CHARLES F JONES & SON LLP - A VALUATION UPDATE

25th March 2011
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In theory, the advice given to a seller regarding Market Value should be within 10% of the valuation that a valuer would report within a formal valuation for secured lending purposes. However, in many cases there is a wide discrepancy between the two and this can be due to one of a couple of reasons.

Firstly, does the valuer have the requisite experience and back-up of comparable evidence? There are a number of valuers who do not and therefore rely upon “hearsay” evidence which can be wholly misleading. How many people talk about values “per pitch”. Whilst there might be an average in some cases, is your business the “average” or does it have special attributes that makes it worth more?

Secondly, is the valuer inclined to give a higher value just to get the instruction only to find some months later that he has to go back on his advice and blame the market for a “down-turn” in values to achieve a deal and save losing face.

As with all commercial valuations there are guidelines that a valuer must adhere to. But only with a full understanding of the current market conditions, regional and geographic variables and individual park dynamics, can a valuer provide an accurate valuation figure. And what about POTENTIAL?

It is crucial when having your business valued be it for personal reasons or by a purchaser’s bank for funding purposes that the valuation is undertaken by a qualified valuer who has the requisite experience. How frustrating in the case of the latter where a sale has been agreed only to fall down because of the valuation!

The financial institutions have tightened up their lending criteria considerably since 2008 and not surprisingly they now look at the sustainability of income and serviceability of the debt. It is therefore imperative that a valuer understands the mechanics of how a business works so that he can advise on sustainability of income. A value “per pitch” does not satisfy either!

We are now seeing more transactions going through which is good news for the industry as a whole as the values that are being achieved are reflective of the strength of this sector of the leisure industry. There has been talk of values declining since 2008 but in reality, where a business was correctly valued for security purposes the only difference now is that the high premiums that were being achieved are harder to realise as they are more difficult to finance. In the majority of cases the underlying values have not changed and if anything most will have increased where income streams and profitability have continued to grow.

Comparable evidence will reflect what is happening in the market at a given time but more importantly it is the profitability and potential of the individual business that dictates value. For that reason the financial institutions now require the valuer to provide a detailed “Methodology” to support the valuation. So much for valuations on a “per pitch” basis – in future therefore only valuers with the requisite knowledge and experience of the industry will be able to carry out valuations for the banks and this must be for the betterment of the industry as a whole.

Ensure therefore that you only allow a Specialist Valuer to value your business.
For further information contact Charles F Jones & Son LLP on 01244 328141 or email rbgh@cfj.co.uk

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