The significant volatility in local and global equity markets over the last few months clearly demonstrates the impact that COVID-19 is having on Australian companies.
Uncertainties regarding the economic outlook, consumer and business confidence, customer demand and supply chain management have all resulted in lower and more volatile asset valuations which has impacted on an independent expert’s work.
Independent Expert’s Reports (IERs) are generally prepared for the following reasons:
- Takeover bids
- Schemes of arrangement
- Compulsory acquisitions
- Acquisitions approved under section 611(7) of the Corporations Act
- Selective capital reductions
- Related party transactions
- Buy backs
Regulatory Guide 111 (RG 111) gives ASIC’s views on how an expert can help security holders make informed decisions about transactions and broadly sets out, inter alia:
- How experts should analyse a proposed transaction
- The different valuation methodologies used by experts and the treatment of assumptions
- General requirements for all expert reports
In light of COVID-19, there are a number of factors set out in RG 111 that independent experts will need to ensure are rigorously considered as part of their reporting process.
Listed company multiples
Earning guidance and analysts’ forecasts may not yet have been updated to reflect the impact of COVID-19. It is important that when undertaking analysis of listed company forecast earnings and related multiples, we are comparing apples with apples. The forecast earnings of the commissioning party should reflect the impact of COVID-19 on earnings.
It is critical, therefore, to ensure that the earnings and earnings multiples of the comparable listed companies used to assess an appropriate earnings multiple to be applied to the commissioning party’s earnings have
also been prepared on the same basis.
If this is not the case, appropriate adjustments will need to be made to ensure the comparability of listed company multiples.
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