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Intangible Capital Value

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The International Private Equity and Venture Capital Valuation (IPEV) Guidelines

The International Private Equity and Venture Capital Valuation Guidelines (IPVCG) set out recommendations, intended to represent current best practice, on the valuation of private equity investments.


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Following the classification of the Covid-19 epidemic as a pandemic by the WHO in March 2002 and the armada of local containment measures that followed, the real economy was brutally impacted.

Thus, to allow companies, the drivers of this economy, to provide relevant information on the valuations of their portfolios, the International Private Equity and Venture Capital Valuation (IPEV) has published recommendations for their attention.

However, with the passage of time, it is necessary to ask whether these recommendations are still relevant.
Indeed, while not calling into question the usual approaches to valuation, the IPEV draws the attention of companies to elements that are often neglected but which are nonetheless of capital importance for the valuation of their companies. These include an in-depth analysis of the company’s fundamentals and its long-term prospects, i.e. its values, vision and basic strategy.

Similarly, the IPEV insists on the need for consistency and rigor in the valuation methods used by companies.
Thus, any value analysis on a company requires that the judgment is made not only on the direct impacts in this case the cash flow or even consumer confidence but also on the indirect impacts of the crisis on future years and on the business model in a word the sustainability of the company but also on the risks as well as the opportunities or even the scenarios of recovery of the economy can carry.

Also, given the duration of the pandemic, the IPEV reminds that in the analyses, it will also be necessary to consider the incorporation of the elements known to date, the short- and medium-term consequences on the company analyzed without forgetting to integrate the vision of the market participants.
It therefore follows that, apart from the correction of non-recurring events, the valuation must necessarily incorporate more qualitative elements, corresponding in fact to a judgment on the consequences of the crisis on business models.

Also, given that some sectors are more spared than others, and even some companies more than others within each sector, it is not possible to consider an identical adjustment, in terms of method and parameters, for all industries. Since the situations of the companies are different, the treatment cannot be the same. In fact, the method must be adapted to the company’s situation.

For this reason, according to the IPEV, the inability to define a clear outlook should not be a legitimate reason to keep the old forecasts. The IPEV reminds us that multi-scenario analyses can be used. Roughly speaking, a Monte-Carlo approach is not necessarily an ideal solution. But measuring objectively the consequences of already clearly defined scenarios is preferable to applying a theoretical and undocumented discount.

However, it should be remembered that the IPEV focuses most of its recommendations on the stock market and multiples.
In sum, the IPEV’s recommendations show that a valuation method for all companies is not feasible. Indeed, as already mentioned, situations differ, so applying the same method to companies that have not been impacted in the same way is certainly an error of assessment.

Similarly, all valuation methods are fallible if they have not been applied to the right situation and with the consistency and rigor necessary for success.

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