Business valuation down to a tea

According to a recent report by Close Brothers, the UK has become the
favoured takeover destination by Indian companies, outstripping the US. Take,
for example, the purchase from Premier Foods of our national treasure chest –
(or should I say tea chest) – Typhoo, by Indian conglomerate Apeejay
International. With the rapid expansion of India’s domestic economy, the
country’s acquisition war chest has grown bigger and where there is acquisitive
behaviour, the spotlight falls on business valuation.

Business valuation is not everyone’s cup of tea. This is not a surprising
consequence of a discipline where the prediction of future earnings or cashflows
is its foundation, and where the balance and availability of data and
intelligence between the private and publicly listed company sectors can be
skewed. But can the discipline of business valuation be improved?

Currently, the regulation, promotion and education of the valuation industry
are the preserve of our various professional institutions, such as the ICAEW,
RICS and the Chartered Institute of Taxation.

The Society of Share and Business Valuers makes an important contribution to
the quality benchmark, but there is not one organisation in the UK that oversees
our approach to business valuation.

In North America, business valuation has been developed as a standalone
industry and practice. As in the UK, the US industry was initially driven by the
tax authorities and academic research. But the North Americans have progressed
further than us.

In the US, the inauguration of the American Society of Appraisers (ASA) in
the 1950s resulted in defining business valuation as a standalone industry – not
only through the development of rigorous practice standards but by encompassing
a broad range of valuation disciplines.

For the US, valuation does not just extend to businesses but to property,
machinery and personal effects. The Canadian Institute of Chartered Business
Valuers (CICBV) embraces not just business valuation, but the measurement of
economic damages, recognising the similarity in the measurement tools used.

For both the ASA and the CICBV, a formal education program and qualification
is a lynchpin. Here, we presently have the corporate finance qualification, but
what we don’t have – and the North Americans do – is one, over-arching body
responsible for regulation, education and the development of practice standards.

At this point, another ‘tea’ story springs to mind: readers will recall in
1773, the British Parliament passed the Tea Act to allow the British East India
Company to sell tea direct to colonists in the US, undercutting the local
merchants. Resistance from the US merchants culminated in the famous Boston ‘tea
party’, which certainly taught the British the value of tea…is there something
else of value they can teach us now?

James Stanbury is a partner at forensic accountants RGL