is traders, investment banks, and fund managers, it’s also been a respected source for multiples and earnings data for financial reporting valuations and compliance.

Do acquisition earnouts increase business value?

It’s not uncommon that business valuation analysts need to consider the contingent value and costs of earnouts paid to the management of acquired companies. Monte Carlo or other option-modelling techniques are often applied for financial reporting and compliance valuations. BVWire—UK notes a very thoughtful examination last year by professors at the University of Edinburgh (Jo Danbolt and Leonidas Barbopoulos), with independent author Dimitris Alexakis that tested the value of earnouts in global diversification. They created a dataset of UK, North American, and Australian cross-border acquisitions between 1992 and 2012—and discovered that earnouts fail to enhance value except in the case of reducing the risk ‘firms initiating international business operations’ face. Earnouts didn’t contribute in domestic acquisitions, nor did they help for multinational companies who were adding to existing global assets, the three researchers learned!

ICAEW Practical Business Valuation programme begins again next week

ICAEW offers its two-day valuation basics course again beginning 12 June in London (the second day is 24 June). The course is also offered starting 11 September and 11 November. Cost is £1,370, plus VAT.

This small-group workshop covers the application of market multiples, control premia and discounts for lack of marketability, forecasting, cost of capital, modified DCF models, and more. It’s a great opportunity for junior staff who need a grounding in current business valuation methods and applications. Register for ‘Practical Business Valuation’ here.

Dates for your business valuation diary

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Please contact David Foster (Executive Editor) at: or +011-917-741-3853

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