Posted: 21/05/2013
Valuations, particularly in contentious cases, are becoming increasingly scrutinised and challenged in the current market, delegates heard at a recent seminar hosted by KPMG in the Channel Islands.
The event, spear-headed by Head of Advisory, Ashley Paxton, illustrated why local businesses should be carefully considering valuation processes, to drive corporate strategy and maximise shareholder value.
“The importance of understanding valuations is key in mergers and acquisitions, but we are also seeing trends in the industry that indicate an increasing number of contentious cases. Getting it right is crucial if businesses are to avoid protracted and often expensive litigation or arbitration,” he said.
Gavin Niven, Senior Manager at KPMG in the Channel Islands discussed the context of valuations, their use and some typical methodologies.
“The key to successful valuations is recognising the inherent subjectivity of the processes. It can be an art, not an exact science, and there is a multitude of assumptions involved with no company, or scenario, ever the same.
“A key issue is that often the source data is not reliable or publicly available. All of these variables need to be factored in to reach an appropriate valuation range and while the mechanics are key, the qualitative factors can often be the most important. Valuations are opinions, not everyone will agree with the answers,” he said.
Senior Manager at KPMG in the Channel Islands, Mark Ashburn, used a number of real life case studies to illustrate the use of typical methodologies in the context of mergers and acquisitions, contentious legal situations and distressed scenarios.
“There are usually very different perspectives between the parties involved, particularly in contentious cases such as divorce settlements, shareholder disputes and exiting joint ventures.
“The assets involved aren't always tangible and could include, for example, intellectual property. With all of these variables, we are seeing more focus on sensitivity analysis. Buyers want to know how changing one variable will affect value and there is a big focus on due diligence for both vendor and buyer,” said Mr Ashburn.
The seminar emphasised the importance of using professional advisers to understand valuations and their key drivers.
“It's vital to understand that clients are much more sophisticated in the current market, usually advised by professionals, and so preparation and thorough due diligence is absolutely key,” said Mr Paxton.