Fair Valuation Survey Finds Private Equity Investments, Odd-Lots Pose Challenges

Deloitte recently released its annual Fair Valuation Survey, and reported that valuation of private equity investments continues to be a challenge.  “Eighty-four percent of survey participants with private equity investments indicated that they put their investments through their full valuation process within one quarter after acquisition, with the remaining 16 percent doing so within six months,” the report noted, adding that the survey participants’ responses illustrate a maturing trend moving away from reliance on acquisition price as the sole measure of fair value. The study also found that 63 percent of survey participants changed their valuation policies and procedures over the past year, with 31 percent reporting enhanced policies and procedure language for certain hard-to-value investments such as private equities, structured securities, and/or derivatives. On issues of board governance, the survey found:

• 67 percent of survey participants reported that the full board, a committee of the board, or one or more board members receive information regarding price challenges.
• 25 percent of survey participants reported that the percentage of the overall board agenda dedicated to valuation increased over the past year, while 2 percent of survey participants indicated that it decreased.
• 12 percent of boards, up from 11 percent in the prior year, engaged a third-party consultant in the past year to perform an independent valuation.

Odd-lot valuations also posed a challenge in the past year. The survey found that 60 percent of participants have had conversations with their pricing vendor regarding the ability to provide discounts and evaluations on odd-lots, up from 37 percent in the prior year.