Conference offers advice on how to value a company following default
How does the business valuation process differ for companies following default? Craig Parker, senior director of corporate ratings at Standard & Poor’s rating services, says the type of valuation is often based on whether the company will be placed in liquidation or sold as a going concern.
Parker will offer business valuation practitioners his perspective on this unique type of valuation assignment in his presentation “Valuing a Company Following Default—A Credit Rating Agency’s Perspective” at the Chartered Accountants Australia and New Zealand’s Business Valuation and Forensic Accounting Conference at the Hilton Sydney Hotel.
Parker says he is focusing his presentation on valuing a company following default because debt investors look to analysis that goes beyond the probability of default to determining the expected loss from their loan to the company at the point of default. “I hope people will understand the process and that Standard & Poor’s believes it is important to determine the path to default and the expected recovery for creditors who have lent to defaulting companies.”
Parker’s talk will be on the first day of the conference, which runs from 27 through 29 October.
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Applying size premia
A survey of Australian valuation practices finds that a majority of practitioners outside of investment banks consider size premia in their valuations. Common reference sources include the Ibbotson risk premia reports and “in-house” estimates.
According to the 2013 KPMG Australian Valuation Practices Survey, 48% of respondents said they adjust the CAPM rate of return with a premium that reflects the extra risk of an investment in a small company, while 52% did not. Specifically, none of the participating investment banks considered a size premium when using the CAPM, but all of the professional services firms did.
Matthew Ashby, partner at Ferrier Hodgson, provides insight on the current state of size premia in Australia. In an article in the October issue of Business Valuation Australia (subscription required), Ashby says that determining an accurate weighted average cost of capital is always challenging, particularly where a size premium is required due to the lack of Australian size premia studies.
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Stewart forecasts major areas of focus for BV profession
In our ongoing series, we bring you insights into the future of the business valuation profession in Australia and New Zealand from Business Valuation Australia editorial advisory board members. Board member and PwC partner Richard Stewart shares his perspective on the top five trends in various aspects of the industry.
- Valuation-related litigation. Three drivers will increase litigation activity: (1) the difference in valuation-related litigation activity in the U.S. and Canada compared to Australia, which will likely converge over time; (2) the ATO becoming more active in questioning the valuations that underpin tax outcomes; and (3) ASIC (and activist investors) being much more vigilant about the manner in which impairment tests are conducted.
- Standards. Accounting bodies are adopting international valuation standards in major markets. This is likely to evolve into the Australian market.
- Accreditation. The Business Valuation Specialisation recently announced by ICAANZ together with the RICS Business Valuation Accreditation and Business Broker Valuation Certification will focus the market on the qualifications and experience of valuers in a much more systematic way than in the past.
- Australian studies. The above drivers will lead practitioners to develop Australian studies to replicate U.S.-based studies on value driver behaviours, marketability, size, control, and other discounts and premiums.
- Uncertainty and value. The emergence of rapid startup developments and the conditions in the mining industry will lead valuers to understand the impact of uncertainty on valuations in a much more nuanced way. For example, DCFs of many junior projects in the mining sector are underwater, but the juniors still have some (although much reduced) value. Valuers are increasingly challenged to address this phenomenon.
BVWire—Australia wants to know what you think are the most important issues facing the business valuation profession. Please email us your comments!
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Wanted: Readers’ thoughts on how to improve client offerings
BVWire—Australia is pleased to continue the conversation among business valuation practitioners about important and thought-provoking topics. Click here to participate in our latest industry survey to tell us what you think the business valuation profession in Australia needs the most to improve its offering to clients.
Have you completed our other surveys? This is your last chance before we report the results. To participate in our industry survey on the highly anticipated company tax rate cut, click here. For the second survey, about discount rate adjustments, click here.
Participation in these surveys gives you the opportunity for a discount on a Business Valuation Australia subscription. Remember, BVWire—Australia will report on the outcomes of all three surveys soon!
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Australia and New Zealand private
Business Valuation Resources is building its 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.
Both business appraisers and business intermediaries 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 add, the more valuable the information is for users.
If you have been involved in business transfers and have the details of those sales, please click here to learn more about submitting deal data and the benefits you will receive from your participation.
Who to contact: If you have any questions about our deal database and the process of submitting deal data, please email Business Valuation Resources’ financial researcher Zac Cartwright at firstname.lastname@example.org for assistance.
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