Being able to identify business value drivers and the greater context of the ecosystem in which a firm operates allows QED Solutions to make useful findings about how to value an undertaking. Without being able to be determine a market price, the aggregation of elements that serves as a substitute for the market price becomes important.
Clear thinking about value drivers and the broader context places us in a position to develop the necessary documentation to effectively communicate these to stakeholders such as existing and prospective investors, funders and regulators.
The Due Diligence and Market Analysis work undertaken by QED Solutions leads, in some instances, to the development of a Prospectus in the case of Public Companies or a Private Placement Memorandum (“PPM”) that are compliant with relevant legislation and rules. Working with our associates, QED Solutions advises both businesses and private equity funds and undertakes the full range of services required to produce and issue these types of documents.
As with the case of a due diligence investigation, the outcomes of these instructions are improved through a close interaction with our clients. While QED Solutions has a series of spreadsheet templates and costings, business plans are essentially subjective exercises that provide a guide.
In undertakings such as those in infrastructure or utilities with high capital requirements and little in the way of operations, a comprehensive financial model can provide a forecast with a high degree of certainty and therefore renders the process of determining a valuation and predicting funding requirements over the life of a project a relatively straightforward process. Extraneous factors like the expected costs of capital or currency exchange rates often play a bigger role in the outcome of a financial model than the operations of the business itself.
In more operational undertakings that confront changing market conditions and technological change, business plans are less useful and any should be treated with circumspection. Still, the process of developing these when done in concert with our clients provides an opportunity to stand back and get a fresh perspective on the operations. Here, the purpose is less to provide any forecast but to bring greater focus to the strengths and weaknesses of a business and to allow the development of targets and budgets. These more dynamic business plans do not seek to address the unknowns but provide a rough parameter for experimentation, customer feedback, adaptation and iterative development.
As in the case of Business Plans and Financial Models, deriving a valuation of a firm is somewhat of an art rather than the result of an objective process. Mark to Market Accounting is now a mandated requirement for certain types of audits compliant with International Financial Reporting Standards (“IFRS”) rules. In general terms, the value of a business is its market value but where this is not possible to determine with many privately owned companies, or in respect of unusual assets or debt that may not be repayable on its terms, there are methodologies that have been developed over time which provide a toolset for determining a value. Many of QED Solutions’ clients undertake an annual self-valuation that is used if new shares are issued or shareholders wish to exit a business.