Stopping the war….in valuations

January 30, 2024

Prepared by a neutral third-party professional expert, the right valuation report will de-escalate tensions and can expedite closure.

So often we are asked to undertake valuations to settle a situation where the situation is or could get very angry.

I guess war in the context of valuations falls into two main camps.  One is when the other side is HMRC.

In this situation it is critical that the valuation is undertaken in line with HMRC guidelines.  A good starting point is always the Taxation of Chargeable Gains Act 1992 which looks at the difference in the valuation of assets (we also value assets that are outside a company by the way), between the date of purchase and the date of sale.

We are also mindful of the valuation rules around share option schemes.  Funnily enough the knotty issue of Actual Market Value vs Unrestricted Market Value was raised by valuers with the HMRC share valuations team last year at its meeting with the industry.  There’s another meeting later this year and I hope that HMRC will use the occasion to provide some more enlightenment on this issue.  What is safe to say is that to assume the difference between the two is always 10% does not wash.

HMRC has not yet challenged any of our valuation reports.  Our objective is always to provide a report that is so detailed and accurate that the costs HMRC would incur to challenge one, make it unprofitable or too risky for them to do so.

When it comes to disputes between shareholders (or indeed preventing future disputes), the solution is to produce a valuation which considers the interests of both sides from day one.  It’s also essential to evidence and justify every single fact, statement and comment, so that no wriggle room is left.

We engaged with a client last year who needed to buy out some minority shareholders.  Interestingly, having taken this approach in respect of that valuation, when the meeting with the minority shareholders took place, the only issue raised by them was whether the management team had provided accurate forecasts to us. The other side did not question our approach or the results it had returned.

Using accurate up to date comparables matters to all stakeholders involved.  This gives all parties comfort that the valuation is as correct as it can be. Of course, conditions change, sometimes quickly.  Although many people think private company valuations hardly shift day to day, in fact, just like quoted shares, values can peak and trough and peak again within a very short space of time.

Let’s take the example of a company that has raised capital say a year ago at quite a high valuation, but is now running short of cash and the next raise is still some way off. Today the valuation could be very denuded, but when that round closes it could rocket again.

Sometimes it’s a good idea for a valuation report to be used to mediate a dispute.  In this scenario, it might be helpful to ask for a range of values to be provided in order to create the boundaries for the settlement negotiation.

Every situation is unique.  It’s one of the reasons why we love preparing valuations.

Our objective is ALWAYS to expedite closure where all parties leave satisfied.

This can mean a lot of words are needed, rather than just numerical calculations; we take special care with drafting in plain English so you, your clients and any counterparties can understand and therefore accept the results. Then they can move on. In a busy world that is essential.

Speed also helps.  We can usually get a report done in 5 days.  What we vanishingly rarely find is that the reports take any longer.

We would love to assist your clients to use a valuation to solve their needs and challenges.  It is so satisfying when we get feedback to say everything was able to move on.  And of course, we do not go away just because we have finished a report.  If we are needed afterwards, we will always make ourselves available.

Do give us a call anytime or just email (remember if we do not respond to an email call as well just in case the email went to our junk box and we missed it!

You can reach me on 07736 676 212 or email modwenna.rees-mogg@athlacapitalmanagement.com.