The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:
Finding where value breaks governs the shape of any restructuring deal and determines who has a seat at the negotiating table (see Practice Notes: Where the value breaks and negotiating strength and Blocking majorities).
Different creditor groups may commission different valuations as it affects their ultimate returns. There are no statutory provisions specifying which valuation method should be used, so parties rely on sporadic court guidance. This lack of certainty inevitably leads to creditor challenges as parties chose valuations which support the most favourable outcome for themselves.
Generally, it is good practice to use several valuation techniques to obtain a range of values.
The going concern basis (or enterprise or firm value) assumes the continued existence of the debtor company. The three main types of valuation are:
discounted cash flow (DCF)—net present value of future cashflows
comparable multiples—looking at comparable companies
asset-based value—valuing the company's specific assets
Alternatively, if there is a ready market for the business, the company may engage an investment bank to seek indicative bids.
The liquidation basis assumes the company is liquidated and assets sold on a fire-sale basis, generally resulting in a lower valuation.
The going concern and liquidation valuations usually set the upper and lower limits respectively and therefore the parameters for negotiations.
This test calculates the net present value of
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