Valuations Trumped

November 21, 2024

I was originally going to send this mailer last week, but decided to pause to until we got a bit more of an idea about how the Trump presidency might shape up.

I am not an economist or a political commentator but geo-political events impact on valuations so it is important to draw out the significant themes for private company valuations.

Firstly what happens in the US really matters internationally.  If (and it now looks likely when) higher tariffs are adopted by the US, costs and inflationary pressures will increase and global growth will slow down.

It would be a mistake to think that the UK will be immune.  Expect downward pressure on valuations.

We can also expect a change in tactics by companies.  Maybe we will see more set up operations inside the US.  This will mean taking a closer look at transfer pricing arrangements where a group straddles its operations across one or more subsidiaries.

Will we have peace in our time?  There has been a big uplift in defence tech spending due to Ukraine and Gaza, but a Trump presidency promises to end the Ukraine war in a flash.  So we may also see a specific softening of valuations in this sector if governmental spending is pulled back, although the savvy defence tech companies we are being asked to value are already ahead of the curve on this issue and are making sure that they can offer solutions in nearby areas such as border control.

Encouraged by Musk and Trump policies, we suspect that Space, AI and Crypto currencies may reach death defying heights in terms of value.  “Picks ‘n shovel” businesses like Nvidia will remain investor favourites, supporting valuations; it is still possible that AI applications will replicate the Dotcom Boom journey.   We are looking forward to our first crypto valuation – it feels that it is now nearer than in the past. There is both risk and volatility aplenty in these sectors so as valuers, we will be working hard to quantify both into £amounts.  Interestingly recent feedback on our reports suggests that the clients love this approach as. in articulating risks and quantifying them, it helps them with short, medium and long term business strategy.

Voting shares always have value

Meanwhile, we have been looking at the knotty issue of valuing voting shares where they represent a very small percentage of the capitalisation table relative to the non-voting shares with 100% rights to income and capital.  Due to their ability to control a company, the voting shares will always have a greater value than par regardless of their economic rights.

Do call if you and your team would like a 20-minute masterclass to explain why and to understand what needs to be done to the articles or shareholders’ agreement to establish the value that is acceptable for both the owners, HMRC and other stakeholders.