Business valuation in CV 19 world

April 15, 2020

by a searcher from The University of Chicago - Booth School of Business in Sydney NSW, Australia

Hi all, hope everything is safe with you.

I am doing a self-funded search in Australia. Quite curious to hear from this network on how to value a lead in CV19 times - what techniques you are planning to apply or should apply to come up with a better valuation. My view is that given most of the short-term demand and some of the near long-term demand (3-5 years) will be permanently distorted, we can't accurately predict revenues and hence DCF valuation might not paint an accurate picture. We can't use multiples either since there is no precedent of such a significant event and how companies behaved in those events.

Meanwhile, if anyone is interested to learn more about Australian market, happy to have an offline chat.

Look fwd to hear your views.

Reply by an intermediary
from University of Pennsylvania in Durham, NC, USA

Ankit, Nobody knows how deep the current downturn will be, how long it will last, or how specific industries/companies will fare. However, it's worthwhile to analyze revenue, profit and other data from prior major recessions###-###-#### , 2001, ###-###-#### to see how your industry or company performed. Although stock market data has limitations, I would also review recent data for publicly-traded companies in the industry as an indicator of market expectations.

For most industries, the short-term effect should be easily observable, the long-term effect is a return to normalized (pre-downturn) levels. The challenge is twofold; 1) estimating the medium-term effect (severity, length of time) and 2) identifying the industries which will have a new normal post-downturn (which could be higher or lower than pre-downturn).

Reply by a professional
in Hallidays Point NSW 2430, Australia

This whole situation is uncharted waters at the moment. Standard valuations just cannot logically apply in the near term. My view is that it presents the opportunity to work with the current business owners to see if their needs can be met without taking on undue risk. In other words think outside the square to figure out how they can be 'worked out ' of their businesses. Given the current uncertainty I guarantee they will be 'all ears'.

+7 more replies.

Join the discussion