We are pleased to present you with the second edition of our free bimonthly e-zine BVWire—Australia. We are committed to bringing you the latest news and insight from the business valuation profession.
In this issue we cover the highly anticipated Business Valuation and Forensic Accounting Conference 2014 with an interview from keynote speaker and PwC partner Richard Stewart. We also polled our editorial advisory board members on what lies ahead for the business valuation industry this year. Last but not least, we urge you to participate in our second reader survey to receive a discount off your Business Valuation Australia subscription.
Thank you for subscribing to our news service—the next e-zine will be in your Inbox on 1 September. Don’t hesitate to contact me with feedback. We look forward to hearing from you!
Sonia Nair, Editor
Inside scoop on Richard Stewart’s conference address
We are counting down the days to this October’s business valuation and forensic accounting conference in Sydney and have the inside scoop for you from one of the conference’s keynote speakers, Richard Stewart.
Anyone familiar with the history of business valuation in Australia knows that Stewart is an industry stalwart. The founding chair of the Business Valuation Special Interest Group of the Chartered Accountants Australia and New Zealand (formerly known as ICAA), Stewart has an abundance of experience in company and business valuations, corporate finance, and mergers and acquisitions.
In his conference presentation, Stewart will focus on the resource industry and outline the valuation techniques appropriate for use at each stage of the resource life cycle. He will also cover strategic issues that must be addressed in any resource industry valuation and offer insights into the risk and optionality issues that arise in early-stage and high-cost resource assets.
Stewart tells BVWire—Australia that he is focusing on the resources industry because it constitutes 50% of Australian exports, 25% of the stock market, and 10% of the economy—making it a sector worthy of discussion.
“The focus of the discussion is on the commercial issues around valuation in this area, rather than the mechanics, as many valuers are already well educated on those mechanics,” Stewart says.
To hear from Stewart and many other renowned business valuation leaders, register for the Chartered Accountants Australia and New Zealand Business Valuation and Forensic Accounting Conference 2014 here. Running for three days from 27 to 29 October, the conference will take place at Hilton Sydney.
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Capitalise on a wealth of information in repository of Damodaran data
A treasure trove of information on global statistics for valuation analysts is available from Professor Aswath Damodaran’s annually updated Data Page. The data include various measures of operations and leverage as well as pricing and risk—including equity risk premiums and country risk.
Local focus: Luckily for valuation analysts outside the U.S., Damodaran focused 80% of his efforts this year on data from other countries—including 4,456 firms in Australia, New Zealand, and Canada. Damodaran last updated these data in January this year.
He says in his blog: “This is a significant jump from the cursory efforts I made a decade ago when I started reporting global numbers. One reason that I have extended and deepened my analysis of global companies over time is to fill in the empty spots in my knowledge on listed companies in many of the smaller markets.”
Damodaran has added his estimates of firm-specific costs of capital and also converted leases to debt for all companies in the global database. The key measures—including debt ratios, margins, and returns on capital—are not adjusted for lease debt.
Damodaran uses a combination of Morningstar, Bloomberg, and Capital IQ data for all firms, with an overlay of his own modified industry categories.
Where it all started: The professor of finance at the Stern School of Business at New York University currently teaches corporate finance and equity valuation. He developed his finance blog from its humble beginnings as a single spreadsheet in 1992 to nearly 300 spreadsheets with more than 1,000 data items and data on nearly 41,000 companies in 131 markets.
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Five tips to improve the quality of business valuations
Drawing on his experience teaching two business valuation courses in Australia, U.S.-based business valuation expert Robert Morrison, MBA, ASA, shares five suggestions that may help improve the quality of business valuations performed:
- Define your valuation assignment. A proper assignment definition will have these basic elements: valuation date, subject interest, level of value, premise of value, intended uses, and intended users.
- Leave the purchased economic and industry “write-ups” for the appendix in your valuation report. What does it all mean and, more importantly, what does it have to do with the value of the subject company or interest?
- When using the market approach, adjust the observed multiples for differences between the subject company and the guideline companies in profitability, risk, and growth.
- Reconcile value indications derived from different valuation approaches; don’t average them.
- Know your expertise, but know your limitations better. Know when to call in the cavalry.
For more of an in-depth look at Morrison’s five suggestions and his further advice for business valuation analysts, subscribe to the full issue of the upcoming October Business Valuation Australia.
You can also register for the upcoming two-course business valuation training from the ASA and the IIBV this November and December here.
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BV leaders forecast the major areas of focus for 2014
We asked Business Valuation Australia’s editorial advisory board how the rest of 2014 appears to be shaping up in the business valuation arena.
Brendan Halligan, founder and principal of Halligan & Co., responds: “There’s the suggestion from some of the press in the last couple of weeks that investment banks are recruiting in anticipation that transactions will pick up—which will mean more purchase price allocation valuations.” He says he is not aware of any major changes in tax law, accounting standards, or the law relating to valuations.
However, he raised the matter of the Chartered Accountants Australia and New Zealand’s new accreditation for valuers, a big advance. The premier edition of the quarterly Business Valuation Australia, available here, covers the launch of the CA BV specialisation and accreditation process.
John-Henry Eversgerd, leader of the McGrathNicol forensic practice in Melbourne, shares Halligan’s sentiments that the new valuation accreditation is big news for 2014. He says other areas valuers should watch are knowledge sharing, technical consistency, irrational exuberance in the market, and, conversely, irrational pessimism in the market.
Our next BVWire—Australia will share valuable insights from the other BVA editorial advisory board members.
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You still have time to be heard in the BVA reader survey
Many of you have responded to our first reader survey question on whether you are already reflecting the potential company tax rate cut in your valuations, but we want more! If you haven’t had a chance to take the survey yet, click here to participate. To show our appreciation, we’ll also give you a discount off your Business Valuation Australia subscription.
Our second survey question is ready for your response: In the Australian valuation industry, many firms have made adjustments to the inputs of the traditional WACC calculation to reflect volatility following the GFC or unusually low government bond rates. Does your firm make any of these adjustments (e.g. to observed government bond yields, market risk premium, betas or specific risk premia)? Click here to participate.
BVWire—Australia will report on the outcomes of both surveys in an upcoming issue. Stay tuned!
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Wanted: Australia and New Zealand private deal data
Business Valuation Resources needs your help. We are building up our Pratt’s Stats private deal database for the Australasian market, and we need your assistance to collect financial and private-company sale details in Australia and New Zealand.
Business appraisers and business intermediaries alike depend heavily on Pratt’s Stats for reliable and vetted private-company sale transaction data. The database currently provides details on over 21,700 private-business sales from 57 countries, including Australia. The more data we can add, the more valuable the information is for our users.
If you have been involved in business transfers and have the details of those sales, please click here to learn more about submitting a deal and the benefits you will receive from your participation.
Who to contact: If you have any questions about the process, please email Business Valuation Resources’ financial researcher Zac Cartwright at firstname.lastname@example.org for assistance.
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