A must-read article on private company valuations
March 19, 2024
Commentary on private company valuations is expanding, as is our experience.
Sometimes a really useful article on valuations appears in the press And this article from Investors’ Chronicle How to value investment trusts’ private assets – Investors’ Chronicle (investorschronicle.co.uk) has some very insightful comments on investment trusts that have large exposures to private assets.
It does not solve the conundrum about the “right” valuation approach but it does reveal something about the different approaches that fund managers take. For us, the stand-out comments were around the regularity of valuations of portfolio companies.
If you want to discuss the contents of the article with us do get in touch.
It’s been a busy Q1.
We have now been referred work from 18 different law firms since we launched.
For us, the recognition that we are trusted by so many of you means so much. Thank you.
It also means that the variety of valuations work remains exceptionally interesting. Company and share valuations jostle alongside the need to value assets (inside and outside companies) and we now also provide expert opinion on scenarios where the valuation is already understood, but validation based on evidence is required.
There is no doubt in our minds that valuation work is not an art or a science;it’s maths followed by arguments. With a calculator or spreadsheet, running the maths is straightforward. The power remains in articulating the arguments around where either the numbers do not reveal the full value (in effect the intangible value in a business) and/or fail to quantify the risks to value of the business. And of course allocating the value of a business across complex share classes is particularly important.
We especially like it when a client who is unfamiliar with the issue of valuation says words along the line of “now I understand.” It’s even better when someone who does understand says that we have cracked it!
We are not forensic accountants, but from time to time we do find something from the evidence collection and analysis that is not directly pertinent for the valuation but which can help the client and their legal adviser. One example was where we found that shares were only partly paid. We were able to suggest that this matter be resolved before the transaction took place. Another time we identified monies owed to an estate by a company (during probate) which the company directors had not yet revealed to the executors!
We are getting more urgent valuation work (which we understand as needing to be completed within a week), so have created a SWAT team who can jump onto something and deliver fast. Valuations should not impede a transaction timetable.
I am always happy to have a call around a valuation project. Only yesterday we spoke to a great team of entrepreneurs around how a valuation can help and where it does not. This included explaining that an investor provides the term sheet to open negotiations on valuation and not the other way around, though of course to analyse a term sheet the entrepreneurs need to have a sense of what their business is worth already.
Late last year we assisted a company to understand whether an offer to buy the business represented a good deal. This led to a piece of work in which we articulated where the intangible value existed in quantifiable form so they could revert to the offeror with valid arguments about why the price should be increased.
