In November, the International Private Equity and Venture Capital Valuation Board issued a statement confirming that changes to its valuation guidelines would allow users ?to be consistent with the recent FASB standard on fair value, No. 157.?
The revised guidelines are now available on the IPEV web site, located at www.privateequityvaluation.com. IPEV is an association of 34 private equity trade associations, most prominently the Association Française des Investisseurs en Capital (AFIC), the British Venture Capital Association (BVCA) and the European Private Equity and Venture Capital Association (EVCA), that joined together to formulate a single standard on valuing private equity investments.
The website also contains a version of the IPEV valuation standards that have been highlighted to show where changes were made. Among the more extensive changes is a new section that instructs a valuer on how to prioritize methodologies: ?In assessing whether a methodology is appropriate, the Valuer should be biased towards those methodologies that draw heavily on market-based measures of risk and return. Fair Value estimates based entirely on observable market data will be of greater reliability than those based on assumptions.?
?Methodologies utilising discounted cashflows and industry benchmarks should rarely be used in isolation of the market-based measures and then only with extreme caution. These methodologies may be useful as a cross-check of values estimated using the market-based methodologies.?
Another changed section notes that in ?situations where Fair Value cannot be reliably measured the Valuer may reasonably conclude that the Fair Value at the previous reporting date remains the best estimate of Fair Value??
At the introduction of the guidelines, IPEV confirms that two separate definitions of the term ?fair value? are congruent. The second, and new, definition included in the guidelines is: ?Fair Value is the price that would be received for an asset or paid for a liability in a transaction between market participants at the reporting date.? This is congruent, according to IPEV, with: ?The Fair Value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.?
SEC proposes raising accreditation threshold
The US Securities and Exchange Commission voted yesterday to propose to raise threshold requirements to shrink the pool of accredited investors who may invest in private equity and hedge funds. The new rule redefines accredited private equity and hedge fund investors as those who own $2.5 million in assets, excluding a personal residence, as well as have a personal income of at least $200,000 for at least two years running. The rule does not apply to venture capital funds, however. At press time, the wording of the proposed rule had not yet been released. ?We're taking steps to modernize the standard so that it will be abundantly clear that these investments are not for mom and pop, unless mom and pop are very sophisticated investors,? SEC Chairman Christopher Cox told reporters. According to SEC Commissioner Paul Atkins, the new rule will reduce the number of qualified investors by as much as 88 percent. When the original standard was introduced in 1982, it included only a requirement of $1 million in net worth.
Golden Gate GP leaves board
Jesse Rogers, a partner at San Francisco private equity firm Golden Gate Capital, stepped down from the board of directors of Golden Gate portfolio company Herbalife because of a new investment agreed to by the private equity firm. Golden Gate in November announced its acquisition of Neways International, a producer of dietary supplements and personal care products. Herbalife is a marketer of nutritional supplements and personal care products. A press release stated Rogers had left the Herbalife board ?due to the potential conflict of interest presented by the acquisition of Neways?? Together with private equity firm Whitney, Golden Gate acquired Herbalife in 2002 for $685 million. The company is now publicly traded on the New York Stock Exchange.
BVCA draws up model venture docs
The British Venture Capital Association (BVCA), the industry body for the UK, has issued a statement saying that it intends to make available ?free of charge? a set of model documents for venture capital financing. The documents will consist initially of a subscription and shareholders agreement and articles of association. The documents are designed for use when companies receive their first round of venture funding (series A). According to the BVCA, current documents ?seek to implement similar terms and structures but vary widely in form and drafting?. The BVCA statement went on: ?It is hoped that by producing these documents venture capital funds, companies and their lawyers will avoid wasting time discussing the drafting of terms and instead focus on agreeing the most appropriate terms for the investment.?
Ireland best place for entrepreneurs
A survey by the European Venture Capital and Private Equity Association (EVCA) has revealed that Ireland is the European country with the most entrepreneur-friendly tax and legal environment. With the lowest score equaling the best environment, Ireland came first with a score of 1.27, followed by France in second (1.36) and the UK in third (1.46). In all three such surveys conducted so far, Ireland and the UK have been in the top three every time. However, this was the first time that France had achieved a position on the podium. Belgium and Spain moved to better-than-average scores for the first time, while Germany, Norway and Sweden continued their three-year record of being worse than average. Romania was ranked bottom of the pile, with a score of 2.35. The overall European tax and legal environment has improved with a score of 1.84, compared with 1.97 when the prior study was completed in 2004.