Recently, our company was included in a special section on distressed assets in one of the UK’s leading trade magazines for the finance industry, Financier Worldwide. As part of this feature, the editor of Financier Worldwide took some time out with Tom Burton, Executive Vice-President and President of our Capital Assets Group. This post includes excerpts from his responses:
Financier Worldwide (FW): Describe the demand for distressed asset valuations in the last 12 months.
Burton: Some industries, such as the construction industry, have seen an increase in demand for distressed asset valuation while the global market has remained relatively consistent. The UK has seen a record number of “zombie companies” barely able to service their debts. The Adam Smith Institute suggests these 100,000 companies consider either restructuring or liquidating to free up capital.
FW: Is it rare to see valuations in today’s market meet the expectations of buyers and sellers?
Burton: Setting expectations and clearly explaining factors about the valuation controls buyer and seller expectations. A properly researched valuation is heavily relied upon, and brings credibility if communicated effectively to buyers and sellers.
FW: Could you outline some of the latest techniques and metrics used to value distressed assets?
Burton: There is no substitute for market evidence, and assessing company data and applying depreciating factors help to determine asset value. Market expertise and relevant experience separate expert valuators from the novice.
FW: Could you describe the complexities of identifying and valuing intangible assets?
Burton: Intangible assets can encompass a range of categories including: marketing-related assets (e.g. trademarks), customer or supplier-related assets (e.g. customer lists), technology-related assets (e.g. patented technology), goodwill, and more. An income or cash flow method is a trusted approach for a valuation of intangible assets. It’s important to keep maintenance of an intangible asset in mind.
FW: If a distressed entity has licensing agreements in place what specific issues need to be considered?
Burton: Every detail matters, so make the research process count. The key issue for licensing agreements is whether or not the licenses are transferable to a new owner. There are also practical issues, such as access to assets.
FW: How important is it for the valuer to maintain transparency and accountability throughout the process?
Burton: It is important to treat all parties in a specific valuation case with respect and demonstrate openness and candor. This is an area where a valuation team with a marketplace platform capability can add value by providing a transparent marketing and bidding process. Raising red flags — such as troubled credit or high reliance to the advance rate — emboldens a more interactive process with the client and company being appraised.