Due to the recent Covid-19 outbreak and subsequent lockdowns, there has been a significant impact on global markets. It has increased volatility and business disruption worldwide. And when it comes to company valuation, concern has been raised about companies' fair value, resulting in the increased regulator and stakeholder scrutiny.
The company valuation is an essential part of any business transaction and is required for many reasons. Whether you seek to complete an investment, an initial public offering, or a merger and acquisition, enterprise valuation forms an integral part of the negotiation. Ultimately, it also decides the success of a given transaction.
But considering the current situation, it can be challenging to predict the crisis's economic impact with any degree of certainty. Our motive is to help you ensure that your corporate valuation in so far as is possible; take this economic impact of the crisis into account.
Although the true impact cannot be completely fathomed at this stage, we have presented our initial thoughts regarding fair enterprise valuation. The following factors should be considered for your company's valuation process:
These are the most relevant factors and risks that should be referred to before you opt for company valuation:
As per our observation, there has been significant market convulsions and increased volatility over the past couple of months. Such a situation will impact corporate valuations in the form of higher discount rates. Further, these rates will likely rise along with debt margins and betas as investors may become more risk-averse.
The uncertainty surrounding the true impact has resulted in corresponding difficulties with the company plan forecasting. Generally, the forecast estimates would usually take the impact into account. But without reliable economic forecasts available, you need to look to other company-specific risks to produce a reasonable business forecast.
The ongoing economic and operational uncertainties will likely lead to an increase in counterparty risk. There can be numerous companies defaulting on their outstanding obligations. And it will increase the risk of investing through counterparties that either operate in high-risk industries or have low credit ratings.
There is a possibility of a rise in debt covenant breaches, insolvencies, and asset impairments in the short and medium-term.
There are two sets of considerations that should be kept in mind during enterprise valuation:
There are two main approaches for enterprise valuation that can be used:
As stated before, fair value is based on what is known and knowable at the measurement date. Thus, we recommend that companies estimate potential performance shortfalls for Quarters 1, 2, and beyond in so far as possible.
Plus, care should be taken to avoid any double-counting of risks; for instance, additional risk premiums are not required for factors that have already been addressed.
Company valuations are notoriously complex during times of crisis and require deep knowledge of a range of markets, geographies, and industries. By outsourcing company valuation services, you can:
At TRC Corporate Consulting, we understand that the company valuation needs have evolved and shifted drastically. Thus, we offer services based on innovation and expertise directed at productivity and profitability rather than scale efficiency. You can contact us for innovative enterprise valuation services.
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