BVWire Australia Issue | 20 December 2016

BVA broadens international valuation coverage

Beginning 1 January 2017, the Business Valuation Australia (BVA) newsletter will merge with the Business Valuation Update (BVU) newsletter. BVU, the leader in U.S. business valuation news since 1995, is expanding its coverage to feature news, articles, and interviews from around the world. Our mission is to serve as the global voice of the business valuation profession. As such, readers will find all business valuation news in the BVU as well as in BVWire, the counterpart to this e-zine. This is the last issue of BVWire—Australia. In the future, you will receive BVWire each week.

According to John-Henry Eversgerd, chair of BVA’s editorial advisory board, “The merger makes a lot of sense since the valuation professional is international. With continued globalisation of many industries, valuers are increasingly asked to value businesses, assets and investments in multiple countries. Readers from around the world will now have one voice and can learn about the unique issues in each country. I’m pleased that BVR will provide that voice.”

Through BVU, local Australian and New Zealand contributors will continue to have a platform to inform valuation professionals around the world about the specific issues inherent in performing valuations in their markets, providing an opportunity to open the international dialogue and expand global connectivity in the profession. “BVU will provide local valuers the opportunity to build more personal relationships with professionals in other countries,” says Eversgerd. Please email us with your proposals for articles. Eversgerd will continue to play a key role in shaping international coverage in BVU.

The January issue of BVU includes articles of interest to readers across the globe. Some highlights include:

  • “30 Field-Tested Ideas to Bring in More BV Business,” BVR Editor;
  • “How to Better Validate the Reasons for Private-Company Discounts,” Anthony Carlton, Macquarie Applied Finance Centre (Sydney, Australia);
  • “The Use of Historical Information to Project But-For Profits,” Stacey Udell, Gold Gerstein Group LLC (Moorestown, N.J., U.S.A.);
  • “Main Lessons for Appraisers in the IPEV 2015 Valuation Guidelines,” Andrew Strickland, Scrutton Bland (Colchester, U.K.);
  • “Employee Equity Valuations: More Than Just a Black Box,” Jason Murphy Pitcher Partners (Melbourne, Australia); and
  • “Global News Perspective,” BVR Editor.

If you do not currently subscribe to BVA or BVU, please sign up here to make sure you don’t miss out on the most important information for the business valuation profession.

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News from the IVSC annual meetings

During the annual meetings of the International Valuation Standards Council (IVSC) in Bali, the International Institute of Business Valuers (iiBV) hosted a session Around the World in 80 Valuations. The session demonstrated the range of international business valuation issues and complexities, reports Michael Badham, executive director of iiBV.

Worldwide standards: Badham and Edwina Tam, a partner at Deloitte and chair of the iiBV, attended the IVSC meetings, which focused on the rollout of the IVSC’s 2017 Standards (IVS 2017) and the implementation of the IVSC’s organisational and strategic plans for the next two years. IVS 2017 is set to be issued in early 2017, and the IVSC will push for worldwide adoption. At the Standards Board meeting, Sir David Tweedie said, bluntly, that “valuation is not a profession. If valuers wish to become a profession, and continue with self-regulation, then VPOs must adopt IVS and enforce compliance—no exceptions.” The prepublication draft of IVS 2017 has been released and is available here.

For more of Badham’s coverage of the event, click here.

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Coffee: It’s all about the brand

Coffee is a perfect example of how branding can add value to a business. Despite being a commodity with little room for differentiation in a mature market, branded coffee businesses show strong profitability and enterprise value. This is due to branding and the resulting consumer preferences it triggers. In blind testing, consumers taste differences between bean or roast varieties, but such differences are virtually nonexistent between brands. In such cases, it is the brand that makes the difference, not the product itself.

Good to the last drop: In an analysis of 18 global coffee brands acquired between 2004 and 2015, average royalty rates for coffee trademarks were between 3.5% and 4%, according to data from MARKABLES (see chart below). The trademarks of coffee businesses account for 20% of enterprise value, ranging from 10% to 30%. The average sales multiple paid for coffee businesses is between 1.5x and 1.75x revenues. The peer group includes brands such as Folgers, Van Houtte, Douwe Egberts, Café Bustelo, Café Pinon, among others. Not bad for a product that is basically a commodity and for peers that are mostly second- or third-tier players. Valuation multiples for the market’s leading brands would be even higher, but they are rarely subject to acquisition.

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MARKABLES (Switzerland) has a database of over 8,200 global trademark valuations published in financial reporting documents of listed companies.

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Exclusive DLOM survey: Use of benchmark studies declines slightly

While restricted stock studies and pre-IPO studies remain the most cited methodologies for quantifying a discount for lack of marketability (DLOM), their usage has declined a little, according to final results of our DLOM survey. Over 100 respondents participated in the survey, and here are some highlights:

  • Three-quarters (76%) of respondents say they use restricted stock studies (RSS), down slightly from 79% in 2013—but sharply lower than the 90% usage rate reported in 2009; and
  • Reliance on pre-IPO studies is also down a bit, to 43% from 47% in 2013. In 2009, over half (52%) said they use this method.

Full results: A complimentary download of the survey results is available if you click here. The survey offered over 20 specific DLOM methods to choose from, and it distinguished between general restricted stock studies as well as restricted stock equivalent analyses (which 21% say they use) and the FMV Restricted Stock database (56% use it, up from 44% in 2013). As for some other methods, the usage of the quantitative marketability discount model (QMDM) declined from 18% in 2013 to 12% this year, and a third (34%) of respondents use Partnership Profiles (down from 44% in 2013).

The results don’t immediately signal any tidal shift in usage of methods, although we point out that the use of option price models has gained steam. The Finnerty model is used by 20% of respondents (up from 9% in 2013), and the Longstaff model saw similar gains (13% in 2016 versus 6% in 2013). The Chaffee model saw a slight increase, from 9% in 2013 to 10% this year.

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We welcome your feedback and comments. Contact the editor, Scott Kraft at editorau@bvresources.com.
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In this issue:

BVA merges with BVU

IVSC meetings

Coffee brands

Exclusive DLOM survey



 

 

 

 

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