Baker Tilly US, LLP’s valuation professionals provide supportable, defensible and unbiased valuation opinions that can stand up to the highest levels of scrutiny. Companies ranging from closely held businesses to multinational public corporations, and their legal counsel, rely on Baker Tilly’s valuation professionals to inform their strategic and financial decisions on a broad range of matters.
With over 25 years of experience in valuation, including the last 10 years in bankruptcy and distressed focused areas, Michael Fussman, CIRA, CDVB, a Director in Baker Tilly’s Restructuring and Complex Litigation practice, leads valuation engagements in many high-profile bankruptcy and litigation cases. The Turnaround Management Association New York City chapter spoke with Michael to get his perspective on current pressing valuation issues and how the Baker Tilly team helps their clients address these situations.
Q: How has the current rise in inflation and corresponding increase in interest rates affected valuations?
A: The current inflationary environment is one that valuation professionals have not experienced in a generation. Governmental bodies are attempting to make moves to tamp down inflation as it continues to set recent record levels. The primary levers being pulled are raising target interest rates and pulling back the reigns on quantitative easing. While these actions have the obvious effect of pulling down valuations through an increased cost of treasury and corporate securities, there are several secondary factors to consider in the execution of a valuation in the current environment.
The combination of inflation and a rising interest rate environment can bring about significant levels of distress, as markets contract, consumer confidence wains, and cost structures increase. We have been advising our clients how these factors will affect their valuation outcomes and where the future pressure points are in their operations.
Q: How should a valuation professional account for this expected distress in the marketplace?
A: While there is not one set answer, there are several facets a valuation professional can explore to ensure their analysis accounts for future expectations, including: reviewing projections versus historical results, preforming cost of capital and growth scenario analyses, and incorporating alternative operating cases, to name a few.
It is important to note that such analysis should be tailored to each client’s particular situation. While it may seem the current economic climate would affect all business similarly, one should not make such an assumption. Careful review of the subject company’s facts and circumstances is necessary to ensure a credible valuation opinion.
Q: What core competencies does your firm bring to its clients when executing valuation engagements?
A: We have an unwavering commitment to offering clients balanced perspective and comprehensive solutions to their most challenging valuation issues. Our team has experience across an expansive set of industries, from manufacturing to automotive, from oil and gas to retail, and beyond.
Using this experience, the Baker Tilly team provides a customized solution, which is based on gaining a deep understanding of the subject business and the market in which it competes. Building off this understanding, we apply our extensive and sophisticated valuation skillset to derive a reliable and supportable outcome for our clients.