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Duff & Phelps Valuation Handbook for Successful M&A

The growth in the M&A market is expected to continue. This was predicted by many leading global finance advisory firms and the first quarter of the year has proven to conform to the predictions.

Global advisor and analyst firm Deloitte has predicted that the global companies were in a strong position to pursue the M&A activities in 2015. The companies had piled up cash and value in the stock market to enter into M&A negotiations.

Though the first quarter 2015 M&A activities have not been only slightly better than the expected levels, Deloitte reports that the deal volumes would continue to increase at 8% higher than in 2014. In Q1, $583 billion value of deals were announced compared to $563 billion in the same period last year.

Duff & Phelps had also predicted that the M&A staffing industry would be one of the most active in the M&A segment. According to Duff & Phelps, the largest independent global valuation and corporate finance advisor, the staffing requirement following M&A would increase in 2015. There have been 54 staffing industry M&A transactions by 50 different buyers in the first half of 2015. Professional staffing companies including IT, Healthcare, Finance and Accounting, Legal and Creative and Digital are the ones that are most in demand by buyers.

2014 was by far the best year for M&A activities. Citing 2014 statistics, Thomson Reuters suggests that large deals in 2014 - 95 valued deals each worth $5 billion or more - were the key driver, given that the overall number of global M&A transactions only climbed by 6%.

This explains why Duff & Phelps came out with a valuation handbook that is titled “2015 Valuation Handbook : Guide to Cost of Capital”. The book is future looking and is based on analysis of the data and statistics in the M&A sector in 2014.

This guide is source for key data that valuation practitioners, corporate finance professionals and advisors rely on to estimate cost of capital for mergers and acquisitions, financial reporting, capital budgeting and related strategic investments.

“Determining the appropriate cost of capital, or discount rate, can be one of the most challenging aspects of any valuation analysis, particularly in volatile markets or during periods of economic uncertainty. The inputs required for defensible and accurate cost of capital estimates continue to evolve in parallel with an uneven global economic recovery, currency fluctuations, and volatility in key industries,” said Roger Grabowski, Duff & Phelps Managing Director and co-author of the 2015 Valuation Handbook.

The hand book compiled and edited by experts from Duff & Phelps would be distributed world-wide by Wiley & Sons with whom Duff & Phelps has partnered.

“We are pleased to continue to provide corporate finance professionals and valuation practitioners with a comprehensive, practical and definitive resource to develop cost of capital estimates,” added Roger Grabowski of Duff & Phelps.

Keeping in mind the need for financial assessors and valuers to have credible and accurate data to be able to form opinions and construct efficient advice and suggestion to clients, the handbook has real-world examples to illustrate common scenarios and clarify best practices, as well as graphs to highlight pertinent information at a glance.

Given the present expected performance of the M&A segment, experts are of the opinion that accurate and fast evaluations are needed. For examples, experts point out that there is a difference in assessing values in case of acquisition for asset purchase and assessment for acquisition and mergers.

“It is important to understand the difference between valuing a company being acquired in the form of an asset purchase transaction as compared to valuing a company being acquired in the form of a merger or a stock purchase transaction. In a typical asset purchase transaction, a buyer may acquire all of the seller’s assets but none of the seller’s liabilities. In a merger or stock purchase transaction, a buyer acquires the seller subject to its liabilities,” says Steven D. Siner, shareholder, Chair – corporate Group of Hoge Fenton.

Another important assessment in M&A dealing is to assess the value of intangible assets. In a document titled “Intangible Assets Playing an Important Role in M&A Deals” published by PwC, expert financial assessor Peter Yu says intangible assets have become very important part of modern day large M&A transactions.

“A corporation’s operating value includes identifiable intangible assets and goodwill. In large M&A transactions, the share represented by intangible assets has gotten progressively larger. This is because, in the knowledge economy era, intellectual property has become such an important factor behind companies’ competitive strength,” says Yu.

Keeping these requirements in mind and in an attempt to preparing the financial valuers and assessors for the surge in M&A activities in 2015, the Duff & Phelps Valuation Handbook provides equity risk premium estimates and size premia developed from two sources, including premia for 25 size-ranked portfolios based on eight alternative measures of company size.

It was prepared with help from the expertise that Duff & Phelps possess within their organization. Apart from allowing independent financial assessors, the handbook would also come in handy for corporate finance officers for pricing or evaluating mergers and acquisitions, raising private or public equity, property taxation and stakeholder disputes and for the purpose of evaluation of investments for capital budgeting decisions.

This was posted in Bdaily's Members' News section by Nicolas Menguy .