BVR Logo 21 May 2019 | Issue 2-2

Thank you for being a subscriber to the BVWire—UK! This free service covers the business valuation profession in the United Kingdom and its expanding role in regulatory, fiscal, contentious, and compliance valuations. Twice a month, BVWire—UK delivers news and perspectives from valuation thought leaders, expert practitioners, academics, the High Courts, HMRC, the standard-setters, and more. We’ll also keep you current on new business valuation research, methodologies, data tools, and training opportunities from ICAEW, RICS, BVR, and others.  

Please be in touch with your perspectives, news, and ideas—and feel free to pass this issue along to any colleagues (complimentary sign-up instructions are here). Thank you for reading!




 

What is acquiring control worth in the UK?

Quite a bit, it turns out—30%. Current data (including Q1 2019 updates) from the FactSet Mergerstat/ BVR Control Premium Study (CPS) show that UK buyers value the future benefits of controlling interests higher than nearly anywhere else in the world (the graph below compares acquisition premiums and the related implied minority discounts from the leading economies). The premium is measured as the percent difference between the target’s prior trading price and the per-share takeover price in the acquisition. The implied minority discount is the inverse of this—it is the percentage difference between the per-share takeover price in the acquisition compared with the target’s prior trading price. Business valuers use these premia to benchmark the value of private assets where control changes hands.


(Click on image to view full size)

CPS contains nearly 12,000 public company transactions from companies traded on every major world exchange and details up to 57 data points and up to five valuation multiples for each transaction. Most transactions are mergers and acquisitions with 100% shares acquired and include controlling takeovers and buyouts.

 

Where do you find EV/EBITDA multiples for your business valuations? Let BVWire—UK know

One source, of course, is the BDO Private Company Price Index (PCPI). Q1 results for the PCPI were just released and are available now from BDO. The results suggest that PE valuations were staying strong while trade multiples dropped compared to the prior year. Roger Buckley, the BDO partner (Birmingham) who manages the PCPI, comments on the ‘very creditable performance’ despite the environment—indeed, since BDO’s average EV/EBITDA multiples came out to 9.8x for trade buyers and 12.0x for PE—and that’s against historic EBITDA. Many UK valuation professionals struggle to use these PCPI investment multiples in their fiscal or contentious work. BVWire—UK offers a two-question survey on this topic:  What sources do you use for valuation multiples in your business valuations? Please take a minute to add your thoughts, and we’ll report on the results in our next fortnightly issue. 

Hayler proposes pretax 'shorthand' for some financial reporting valuations

Richard Hayler (Deloitte), fellow of the ICAEW, offers a ‘formula for finite life project cashflows’ that modifies earlier models to achieve ‘a more realistic assumption set.’ 'Post- to Pre-Tax Discount Rates: Not a Simple Conversion,' published last month in Journal of Business Valuation and Economic Loss Analysis, recognises that value assessments are generally made post-tax, but comments that ‘from time to time, analysts could sometimes benefit from a "shorthand" to ascertain and apply a pre-tax discount rate to discount pre-tax cashflows.’ These situations might include regulatory returns or impairment testing of business units. 

European real estate valuers continue the process of creating new EU business valuation standards

UK business valuers who are already members of (or well familiar with) RICS, might get a sense of deja vu from the news that The European Group of Valuation Associations (TEGoVA) held the first meeting of the business valuation standards committee in Dubrovnik last week. TEGoVa chairman Krzysztof Grzesik, FRICS REV, notes that ‘[f]ifteen of our EU-member valuation associations already offer business valuation specialisations.’ So the group has begun the process to ‘understand a gap analysis of the two fields of valuation, enabling real property experts to bring the knowledge and skills gap’ to BV. This task has challenged many other groups—and already the newest European entrant to the BV standards game is struggling with definitions of ‘highest and best use’ and ‘hope value’ and how those concepts can be applied to business ‘market value.’ Grzesik reports that TEGoVA hopes to release their business valuation standards in March 2020, with new EU-specific training for real property experts beginning in 2021. ‘We want to provide extra education so our members can diversify their practices as the market changes,’ he says.

Increased valuation work predicted as result of new restructuring regime

‘In both the UK and the EU there will soon be substantial changes to current insolvency legislation,’ says Marianne Tissier (Valuology) in a recent blog post. She anticipates that, just as with the U.S. Chapter 11 regime, ‘arguments around valuation will play a much greater role in restructuring cases in the UK and EU than to date.’ The Conservative Party’s pledge around the 2015 elections, as well as the collapse of some ‘high-profile corporate collapses,’ is driving the change towards plans based on valuation analyses.

New IVS business valuation guidance on nonfinancial liabilities on schedule for next month

‘Nonfinancial liabilities is one area where very little if anything has been published by any other valuation body,’ says Andreas Ohl, chair of the IVSC Business Valuation Board. ‘It’s not just a gap in our standards; it’s frankly a gap in the profession overall.’ His committee is in the final stages of adjusting their exposure draft for IVS based on many comment letters received. Ohl reports that the major theme in the comments was about scope: ‘What is included in the scope and what isn’t? As a board we had spent a fair amount of time prior to drafting the exposure draft looking at the issue of scope and it seems we may need to do a little bit more work to get it clear.’ The IVSC anticipates that the new guidance will be available by the end of June.

BV movers ...

People: Richard Hayler (FCA) has joined Deloitte Southeast Asia as the Lead Partner for Disputes specialising in valuation, financial and accounting issues. He was previously with FTI Singapore and continues as a member of the IVSC Standards Review Board … The FRC has announced the appointment of Richard Lawrence to the Audit & Assurance Council, effective from 1 April 2019. Lawrence is a fellow of the Institute of Chartered Accountants in England and Wales, having qualified with PricewaterhouseCoopers. He is currently the head of accounting and valuation policy at The Royal Bank of Scotland Group (RBS), a role he assumed in 2017. He has held a number of senior finance roles within RBS, and before that ABN AMRO NV, going back to 2003. He also sits on a number of industry-focused committees at UK Finance and the ICAEW.

Firms: Saffery Campness promoted eight new partners last month, bringing their total to 85 across their nine offices. The partners specialise in a number of areas, but Simon Hall (Peterborough) works with a variety of commercial clients, including privately owned businesses, international groups, professional partnerships, and not-for-profit organisations, and advises on audit, accounting, and tax matters. His experience includes restructuring, business planning, forecasting, international, acquisitions and disposals and business valuations. He is a chartered certified accountant and chartered tax adviser … London’s Kingston Smith left Morison KSi to join Moore Stephens International (MSI), the global accountancy network of more than 260 firms in 112 countries. Kingston Smith managing partner Maureen Penfold describes the move as a ‘natural next step’ for the firm clients and 550 staff members.

BVWire—UK welcomes your business valuation news. Please send us your news at UKeditor@bvresources.com.

Interested in working with BVR in the UK as a partner or ambassador?
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Please contact David Foster (Executive Editor) at:
ukeditor@bvresources.com or +011-917-741-3853


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