IPEV releases new valuation guidelines

The guidelines, which are the standard of choice for private equity chief financial officers, were last published in 2012.

The International Private Equity and Venture Capital Valuation board (IPEV) has published the draft amendments to its valuation guidelines, which are now open for consultation.

IPEV revisits the guidelines every three years, with the last version published in 2012. The new amendments include edits and formatting changes to the valuation guidelines in an aim to improve readability, as well as clarifications on technical issues that have arisen in the last three years.

The technical changes include:

  • an update on the International Accounting Standards Board’s interpretation of the Unit of Account concept when valuing investments
  • clarifications on how to consider the value of debt for the purposes of determining the value of equity
  • a differentiation between earnings multiples and revenue multiples
  • a removal of the negative bias against discounted cashflow techniques in the previous guidelines
  • an expanded discussion on changes in valuation techniques, calibration back testing and the use of multiples.

This year’s update is the result of industry practitioners having become more experienced in applying international accounting standards over the past three years, as well as their continued experience with ASC Topic 820 (US GAAP), according to a press release from IPEV.

“The draft amendments reflect the IPEV board’s accumulated experience of valuing assets and developments in this area. We welcome feedback from practitioners and investors alike to ensure the guidelines remain a valuable resource for the industry,” noted IPEV board vice-chair and managing director at Duff & Phelps David Larsen.

IPEV requests that comments and suggestions on the draft amendments be sent in by 27 November.

This article was first published in Private Funds Management.