Buyout pros believe themselves to be excellent analysts of target company values and keen negotiators of deals, but even they may find themselves subject to blind spots, faulty economic models or other flaws in the valuation of prospects, said Aaron Gilcreast, a principal at the accounting firm PricewaterhouseCoopers LLP.
The global accounting giant formally announced in January that it is launching a new service offering, which it calls “Assessing Deal Value,” to try to provide more analytical rigor to the dealmaking process. “It’s a natural extension of what we do in the transaction space,” said Gilcreast, who works out of PwC’s Atlanta office and is the leader of the new service. “It provides a bit more formality around a service that we’ve been offering for some time.”
In a recent PwC survey, nearly 30 percent of finance executives and deal professionals said that stakeholder bias presented the greatest risk in pricing prior transactions. Other factors preventing companies from realizing expected value on acquisitions include a disproportionate focus on historical results, misaligned deal objectives, overlooked tax and accounting impacts and over-estimated value from potential synergies.
A multitude of such flaws can interfere with decision-making, whether for a buyout shop or a strategic investor, Gilcreast said. PwC’s valuation service seeks to expose biases that may cloud dealmakers’ judgment and to balancing “art” and “science” in the valuation approach.
Among the arrows in the firm’s quiver are methods for testing the integrity of a client’s valuation model and contrasting historical financial results against changing economic conditions. The new service draws on the firm’s various practice areas.
The goal of the exercise is to distinguish the intrinsic value of a target company, in contrast to its market value, Gilcreast said. The valuation service, while not a magic bullet, provides a service that he said he believes in so far unique in the accounting field to provide an independent third party point of view in the transaction environment. He said it extends a 10-year trend toward companies getting second opinions.
Even with additional reviews, the service is unlikely to solve that greatest of conference room conflicts, the mismatch between expectations on each side of the table, Gilcreast acknowledged. “The seller always thinks it’s worth more than the buyer does.”
Phone: (678) 419-1080
Email: aaron.a.gilcreast@us.pwc.com
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