Q1 2015
Valuations Snapshot Welcome to our fourth edition of Valuations Snapshot. In this regular publication we look at the trends and issues behind business valuations, and provide bite-sized advice that can help you and your clients when valuing a company.
Key valuation indices to Q1 2015 Two quarters have passed since our last Snapshot during which time M&A markets have been active – more than a thousand deals in the period according to PCPI. Our Average Index has dipped marginally by 1% but the trend remains upward by 4% over the last year.
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Average
PERDA
PCPi (EBITDA)
Argos Soditic
Both PERDa and Argos have trended upwards, but the PCPI has fallen sharply. Our chart shows huge volatility in the PCPI since mid 2013. This perhaps reflects the methodology behind PCPI, and interestingly the published version of the PCPI uses a larger scale for its axes which masks this unexplained behaviour. It also shows the benefit of our approach of looking at the underlying trend line taking a “poll of polls” by considering various indices.
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Matthew Eady meady@pem.co.uk
Our Employment Tax and Share Schemes expert, Matthew Eady, outlines how valuations for employee share scheme purposes are different to those done ahead of a company sale.
Valuations for share scheme purposes
More businesses care to share From greater productivity to reduced absenteeism, employee share ownership can bring many benefits to businesses, and in turn the economy. In the past two years, the government has focused on encouraging employee participation through a number of changes to tax legislation. Consequently, many more companies are now introducing share option schemes. Particularly popular are schemes whereby employees acquire shares only if their employing company is sold. There has also been a shift of opinion in favour of the previously maligned Employee Shareholder Status (or the “Shares for Rights” scheme).
Consider a valuation Since unlisted companies have no trading arrangements in place for their shares, it is important to consider a valuation before putting a share scheme in place – and furthermore, to attain agreement on such values from HMRC. There are subtle, yet important differences in method when valuing for share scheme purposes (as opposed to valuing for business sale or buyout).
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From greater productivity to reduced absenteeism, employee share ownership brings many benefits.
The general principle applied is “what price would a willing third party be prepared to pay for a share from a willing seller?” The level of information available to our “willing third party purchaser” depends on the nature and cost of the investment and the size and influence of the holding acquired. For example, our willing third party acquiring less than 25% of the company’s voting capital can generally expect to see only that information on the company that is available on public record (statutory accounts, Companies House returns). Such restricted information can often lead to HMRC considering that a plain-vanilla earnings basis valuation model as being appropriate but this is often subject to much debate!
We’ve launched a new brand We recently launched our new brand for PEM Corporate Finance and are excited to share it with you in this new look Valuations Snapshot.
approach. We will be working more closely than ever with PEM, pooling our knowledge and expertise to help business owners succeed at every stage.
We have a strong heritage and have been delivering quality corporate finance services for many years as a specialist division of PEM. However the industry is evolving and last year the firm as a whole decided we needed to change.
Our clients are at the heart of the changes
Stronger together We have always had a separate brand from PEM to reflect our specialism. For this reason we will continue to have a slightly different look and feel. However the core of our new brand is much more in line with the main firm. This decision demonstrates our commitment to a one team
We want to bring our key strengths to the forefront of our business. Our clients love the fact that we understand their challenges, and can rely on us to be honest and give the right advice. It’s this empathy, reliability and authenticity that run through the heart of our firm. But some things aren’t changing. You can still rely on our utmost commitment to our clients and we’re staying put in the heart of Cambridge; it’s a great place to be.
PEM Valuations From time to time, your clients may ask you how to value their business. Such requests could be triggered by: ■■ ■■ ■■ ■■ ■■ ■■
Get in touch info@pemcf.com 01223 728280
shareholder exit disputes restructuring business planning tax and accounting regulatory reasons
Yet for many advisors, valuations are not the day job. This is where the PEM Valuations Team can help.
Why refer your clients to us? Focused Our valuations are produced by a specialist, multidisciplinary team with a valuations focus. Commercial Our real world experience in company sale and purchase negotiation means we don’t just claim to be commercial, we have the transaction record to prove it. Personal We have a flat structure so clients always receive cost effective senior level attention. Tailored We do not use a software driven or “form-filling” approach. Our reports are based on a thorough understanding of the business to be valued, and tailored to the specific needs of the owner.
PEM Corporate Finance LLP is authorised and regulated by the Financial Conduct Authority, registered number 212875. Registered in England & Wales, company number OC302288. Salisbury House, Station Road, Cambridge, CB1 2LA. If you no longer wish to receive this publication, or if you have had a change of address, please email info@pemcf.com.