BVR Logo 15 November 2022 | Issue 44-2

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, SSBV, ICAEW, IVSC, and more.

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Recalibrate inflation and risk premium assumptions after OBR report Thursday

The Office for Budget Responsibility (OBR) will release their forecasts for debt sustainability and growth Thursday. Whatever they report will influence the strength of sterling and the perceived UK market risk premium. The forecasts should influence the decisions the UK government and other institutions take in the coming weeks and months.

The forecasts for UK inflation have fluctuated more than the value of the pound this year, compounding discounted cash flow analysis problems for business valuers. Only 60 days ago, concensus forecasts for 2023 UK inflation were in the 18% range. November delivered better news. The Bank of England (BoE) hiked interest rates 75 basis points two weeks ago. They now forecast that inflation will peak at 11% this quarter—and the UK CPI will begin to fall sharply (toward 1.4%) in 2023 and 2024.

Sadly, the BoE also predicts a decline of 1.9% for GDP in 2023 and a 0.1% decline for 2024. Given the strong $US, the pound is unlikely to make up much ground soon. As of November …

The ‘G’ in ESG only adds value when stakeholders have power

After five decades of research in corporate governance, my sense is that we have lost the forest for the trees,” writes Aswath Damodaran in his latest blog post on the disassociation of ESG regulation from market pricing and business value. This cycle, he argues, began with the Enron and Tyco scandals in the United States, where insider-dominated boards were negligent in their oversight responsibilities. The resultant Sarbanes-Oxley Act, and subsequent UK regulation, named corporate governance as one of its objectives.

That was 2002. “Twenty years later all that Sarbanes Oxley has accomplished is replacing ineffective insider-dominated boards with ineffective independent boards, while creating hundreds of pages of disclosure that no one reads and giving rise to scores that are close to useless in judging governance,” Damodaran continues. Most users of financial statements (including investors and business valuers) would have a hard time explaining how a 2022 annual report is any more helpful than the 2002 version.

“At about the same time, you saw the advent of services that used the disclosures that companies were required to make on governance to estimate corporate governance scores,” Damodaran continues. “We were told at the time that the combination of independent boards, increased disclosure and governance scores would create a revolution in corporate governance, where managers would act to advance shareholder interests. With the push towards diversity in board composition now taking precedence, this process is hurtling even more into irrelevance, with the only positive being that the ineffective boards of the future will meet all our diversity criteria.”

“I believe that for a true shift in corporate governance to happen, we have to reframe the meaning of good corporate governance, shifting away from a board-centered, check-box driven view,” Damodaran argues. This view only clouds the independence and reliability of financial data essential to the practise of business valuation. Instead, Damodaran envisions financial regulation that is centered on giving shareholders the power to change company management, if they choose to. “In fact, good corporate governance is like a good democracy, where shareholders (voters) get the power to change management (governments), when they believe that their interests are not being served,” he says.

Damodaran’s blog has over 23 million page views, ranking him as one of the most successful blog authors on the planet.

Which intangibles have the highest value?

Customer relations is the most important of all intangible assets, accounting for 25% of enterprise value, according to a new study from MARKABLES. Next in line are software and technology, at 18% of enterprise value each, and last comes trademarks, at 8%. “Looking at the development during the last 15 years, customer relations showed the highest growth, while trademarks suffered badly, from a once leading position to last place,” says the study. The analysis was compiled from the MARKABLES database of almost 40,000 intangible assets acquired and valued globally in mergers between 2005 and 2021. The analysis reveals size, composition, and value drivers of different intangible assets.

Dates for your diary

15 November: ICAEW Forensic and Expert Witness Conference 2022, virtual

15 November: Embracing the Hockey Stick: Alternative Approaches to Formulating and Assessing Projections featuring Michael Blake (Brady Ware & Co.), virtual

17 November: SSBV Hosts IVAC CEO Nick Talbot, London

1 December: ICAEW Practical Business Valuation, four days, virtual classroom

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

Want to share a news item? Have feedback or comments? Please contact
David Foster at

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