IEF’s consultants have the experience and expertise to provide robust and thorough valuation analyses that can be clearly presented to clients and legal teams in transactions and disputes.
Valuation, in both contentious and non-contentious contexts, often includes complex issues requiring technical expertise. IEF’s consultants have the experience and expertise to provide robust and thorough valuation analyses that can be clearly presented to clients and legal teams in transactions and disputes.
Based on the finance and economics background of our consultants and depending on the circumstances of each particular case, we can apply a number of methodologies to value assets or investments.
- DCF: The discounted cash flow (DCF) methodology is a fundamental tool for valuation, which we have used to value businesses as diverse as luxury goods ventures, auto-parts manufacturers, fertilizer plants, aluminium plants, gas networks, oil fields and mines.
- Option Valuation: The valuation of options requires a combination of technical expertise and the ability to explain the process to a non-technical audience. Our experts have valued: barrier options, American and European options over energy industry investments, the value of the option to delay investment in an oil field and exotic put options over a bank’s shares.
- Event Studies: We have used event studies to isolate the impact of a specific event on the value of an asset by reference to equity market movements.
- Monte Carlo Analysis: Some assets can only be reliably valued using Monte Carlo analysis – the simulation and averaging of many potential outcomes for an asset. Our experts have used rigorous Monte Carlo analysis to model oil prices, insurance claims, portfolio risks, as well as other uncertain parameters.
Complex Valuation Issues in Disputes
Many of the disputes and litigation cases on which we advise centre around a complex valuation issues, which may have a large impact on the value, and therefore the assessment of damages. In a number of cases we have advised on very focused issues of valuation. Because of our thorough understanding of financial economic theory and experience with valuation generally, we can provide robust and defensible arguments on specialised topics.
Valuations for litigation and arbitration may involve valuing an existing asset as if a specific historical event had not occurred – typically the alleged breaches of a contract or treaty. Our team has many years’ experience developing these litigation-specific counterfactual or “but-for” scenarios that can be tailored to specific legal context.
Cost of Capital
Understanding the finance principles and theory that underpins the cost of capital is essential when determining how to estimate the appropriate rate and how it affects the valuation of an asset, project or investment. IEF has provided advice on issues related to cost of capital including determining a company’s total cost of capital at a specific point in time or solely to estimate specific components of cost of capital such as equity betas and risk premia.
Many of the projects on which we advise involve investments in developing countries. In order to value an investment of this type, an assessment must be made for exposure to additional risks posed by the location of the investment. We have valued investments in countries across Africa, South America and Central Asia and Russia. In each of these cases, we have had to consider whether political, geographic or specific economic risks affect the value of those investments. This becomes a particularly interesting question in the case of investment treaty arbitration, where a government is a party to the dispute.
IEF can advise on the valuation of complex financial instruments, which are often complicated to value, introducing questions that may not be relevant to the valuation of real assets. These valuation issues require specialised knowledge of financial markets and a deep understanding of the financial theory that forms the basis for valuation. For example, IEF consultants have advised on how illiquidity in a financial market resulting from the recent financial crisis impacts the pricing of financial instruments.
Derivatives are often integral to the assets we value or are otherwise used in the valuation exercise. We have advised on the value of options in various contexts as well as used option-pricing techniques in our valuation assessments. We have practical experience using Monte Carlo simulations and binomial option pricing. For example, we have:
- Used real option pricing to value a development opportunity in the Australian energy sector
- Advised on the impact of an option over equity shares in mobile phone company in Central Asia
- Assessed the value attributable to an option to delay development in an oil concession if oil prices were to fall