Case Studies: Valuation Services
Purchase Price Allocation (PPA) in the pharma sector
The Deloitte valuation team performed a purchase price allocation (PPA) under IFRS 3 for a large pharmaceutical company in relation to its acquisition of a listed early-stage biotech company focusing on the development of monoclonal antibodies in the therapeutic area of oncology.
Our approach encompassed the identification of the material intangible assets of the acquired business, the adjustment of the assumptions made by our client’s management to reflect a 'market participant perspective' and the set up a financial model to value each class of intangibles separately based on various input parameters including success probabilities during the R&D process, expected peak sales, R&D costs, related costs and the appropriate cost of capital.
Our valuation was completed in September 2008.
Valuation of a Private Equity company
The Deloitte valuation team performed an indicative valuation of a private equity management company in the course of a transaction. Our role was to provide illustrative value calculations under various assumptions related to current and future investments and fund setup parameters. Apart from the demanded value estimate we also provided insight into potential future development scenarios of the PE business depending on the behaviour of key value drivers.
Our primary methodology was an income approach to derive a value based on free cash flow to equity. The result of this approach was verified with a relative valuation approach using price to assets under management and price to earnings multiples.
For the purpose of our valuation and advice we modelled expected future cash flows of existing and potential PE funds and the payment streams to the management company. The underlying assumptions for the model were discussed in several meetings with our client as well as our Deloitte PE industry experts. We utilized this together with publicly available information on private equity markets to create scenarios.
The project was completed in June 2009.
Valuation of distressed banking assets and liabilities
As a consequence of the continued deterioration of the Icelandic banking system in wake of the global economic crisis, the Parliament of Iceland passed emergency legislation in October 2008 which gave far-reaching powers to the Icelandic Financial Supervisory Authority (“FME”) to intervene in the affairs of ailing banks. With the request of the three largest local banks for support the FME decided to restructure the banks and transfer domestic deposits and significant domestic assets to three newly created banks corresponding to the three ailing majors. With this step the FME intended to secure the continuation of domestic banking services, to protect the public’s bank deposits and to down-size the banking sector to a level more in line with the size of the economy.
Deloitte was engaged by the FME to calculate the fair value of assets and liabilities transferred to each of the new banks from the respective perishing banks. The purpose of our engagement was to provide supporting documentation for the negotiations between the relevant stakeholders of the perishing banks and the new banks. The engagement was executed by a joint valuation team with experts from the London, Zurich and Reykjavik offices.
We performed an in-depth study of assets and liabilities for each entity in question and applied various valuation methodologies in order to best reflect the value of the distressed assets and liabilities assuming a new macroeconomic environment. To support our valuation work, we also prepared a detailed study of the key Icelandic industries and their future prospects.
The project was completed in April 2009.