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© 2015 Deloitte Tax & Consulting© 2015 Deloitte Tax & Consulting

February 2015

Deloitte Valuation ConferenceValuation for AIFMs

© 2015 Deloitte Tax & Consulting© 2015 Deloitte Tax & Consulting 2

Conference Agenda


Valuation for AIFMsAIFs’ Investment Valuations Encounter Several Risks to be Addressed

Context

Valuation Process and GovernanceAssets to Be Valued

Risks Risk of bias in valuations of AIFs’ underlying investments

Unquoted &

illiquid

Complex & hard

to value

Insufficient

control framework

Valuation by fund

manager

Consequences Conflicts of interestSubjectivity / professional judgment

Objective Production of sound, unbiased and transparent valuations performed with due care and skill

Mitigation Regulatory framework (AIFMD)Accounting standards & valuation guidelines


Valuation for AIFMsSubjectivity Case Study 1 – Discounted Cash Flows Method

Initial Enterprise Value derived from Discounted Cash Flows Approach

Peers

EV/EBITDA 7x

Company

EV/EBITDA10x

100

Enterprise valuefrom Management



Revision of Cash Flows for EBITDA Margin

Upper and lower bound of peers’ EBITDA margin

EB

ITD

A m

arg

in (

%)

Management’s EBITDA margin

FORECASTS

(unobservable inputs)

20%

25%

30%

35%

40%

45%

50%

55%

60%

65%

70%

FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017



Impact on Enterprise Value from Revision of EBITDA Margin

100

15

85


Impact of EBITDAmargin revision

Adjusted enterprisevalue

7x

10x

Peers

EV/EBITDA

Company

EV/EBITDA8.5x

7x


32%

68%


0%

5%

10%

15%

20%

FY2011 FY2012 FY2013 FY2014

German government bond 10 year yield

Revision of Discount Rate (WACC) to Adjust for Country Risk Premium

Geographic Origin of Cash Flows

Spread: 6.9% 17.1%

Country Risk Premium

Ukraine

Europe

Credit

Downgrade of

Ukraine

Ukraine government bond 10 year yield



Impact on Enterprise Value from Revision of Discount Rate

7x

10x

Peers

EV/EBITDA

Company

EV/EBITDA8.5x

100

15

85

20

65


Impact of EBITDAmargin revision


Impact of WACCrevision


7x

6.5x

7x


Valuation for AIFMsSubjectivity Case Study 2 – Earnings Multiples Method

Initial Equity Value based on Peers Trading Multiples

180

(50)

130

Equity value from Management Impact of earnings growthadjustment

Adjusted equity value

P/E

multiples 18x

Management


10x

12x

14x

16x

18x

20x

22x

24x

26x

28x

4% 6% 8% 10% 12% 14%


Revision of P/E Multiple for Expected Earnings Growth

Peers average:

Growth: 10%

P/E multiple: 18x

Company:

Growth: 6%

P/E multiple: 13x

Expected Earnings Growth

P/E

Mu

ltip

le



Impact on Equity Value from P/E Multiple Adjustment for Earnings Growth

180

(50)

130

Equity value from Management Impact of earnings growthadjustment

Adjusted equity value

P/E

multiples 18x

Management

13x

Multiple adjusted for

earnings growth

© 2015 Deloitte Tax & Consulting 12© 2015 Deloitte Tax & Consulting

Valuation for AIFMsWhat you see is not always what it seems


Valuation for AIFMsAIFMD Framework to Achieve Independent and Sound Valuation Process

No delegationDelegation

External Valuer

Third party expertise

Unlimited recourse against

external valuer (negligence)

Fees

Availability?

AIFM still responsible

Internal Valuation

Hands-on approach

Reduced external costs

Capability?

Capacity?

Segregation of duties

Internal Valuation

with third party assistance

External expertise & flexibility

Lower cost

Segregation of duties

Supervision of advisor

Pros

Cons

AIFM valuation function


Valuation for AIFMsIllustration of Risks Embedded in Valuation Process and Governance

Propco

SPV

Holdco

Co-

InvestFund

AIFM

Fund

Structuring

Underlying

• Conflicts of interest

• Consistency

• Timing, etc.

• Legal

• Tax

• Accounting

• Financing, etc.

• Property-specific

• Market

• Regulatory, etc.

Risks

• External valuer vs.

internal function

• Depositary bank

• Accounting agent

• Due diligences

• Real-estate appraiser

o Inspection

o Market data

Stakeholders

• Process oversight

• Review valuation

• Escalation measures

• Structure monitoring

• Quality of information

• Completeness of data

• Independence

• Competence

• Scope & limitations

AIFM role


Unbiased

valuation

results

Valuation for AIFMsHow to Achieve Unbiased Valuations

1

2

3

Fairness

Maximize use of observable inputs

Governance

Identify and mitigate risks

Transparency

Increase disclosures


Valuation for AIFMsPanelists

Alexandre Dumont

Chief Executive Officer, BIL Manage Invest

Simon Powell

Director of Compliance and Risk Management, Advent International

Antonio Thomas

Partner, ManagementPlus

Jérôme Wittamer

Head of Investment Management, Genii Capital

© 2015 Deloitte Tax & Consulting 17

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Key contacts

Pierre Masset

Partner – Corporate Finance Leader

+ 352 451 452 756

[email protected]

Strategy & Corporate Finance

Joachim Heukmes

Director – Corporate Finance

+ 352 451 452 037

[email protected]

Strategy & Corporate Finance

Thank you for listeningIf you have any questions or comments, please contact [email protected]

mailto:[email protected]

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