An uptick in valuations?

August 2, 2023

I was very intrigued by recent news from NASDAQ Private Markets and Forge about the uptick in private US tech company share prices.

Indeed, the NASDAQ Composite is up 37.5%

Whilst you’d expect an upbeat outlook from these secondary market operators, it’s encouraging to learn that market buyers are back in force Stateside.

Here in the UK, funding and other types of corporate activity seems to be healthy.

During July, Beauhurst reported 743 fundraisings, 28 MBO/MBIs, 159 acquisitions and 7 corporate spinouts.

The data behind the valuations on these fundraisings still needs to be investigated to see if valuations are holding steady, picking up or falling.

Meanwhile the FTSE AIM All share index is down 8.6% so far this year and the FTSE All Share is up a mere 1.1%.

Octopus Titan VCT is down 17.5% since the beginning of the year and Molten Ventures PLC is off 32.5%.

So the UK picture is mixed…

Perhaps we are about to follow the US, but I’m suspicious we have not yet seen the bottom of the market for private company valuations.

When the data sends so many mixed messages, it’s even more important to contextualise a valuation. Choosing the right comparables really matters. You have to look at each sector very closely to understand the macro-economic and industry specific factors that may be affecting value.

We keep getting very interesting projects… 

Recently there have been a lot of asset rich company valuations which have their own unique characteristics. Some have been start-up SPVs owned by a trading business. In each case, the parent is raising capital for the SPV.

It’s not unusual for the fundraise to be £50m-300m but the parent wants to maintain control of the SPV in terms of ownership and voting rights.

So we have a particularly interesting challenge: selling e.g. 50% for £300m, infers a pre-money valuation for the SPV of £300m. We have been having a lot of fun articulating why a shell company could have a pre-money value of £300m. There’s the operational IP being lent to it by the parent of course, the team is valuable and the potential in the business plan, but….

This has led us onto an interesting journey, as we are now (inevitably) being led to giving guidance on the financial impact of deal structures so that the circle can be squared.

We are busy building a little tool that will enable clients to go away and work with their lawyers to establish the ideal deal structure from a numbers perspective. 

In the meantime we have a spreadsheet and would be very happy to share it with you if you think it would be helpful.