by Attorney-at-law Martin Arendts, M.B.L.-HSG
I-ADVISE AG Wirtschaftsprüfungsgesellschaft, Düsseldorf, has once again submitted a study on valuation practices in squeeze-outs, domination and profit and loss transfer agreements, mergers and legal form changes. The study, now published in its fourth edition, on company valuation has been extended to include the opinions with valuation dates in 2017 and shows the development of valuation practice in the years since 2010 (not the years before due to changes in valuation parameters due to the 2009 introduced withholding tax).
The new I-ADVISE study provides important benchmarks for determining the most important parameters in business valuations and provides an overview of the solution of numerous valuation questions by professional valuation experts. However, Dr. Jochen Beumer admits in the preface that current practice can not be equated with best practice possible.
It is also not examined how this practice is then judged by the courts charged with reviewing the valuation (in some cases very differently). Decisions in these proceedings - if the case it not quickly settled - only become final after many years (as judicial review proceedings may take more than 10 years).
175 business evaluations were analyzed. Only in five cases was the evaluation not carried out by an authorized auditor. In 66 % of the cases, the calculated enterprise value was higher than the market price and was therefore used as the basis for the compensation payment (so that it would be disadvantageous for minority shareholders, if only the average market price would be regarded as relevant, a position some local courts hold).
In the analysis of past performance, a three-year period was examined in 80% of cases. In 79% of the reports, a planning horizon of three to five years was used. Longer planning periods relate in particular to infrastructure investments, solar companies or life insurance companies.
The FAUB recommendation on higher market risk pemium approach has become widely accepted in practice (despite criticism in the industry and by judges in the relevant case law). In the current cases almost exclusively 5.5 % are used (in 2017 with three outliers upwards: once 5.75 % and twice 6.0 %).
The beta factor was determined in 95 % of the evaluations by means of a peer group. The number of comparable companies showed between 2 and 24 companies used (on average, for the years examined, mostly 8 or 9 companies). While in the meantime, a global index has been used as the benchmark (2014: 43%), a broad local index is usually used again (2017 in 72% of the cases). In 69% of the evaluations, a raw beta factor was used and no flat-rate adjustments were made (only 16% adjusted beta factors in 2017).
The study can be downloaded for free:
http://www.i-advise.de/de/wp-content/uploads/2018/03/180314-Studie-Bewertungspraxis.pdf
For the first time, the study will also be published in English:
http://www.i-advise.de/wp-content/uploads/2018/03/180314-Study-German-Valuation.pdf
I-ADVISE AG Wirtschaftsprüfungsgesellschaft, Düsseldorf, has once again submitted a study on valuation practices in squeeze-outs, domination and profit and loss transfer agreements, mergers and legal form changes. The study, now published in its fourth edition, on company valuation has been extended to include the opinions with valuation dates in 2017 and shows the development of valuation practice in the years since 2010 (not the years before due to changes in valuation parameters due to the 2009 introduced withholding tax).
The new I-ADVISE study provides important benchmarks for determining the most important parameters in business valuations and provides an overview of the solution of numerous valuation questions by professional valuation experts. However, Dr. Jochen Beumer admits in the preface that current practice can not be equated with best practice possible.
It is also not examined how this practice is then judged by the courts charged with reviewing the valuation (in some cases very differently). Decisions in these proceedings - if the case it not quickly settled - only become final after many years (as judicial review proceedings may take more than 10 years).
175 business evaluations were analyzed. Only in five cases was the evaluation not carried out by an authorized auditor. In 66 % of the cases, the calculated enterprise value was higher than the market price and was therefore used as the basis for the compensation payment (so that it would be disadvantageous for minority shareholders, if only the average market price would be regarded as relevant, a position some local courts hold).
In the analysis of past performance, a three-year period was examined in 80% of cases. In 79% of the reports, a planning horizon of three to five years was used. Longer planning periods relate in particular to infrastructure investments, solar companies or life insurance companies.
The FAUB recommendation on higher market risk pemium approach has become widely accepted in practice (despite criticism in the industry and by judges in the relevant case law). In the current cases almost exclusively 5.5 % are used (in 2017 with three outliers upwards: once 5.75 % and twice 6.0 %).
The beta factor was determined in 95 % of the evaluations by means of a peer group. The number of comparable companies showed between 2 and 24 companies used (on average, for the years examined, mostly 8 or 9 companies). While in the meantime, a global index has been used as the benchmark (2014: 43%), a broad local index is usually used again (2017 in 72% of the cases). In 69% of the evaluations, a raw beta factor was used and no flat-rate adjustments were made (only 16% adjusted beta factors in 2017).
The study can be downloaded for free:
http://www.i-advise.de/de/wp-content/uploads/2018/03/180314-Studie-Bewertungspraxis.pdf
For the first time, the study will also be published in English:
http://www.i-advise.de/wp-content/uploads/2018/03/180314-Study-German-Valuation.pdf
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