Equity Investments Valuation
Valtech’s valuation team has recently completed valuation of several equity investments under a PE fund. The target investments are mostly preference shares in PRC startups which are engaged in various industries. After rounds of reviews from auditors, our team has successfully delivered a well-supported conclusion in a timely manner.
There are some specific challenges when it comes to the valuation of these investments:
- These small, diversified investments normally lack financial transparency, as PE funds are mostly minority shareholders with limited control over the target companies. Most of the time, the only available information is the latest unaudited management accounts, which makes it hard to evaluate the risk and performance of the target investments. Discounted cash flow analysis is also likely unviable as a reasonable financial forecast cannot be formed with limited financial information.
- The investment structure is likely more complex than normal business valuations. Due to the high-risk nature of startups, these types of investments normally include different protection terms to safeguard investors’ interests. Typical examples are redemption or liquidation preferences, anti-dilution protection and conversion rights. Including these terms further increased the complexity of the valuations.
Valtech Valuation is experienced in handling these fund investments. Flexibility is the key in dealing with valuation with limited information. We normally provide various market perspectives to estimate the fair value of these equity investments, on top of the valuation multiples method which most fund managers are familiar with. For example, we can measure the stock price growth of the comparable listed companies to estimate the fair value change since last funding round of the companies invested.
In terms of the complex capital structure, Valtech Valuation built a sophisticated equity allocation model to address common terms of preference shares. If there are some special significant terms, we are also confident to provide a tailored model with our strong valuation background.
About Valtech Valuation
Valtech Valuation is a professional valuation firm accredited with ISO-9001 in valuation advisory services. The firm is renowned for its expertise in advanced valuation techniques, customized valuation models, data-driven insights, and adherence to compliance and reporting standards. The firm has a solid track record in valuation advisory for listed companies, private equity, fund managers, and financial institutions. Valtech’s qualified team comprises members with PhDs, CPA (HKICPA), CFA, Chartered Valuation Surveyors of the Royal Institution of Chartered Surveyors, and valuers accredited with Business Valuation (ABV) by AICPA and CVA qualifications in Singapore. Valtech continues to expand into more markets by leveraging its valuation platform and recruiting local experts.
