Business Valuation – The “little brother” of Investment Banking
Every investment banker has thought about quitting their job at some point. Brutal hours, brash culture, and “boring” non-technical work might be a few reasons why! For the bankers who opt to quit, joining a business valuation group might be a perfect choice. However, not much is known about IB’s “little brother.” This article will explain what Business Valuation or BVal is:
What is BVal?
Business valuation is a technical advisory analyst position that is typically found in investment banks and the Big 4 accounting firms (Deloitte, PwC, EY, KPMG). In the Big 4 companies, valuation roles are typically situated within an advisory practice. For example, at EY, the valuation group is under Transaction Advisory Services (TAS).
The valuation practice can be further divided into smaller subdivisions such as Complex Securities, Transaction Real Estate, and Capital Equipment. Outside the Big 4 environment, valuation groups can come in the form of smaller “boutique shops” such as FMV Opinions, Silicon Valley Bank, and Tower59 or as part of an investment bank, such as Houlihan Lokey or Duff and Phelps.
BVal in other places in the world, such as in Southeast Asia, also operates similarly although typically without the subdivisions.
What do you do as a BVal analyst?
Much of the work you do as a BVal analyst is very technical. They come in 2 channels. Channel 1 work refers to engagements that are done on behalf of the audit team, as an internal valuation specialist for audit purposes. Channel 2 work refers to engagements where the valuation analysts act as third party consultants. Some types of valuation engagements BVal analysts work on include fairness opinions, 409A stock option valuation, private equity and venture capital fund reviews, ASC 350 goodwill impairments, and ASC 805 purchase price allocations (PPA).
Stock option valuation is often done for startups, who find it useful to have professionals price their common stock for employee compensation purposes. Venture capital and private equity firms need valuations to make sure the value of their investments is reasonable. Purchase price allocations are often conducted in any merger/acquisition activity, and helps companies allocate the purchase price to the different assets acquired.
These engagements are usually performed in relation to a financial accounting system such as US GAAP, IFRS or PRC GAAP, which means the valuations get a lot more technical than it gets in investment banking. Valuation analysts perform detailed analyses of option breakpoints, specialized research for risk premiums (industry, company, country, etc.), and even OAS spread analyses for debt. Valuation analysts often refer to Accounting Standards Codification (ASC) and Financial Accounting Standards Board (FASB) definitions, policies, and regulations.
BVal work as an analyst in Southeast Asia is more generalist in nature and focuses a lot on fairness opinions, impairment testing, and most general valuation engagements. You still get exposure to both Channel 1 and 2 work across a variety of industries. In these regions, BVal analysts may also do DCF analysis and full operating models for certain clients that are looking to raise capital. You will not typically get the private equity and venture capital fund reviews given the less developed state of these markets.
How is it different from investment banking?
In Bval, the valuation being performed is the final deliverable itself, while in investment banking, valuation is done as a means to an end—to ultimately help companies raise capital. Many of the valuation engagements in BVal are post-deal engagements, and are done primarily to comply with financial accounting regulations.
However, business valuation for accounting purposes can affect a company’s public reception in the future. For example, in a PPA, the way tangible and intangible assets are valued can have a long term impact on a company’s financial statements. To illustrate, certain tangible assets and intangible assets can be depreciated. Therefore the allocation of value to these assets can affect how much a company saves through depreciation and amortization expenses.