When do I have to start implementing the International Private Equity and Venture Capital Valuation Guidelines ?
Should I apply the International Private Equity and Venture Capital Valuation Guidelines to my current fund(s) or should I apply them to the next fund I will raise?
Are the International Private Equity and Venture Capital Valuation Guidelines compliant with IFRS and US GAAP?
Why are the real option or the Ohlson models not mentioned in the International Private Equity and Venture Capital Valuation Guidelines?
Can I use a different valuation methodology relevant to a specific Investment than the ones presented in the International Private Equity and Venture Capital Valuation Guidelines?
If a significant event (e.g. a transaction, an indicative offer or significant variations in the value of the currency of the Investment expressed in the reporting currency of the fund) occurs between the reporting date and the date of production of the report, should I include this information when determining the Fair Value?
When using the price of a recent investment, should I use the post money valuation or the pre-money valuation and add cash as of the reporting date?
Can I apply the entry multiple I paid for a portfolio company to its current earning in order to determine its current Fair Value?
The International Private Equity and Venture Capital Valuation Guidelines recommend the use under certain circumstances of a taxed EBIT for the Earnings Multiple methodology. How do you calculate a taxed EBIT?
A potential buyer has made an offer for a portfolio company which is above its current carrying value. Although it is only an indicative offer, should we increase the value of this portfolio company?
When deterioration in value has occurred, can the Valuer apply a discount in tranches to the carrying value of the Investment reported at the previous reporting date to reflect the estimated decrease?
When using a P/E multiple, how should I treat earnings from associated companies when the comparator reports its investments in associates according to the equity method? I should specify that the company I’m valuing has no associated company.
When calculating a taxed EBIT of a company being valued, how should I treat the impact of associates that are reported according to the equity method? I should specify that the company I’m using as comparator has no associate.
Can I keep the Price of Recent Investment as an indicator of Fair Value during the year following the transaction?
When do I have to start implementing the International Private Equity and Venture Capital Valuation Guidelines ?
These Valuation Guidelines should be implemented for reporting period post 1 January 2005. However this recommendation does not override contractual or regulatory requirements.
Should I apply the International Private Equity and Venture Capital Valuation Guidelines to my current fund(s) or should I apply them to the next fund I will raise?
These Valuation Guidelines should be implemented for reporting period post 1 January 2005, including funds in existence. However this recommendation does not override contractual or regulatory requirements.
Are the International Private Equity and Venture Capital Valuation Guidelines compliant with IFRS and US GAAP?
It is not the intention of these Guidelines to prescribe or recommend the basis on which Investments are included in the accounts of funds. However, the requirements and implications of the International Financial Reporting Standards (IFRSs) and US GAAP have been considered in the preparation of these Guidelines. This has been done in order to provide a framework for arriving at a Fair Value for private equity and venture capital Investments which is consistent with these accounting principles.
Why are the real option or the Ohlson models not mentioned in the International Private Equity and Venture Capital Valuation Guidelines?
The Guidelines are intended to represent current best practice and therefore the Valuer should be predisposed towards those methodologies that are generally accepted. However, the Valuer can apply a methodology not presented in the Guidelines so that the results of one particular methodology presented in the Guidelines can be cross-checked.
Can I use a different valuation methodology relevant to a specific Investment than the ones presented in the International Private Equity and Venture Capital Valuation Guidelines?
The Guidelines are intended to represent current best practice and therefore the Valuer should be predisposed towards those methodologies that are generally accepted. However, the Valuer can use a methodology not presented in the Guidelines so that the results of one particular methodology presented in the Guidelines can be cross-checked. Moreover, it is acceptable to use alternatives when you have invested in an industry that has particular valuation dynamics, such as Life Assurance businesses that use an embedded value calculation.
If a significant event (e.g. a transaction, an indicative offer or significant variations in the value of the currency of the Investment expressed in the reporting currency of the fund) occurs between the reporting date and the date of production of the report, should I include this information when determining the Fair Value?
When estimating the Fair Value, the Valuer should take account of events taking place subsequent to the reporting date where they provide additional evidence of conditions that existed at the reporting date. In the example above, variations in the value of the currency of the Investment expressed in the reporting currency of the fund after the reporting date are in most of the cases indicative of conditions that arose after the reporting date.
When using the price of a recent investment, should I use the post money valuation or the pre-money valuation and add cash as of the reporting date?
The Price of Recent Investment methodology requires the use of the post money valuation.
Can I apply the entry multiple I paid for a portfolio company to its current earning in order to determine its current Fair Value?
Using an entry multiple to a current earning can represent an initial input when estimating the Fair Value of an Investment. However the Valuer should assess the reasonableness of the underlying assumption that the entry multiple still corresponds to current market conditions.
The International Private Equity and Venture Capital Valuation Guidelines recommend the use under certain circumstances of a taxed EBIT for the Earnings Multiple methodology. How do you calculate a taxed EBIT?
Where market-based multiples are used, the aim is to identify companies that are similar both in terms of risk attributes and earnings growth prospects. In that context a taxed EBIT is used to correct the impact of different applicable tax rates between the comparator companies and the company being valued. When nominal and effective tax rates differ over a long period of time (e.g. in certain countries spending in R&D can provide companies with tax credits or tax allowances) it is recommended to use the effective tax rate calculated from the financial statements.
A potential buyer has made an offer for a portfolio company which is above its current carrying value. Although it is only an indicative offer, should we increase the value of this portfolio company?
The treatment of indicative offers are presented in Section II-2.5 of the International Private Equity and Venture Capital Valuation Guidelines. Typically, indicative offers provide useful additional support for a valuation estimated by one of the valuation methodologies, but are insufficiently robust to be used in isolation.
When deterioration in value has occurred, can the Valuer apply a discount in tranches to the carrying value of the Investment reported at the previous reporting date to reflect the estimated decrease?
Such situation is presented in Section II-3 of the International Private Equity and Venture Capital Valuation Guidelines. If there is insufficient information to accurately assess the adjusted Fair Value, decreases in value are usually in practice assessed in tranches of 25%. If however, the Valuer believes that they have sufficient information to more accurately assess Fair Value, then smaller tranches of 5% may be applied.
When using a P/E multiple, how should I treat earnings from associated companies when the comparator reports its investments in associates according to the equity method? I should specify that the company I’m valuing has no associated company.
The Valuer should assess the impact of these associates on the P/E ratio of the comparator.
If this impact is deemed to be material, the Valuer might consider adjusting both the numerator and denominator of the P/E ratio to eliminate the impact of these associates. The fact that associates are active in different industries than the ones of the comparator is one indication among other different factors that associates might have an impact on the P/E ratio.
When calculating a taxed EBIT of a company being valued, how should I treat the impact of associates that are reported according to the equity method? I should specify that the company I’m using as comparator has no associate.
The taxed EBIT would preferably not include earnings from equity method associates, unless these associates can be assessed as similar in nature with the company being valued.
If associates are not similar in nature, the Valuer should consider if they have an impact on the value of the company being valued. If the impact is material, the Valuer should estimate the fair value of these assets to adjust accordingly the amount derived from applying the multiple observed for the comparator.
Can I keep the Price of Recent Investment as an indicator of Fair Value during the year following the transaction?
The IPEV Guidelines indicate that the length of period for which it would remain appropriate to use the Price of Recent Investment methodology to fair value a particular Investment will depend on the specific case, but a period of one year after the transaction is often applied in practice. The IPEV Guidelines also specify that the “Valuer should in any case assess whether changes or event subsequent to the relevant transaction would imply a change in the Investment’s Fair Value” (see Part I-Section 3.3. Price of Recent Investment). Consequently, the Valuer should, during the period of one year following the transaction, assess whether the price still reflects the Fair Value of the Investment. When the Valuer considers that it is not the case, an appropriate methodology should be applied to estimate the Fair Value of the Investment.
|
