Takeaways from the 2016 CAANZ business valuation confab
“One might think it would be tough to make technical valuation issues exciting. But Chartered Accountants Australia and New Zealand (CAANZ) has done it,” says John-Henry Eversgerd, chair of the Business Valuation Australia advisory board. Eversgerd reports on the three-day CAANZ Business Valuation and Forensic Accounting conference for BVWire—Australia.
"The vibe at the conference included both excitement and enthusiasm as the conference unfolded,” says Jan Jackson (CAANZ). “Feedback received was very encouraging and rewarding for the conference organisers, which included both staff and members. This will form the basis of our planning for the next conference.”
Day 1 of the conference began with a presentation from Robert Reilly, whose books on intellectual property valuation adorn many valuers’ shelves. “Reilly was insightful and relevant,” says Eversgerd. “My main takeaway from his opening talk was that, regardless of your country (Reilly is a U.S. appraiser), many service providers offer valuation services, but not all adhere to high standards.” Professional standards help distinguish between differences in quality. One of the strategies in Reilly’s successful career was to turn down numerous low-fee valuation engagements since he didn’t want to compromise the quality and level of analysis he wanted to perform.
In his session, Richard Stuart (PricewaterhouseCoopers) discussed how to value Uber. Well, not exactly, but he explained the valuation methods used by venture capitalists and other early sources of funding to value startups. The passion he showed about his presentation topic, “[t]he riskiest work you’ll do as a valuer,” led Eversgerd to believe he was also describing the most exciting work.
Ishwar Madhyastha (Ernst & Young) provided a wide range of interesting statistics in his presentation covering private equity firm valuation methodologies, infrastructure valuation insights, independent expert report trends, and overall valuation multiple trends in Australia’s key industries.
Big data is one of the most discussed business topics in the last few years. Nigel Butler (CoreLogic) covered the pros and cons of using data analytics for residential property valuations. “We are not quite ready for robot valuations, but a human with a ton of data can provide some fascinating insights,” Eversgerd observed from the presentation.
Employee share scheme valuations are quant-heavy. Jason Murphy (Pitcher Partners) put it into plain English. He also provided some rules of thumb to sense check your analysis.
A panel of valuation experts including Manda Trautwein (William Buck), Adele Thomas (KPMG), Brendan Halligan (Halligan & Co), and Ishwar Madhyastha had a vigorous discussion of issues including minority discounts, size premiums, the impact of the terms in shareholder agreements, and KPMG’s valuation practices survey. Maybe not surprisingly, among the four valuation experts, there seemed to be six opinions for some of the issues, Eversgerd relays. He also offered the perspective that performing valuations for family law has its own idiosyncrasies that have evolved in case law. The premise of value with regard to whose perspective of value is quite different than what is commonly assumed for other types of valuations.
Phillip Greenwood, SC, offered candid lessons from the courtroom from a barrister’s perspective. One of his recommendations was not to be afraid to respectfully engage the judge more directly when answering questions on the stand.
Matthew Hassan, senior economist at Westpac, gave an informative overview of the positives and negatives he sees in the economy.
The day concluded with fascinating and sometimes hilarious observations on Australian society and demographics by Bernard Salt (PwC). He pointed out that the highest ratio of eligible men to women (1.88 to 1) in Australia is in Roxby Downs. The highest ratio of eligible women to men (1.63 to 1) is in Mullumbimby, causing Salt to rename the two thousand kilometres of the Barrier Highway connecting them the “Highway of Love."
Michael Fenech, chair of CAANZ National Business Valuation Committee, summed up the conference by saying that “[a]s a group of valuation professionals, our level of specialisation continues to grow. The depth of topics covered, the calibre of the presenters, and the richness of the discussion across the conference helped reinforce that sentiment to me. I am already looking forward to our next conference.”
Watch for more conference coverage in the October issue of Business Valuation Australia.
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Debunking the myth that business appraisers lowball brand values
“How does something as emotional and intangible as brands and someone as fact-based and conservative as an accountant fit together?” asks Christof Binder (MARKABLES) in a new article featured in the Business Valuation Australia. Not particularly well, according to marketers and brand valuation specialists. When they say “accountant,” however, what they’re really referring to are valuation professionals who happen to practice outside of the world of marketing.
Reasons for the mistrust. Binder relays that marketers mistrust and disqualify business valuation professionals when it comes to valuing brands for three major reasons. First, marketing leaders, including chief marketing officers (CMOs), want to stay in control of measuring and valuing their most important assets instead of leaving it to the finance and accounting folks. Second, specialized brand advisory and valuation firms want to market their own brand valuation services and grow their business rather than use a business valuation professional. Finally, marketers use flawed facts to argue that business valuation professionals can’t accurately capture brand value.
In all purchase price allocation (PPA) studies, 40% of the cases observed do not report a brand value, Binder says. In contrast, all cases sitting on brand rankings show a brand value. Furthermore, Binder suggests that enterprise value in PPAs is different from nontransactional enterprise value for the control premium paid. This premium accounts for an average 35% on top of the share price prior to the announcement of the transaction, he points out. Sample composition is a factor. Adjusting for these effects, brand values found by “accountants” are not lower, but most comparable, to those found by brand valuation specialists.
Accountants and business valuation professionals are neither more nor less conservative than brand consultants or marketers when it comes to brand valuation, Binder argues. There is no reason for accountants and business appraisers to stand in the shadow of specialized brand valuation firms. They have one important advantage over specialist brand valuators: They understand the value of all different assets of an enterprise, and not only that of brands, he says.
Find out more in the Quarter 3 Business Valuation Australia (subscription required).
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How to build a valuation practice using today’s tools and technology
When Mel Abraham and Rod Burkert started their valuation practices, one of the first things they realised was how hard it was to figure out how to build a valuation practice as solo practitioners.
Abraham needed to figure it out quickly, when the traditional CPA firm he worked for decided its place was traditional accounting and it didn’t have room for valuation.
“Effectively, I got pushed out the door, with no work, no backlog, no cash flow, and nothing to show for it. Here I was left with nothing, trying to figure out how the heck I was going to build a practice,” Abraham recounts. “Back in those days, we didn't have the tools and the technology and the things that we have at our disposal today to really start to move things forward.”
Burkert had decided he wanted to build a solo valuation practice, which meant only his wife assisted him as he built his practice.
The two co-founded the Practice Builder Academy, which is a 12-month mentoring program designed to build valuation practices.
“The idea here is that we have an incredible body of knowledge out there that teaches us how to do the work from a technical standpoint. There's an endless list of resources that we consult that will teach us how to do all or part of a valuation engagement, but what Mel and I found was that there was precious little content out there that taught us actually how to get the work,” Burkert says.
For Burkert, 90% of his leads are being generated via LinkedIn particularly because he is operating his practice as he travels around the United States, so he lacks a local business base to build his practice. As a result, he sees social media as a growing tool to use, including revisiting it if you’ve previously tried it without success.
Once marketing raises awareness of your services, the key is to have a sales conversion process in place to turn those leads into work—even when you don’t consider yourself to be a salesperson.
Extra: Look for specific marketing tactics to build a valuation practice coming up in the Quarter 4 issue of Business Valuation Australia (subscription required).
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Global BV news:
Pratt keynotes NACVA’s global conference in Toronto 26-28 September
Shannon Pratt (Shannon Pratt Valuations) will deliver a keynote address at NACVA’s International Business Valuation Conference that will focus on global valuation issues, standards, and trends. It will be held in Canada, where NACVA has a chapter, the Canadian Association of Credentialed Valuators and Analysts (CACVA). This conference is one of a series of regional specialty conferences presented by NACVA.
Another keynote address will be from Neil J. Beaton (Alvarez & Marsal): Nuances of International Valuation Procedures and Discovery. Other speakers and sessions include:
- Transfer Pricing and Valuing International Entities and Global Intangibles (Guy Sanschagrin);
- Current Update in Valuations (Garth Tebay), a full-day session;
- The Influence of U.S. Valuation Practices, Court Cases, and Professional Standards on Canadian Business Valuation (Richard Wise); and
- More, including valuing oil and gas interests, linking the market and income approaches, how to avoid overvaluation, intangibles, and cost of capital.
Discount code: BVR is pleased to sponsor this event and offers special discount codes to use when you register. The codes are: 16BVR (a $50 discount for a one-day specialty conference registration) and 16BVR2 (a $100 discount for a two-day specialty conference registration). Both codes expire Dec. 7, 2016. Please jot down the codes for when you go to register, which you can do if you click here.
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