Valuation of a portfolio of early-stage companies in a regulatory context
Context:
The client asked us to perform an independent valuation to derive the Fair Market Value (FMV) of portfolio investments in the context of financial reporting. The fund is comprised of ten early-stage investments represented by consumable brands as well as e-commerce and digital media services.
Our mission:
We performed the following diligences for each investment individually:
We studied project documents and engaged with the Management to support our analysis of operational variables (e.g., revenue, Opex, margins, Capex and project milestones);
Collaborated by calibration of entry multiples, our selected methodology was Probability Weighted Expected Return Method (PWERM), unlike multiples and DCF valuation methods, it provides more flexibility with probabilistic success/failure scenarios and adjustments for expected dilution.
Valuation bridge consisting of (i) cash inflows/outflows, (ii) observable inputs (e.g. roll forward, [power] prices, inflation rates, interest rates, ∆FX, ∆risk-free rates) and (iii) Management inputs (e.g. risk premiums and operational assumptions);
We reviewed in depth (i) discount rates & build-up methodology, (ii) project risk factors, (iii) exit multiples and TV assumptions (when applicable);
Finally, we performed sensitivity tests of key valuation drivers before aggregating our conclusion in the executive summary.
Results:
Estimation of fair value NAV ranges of the fund by reviewing main business plan assumptions, valuation methodologies and discount rates used for reasonability & appropriateness. Additionally, estimation of TVPI multiples as at valuation date.
Key success factors:
Familiarity with the sector making it possible to rapidly identify key operational value drivers and cross-check industry-specific multiples & discount rates;
Led by effective senior and junior management, our team delivered the report at an extremely tight timeline.
