Tariffic valuations…

February 4, 2025

What impact do tariffs have on private company valuations?

Well, the newspapers and markets are full of will he or won’t he impose tariffs and what this could mean for a new world economic order.  As I write, various stays of execution (for a month) have been announced.  The position is not yet stable.

Interestingly, the VIX is not showing as much volatility as I might have feared at the beginning of the year.   Gold, though, is at an all time high and the market bears point to the KPIs in the markets that suggest conditions are now more stressed than pre-1999/2000.  Lovers of Business Cycle Theory (according to Bing’s AI generator – caveat emptor!) appear to believe that the really bad news will hit in 2027 or 2031.

“Based on market and business cycle theory, the next stock market correction is predicted to occur in 2027 (Kitchin Cycle) and 2031 (Juglar Cycle)1. The future crash is expected to have two or more of the six systemic risks, including inflation, rising interest rates, asset bubbles, financial mismanagement, political turmoil, or high unemployment.”

1 Predicting the Next Stock Market Crash: Strategies That Work
I do not pretend to be an economist, so when I consider these themes, I look for a direction of travel rather than the fine detail in the first instance. Then I speak to my colleagues who know their economics and academic theory to see if there is evidence to support the argument or prove the point. In this part of our considerations around establishing value, quite simply, no evidence means no argument, however irritating that might be.

(By the way there are still some niche areas within the value of intangible assets where there is a complete lack of data and/or academic research or precedents – so sometimes there we still resort to using our professional judgement, potentially applying a surrogate scenario to help explain our position).

We also cannot ignore what the arrival of Deep Seek in the AI market means.

We have just introduced two major changes to our valuation adjustments.  Firstly Tariffs. The adjustment reflects the current uncertainty but also the overall likely retrenchment away from free markets globally which will have all sorts of consequences. Immediate concerns are spikes in inflation, longer periods until interest rates can fall and shrinkage in economic activity hitting value.

Secondly AI. This is more curious.  For some it represents an opportunity and demands an enhancement to value; for others it’s a potential disaster and we need to hit the valuation with a significant impairment.  For the few, AI will represent both an opportunity and a threat!  Those scenarios will test the team as they gather evidence to prove the argument.

We are also watching market multiples and volatility closely. Market prices should (and we know markets are not perfectly efficient) reflect the net present value of the future, so using the right multiples should capture both the risk of a market correction and then the inevitable subsequent recovery. But we stay on our toes.  Fortunately we always value on a specific day; it would be unwise at this stage to try to adjust further for a market correction when no-one can yet be certain when it will occur.

Sending us a tricky valuation is catnip to the team. We are currently working on valuing a debt for equity swap where the major creditor also happens to be one of the company’s directors.  There are increasing levels of work around tax planning prior to a taxable event as more and more shareholders and company owners look to legitimately plan their affairs.

We always do our utmost to look around the corners so we can do a full 360° valuation.  As needed, we even prepare documents where we get another expert who has not worked on a report aggressively to attack it and then articulate what has been found so that both we and our clients are prepared for third parties that may try the same.

If there is something on, or about to land on, your desk, where we could help, do let one of us know.  We live and breathe valuations not just of shares and companies but also other assets.