International business valuation has become a vital part of today’s international corporate finance activities. Within the scope of continued globalization, financial experts face the perpetual challenge of measuring country-specific risks and including these risks in valuation models.
This book is based on the fundamental principle of traditional business valuation and demonstrates how companies and business units are to be assessed outside their domestic markets. It presents different approaches of modelling a country risk premium as developed by investment banks and auditing companies and explains how an international corporate assessment is being conducted using South Africa as an example of an emerging/high growth market.
Inhaltsverzeichnis
Preface 5
Table of Content 9
1 Introduction to International Business Valuation 13
1.1 The Term International Business Valuation 13
1.2 Reasons for International Business Valuations 15
1.3 Specifics of International Business Valuations 16
1.3.1 Differences in Accounting Standards and Taxation 17
1.3.2 Different Currencies 18
1.3.3 Exchange Rate Fluctuations and (Hyper-) Inflation 19
1.3.4 Country Risks 19
1.3.5 Transfer Risks 20
1.3.6 Availability and Reliability of Information and Financial Data 20
1.3.7 Interpretation of Key Figures Derived from Local Market Data 21
1.3.8 Applicability of Traditional Valuation Methods 22
1.3.9 Legally Required Valuation Methods 23
1.4 Methods of International Business Valuation 25
1.4.1 Single Valuation Methods 26
1.4.2 Mixed Approaches 31
1.4.3 Total Valuation Methods 32
1.5 Approaches in International Business Valuation 41
1.5.1 Presentation of a 5-Step Model for International Valuation 41
1.5.2 Business Analysis and Business Planning 43
1.5.3 Establishing the Framework Conditions for the Valuation and Choice of One or Several Valuation Methods 51
1.6 Literature on International Business Valuation 54
2 Initial Thoughts on International Business Valuation in Emerging Markets/ High Growth Markets 59
2.1 Emerging Markets/High Growth Markets 60
2.2 Consideration of Different Currencies in International Business Valuation 62
2.2.1 International Business Valuation in Local Currency of the Emerging Markets/High Growth Markets 63
2.2.2 International Business Valuation in the Hard Currency of the Reference Market 69
2.3 Applicability of CAPM in Emerging Markets/ High Growth Markets 73
2.3.1 Critical Assessment of CAPM 73
2.3.2 Can the CAPM be used in Emerging Markets/ High Growth Markets? 77
3 A Closer Look at Important Model Parameters in International Business Valuation with the CAPM 87
3.1 The Market Risk Premium – Definition, Influencing Factors and Determination 88
3.1.1 What is the Market Risk Premium? 88
3.1.2 Determination of the Market Risk Premium 89
3.1.3 Thoughts on the Risk Premium in Emerging Markets/High Growth Markets 94
3.2 Country Risk – An Additional Risk Factor in Emerging Markets/High Growth Markets 95
3.2.1 The Need for a Country Risk Premium 95
3.2.2 How is the Country Risk Premium Calculated or Estimated? 100
3.2.3 Attribution of the Country Risk Premium to the Individual Companies 110
3.3 The Beta Factor 118
3.3.1 Methodological Questions about the Determination of the Beta Factor 118
3.3.2 Determination of Beta Factors in Volatile Markets if Financial Data is not Available 120
4 International Business Valuation in South Africa 131
4.1 Expanded Model for International Valuation in Volatile Markets 133
4.2 Adaptation of Business Planning and Cash Flows 136
4.2.1 Adjustment of Cash Flows to Correct for Countryspecific Accounting Regulations 137
4.2.2 Adjustment of Cash Flows to Correct for Excessive Management Remuneration 142
4.2.3 Adjustment of Cash Flows to Correct for Excessive Expensing 143
4.2.4 Adjustment of Cash Flows to Correct for Inflation 145
4.3 Adjustment of the Cost of Capital (Discount Rates) 151
4.3.1 Determination of the Cost of Equity with the help of CAPM-based Models 151
4.3.2 Determination of the Cost of Equity with the help of models that are not based on the CAPM 182
4.3.3 Overview of the Calculations Needed for the Models of International Business Valuation 191
4.3.4 Comparison of the Models 192
4.4 Model Selection 195
4.4.1 An Overview of the Cost of Equity of the Various Models 198
4.4.2 Determination of the Cost of Debt 199
4.5 Additional Adjustments for the Incorporation of Unsystematic Risk 201
4.5.1 Company Size (Size Effects) 203
4.5.2 Block Premium (Majority Discount) 204
4.5.3 Mobility Premium (Liquidity, Fungibility Premium) 205
4.6 Calculation of the Business Value 207
4.6.1 Calculation of the Business Value with the WACC Approach 207
4.6.2 Calculation of the Business Value with the Equity
Approach 221
Summary of this book 237
Bibliography 239
Index 245
Über den Autor
Prof. Dr. Dr. Dietmar Ernst ist leitender Professor der European School of Finance an der Hochschule für Wirtschaft und Umwelt (Hf WU) in Nürtingen.
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