Adrian is a member of the Royal Institution of Chartered Surveyors (RICS), a certified RICS business valuer, former Chair of RICS UK Business Valuation Board, member Global Valuation Board, and a former board member of the Valuations Special Interest Group at the Institute of Chartered Accountants in England and Wales. In addition to being a Chartered Accountant, Adrian also holds an MBA from Henley Business School.
Adrian, thanks for taking the time to speak to us. As EY's Global Valuation Leader, you've undoubtedly witnessed significant changes in the valuation industry throughout your career. Could you share some insights on how the valuation industry has evolved?
From the beginning of my career in valuation, I was attracted to this field because it has always been at the heart of a client’s strategic agenda. Engaging with board directors on the valuation drivers in their businesses, as well as the opportunities and risks they faced, allowed me to understand how to develop a robust view on value, which was then often “tested” live in a transaction or negotiation. I still enjoy the great access valuation gives me to understanding the fundamentals of such a wide range of sectors.
Valuation has always been a subject at the heart of the boardroom. That will continue although, today the questions are not only about the immediate financial value for directors and shareholders, but also the longer-term societal and economic value.
”Valuation has always been a subject at the heart of the boardroom.
Over the last 30 years, the access to data with which to develop and support a valuation argument has significantly changed. Research and benchmarking to the market have always been fundamental to valuation, but when I started, there were relatively few sources and indeed even some that were only available in printed form. Today the issue is not the availability of data but the sheer volume of information – making sense of that is a key part of the value-add today.
the variety of assets we value has also evolved. Initially, engagements were heavily weighted towards valuing businesses and shares. I remember the excitement of valuing a well-known international beer brand a couple of years into my career.
Today, around half our work involves valuing intangible assets and intellectual property for both financial reporting and transaction-related purposes. Additionally, we value real estate and plant and machinery to provide a comprehensive view of all elements that interact together to make up a valuation.
You've discussed the increasing importance of data in the valuation process. How have valuers' skillsets needed to change in recent years, and in what areas do you think they will need to evolve in the future?
Firstly, the analytical skillset has continued to improve. To an extent this has been understanding the tools and techniques that are available to manipulate data. A critical skill though, and one that still needs to evolve, is to be able to filter the information. It is all too easy to drown in the reams of data available or to get drawn to only that information which supports one side of an argument. The ability to apply commercial common sense to the information available and to devil’s advocate against your own conclusions is really important to develop robust valuation opinions.
I saw a Henry Kissinger quote recently along the lines of too much information can inhibit the acquisition of knowledge and push wisdom even further away than it was before, which really resonated. A good valuer has to remain curious, open to all the fantastic information available, but disciplined too in their focus.
The other skill that it is important to keep working on is communication. It is vital to have the best data and analysis to hand, but it is lost if you cannot communicate your views clearly and concisely. Everyone will always have a view on value but it is the view that is most coherently presented, supported by robust analysis, that is most likely to prevail.
”A good valuer has to remain curious, open to all the fantastic information available, but disciplined too in their focus.
Considering the economic turbulence of the last few years, what impact has it had on the valuation business, and how has it influenced client needs?
Based on these changing client needs, where have you seen the EY service offering growing the fastest?
I think valuation is always a priority for both the Board and capital providers whether they be debt or equity, but in periods of volatility and uncertainty clients need our help even more. We find that there is an increased demand to ensure both from a governance and commercial perspective clients are getting the best support they can to manage through a turbulent environment. There has been a clear increase in contingency planning as clients want to be prepared for the threats and opportunities of volatility from making acquisitions and disposals, to rebutting unwelcome approaches and to restructuring their businesses as customer demand and supply chains alter. There is an increased appreciation for the value of scenario planning to assess risk and reward.
I think clients increasingly need to be able to communicate value across a wider range of stakeholders. Directors, employees, shareholders and the markets all remain important but in addition clients want to be able to communicate with societies, governments as well as their own teams the value that they are bringing to communities and the wider economy.
Also, although it is a continuation of a long-established trend, the importance of understanding the value of intangible assets, whether it be the skills of your workforce, the knowledge residing in your organisation or the power of brands, is set to continue. That is not to say to the exclusion of the tangible side of the business – a strong up-to-date factory network, for example, is still a key attribute for an industrial business – but the intangible assets can be an important indicator of a business’s continued ability to adapt in a turbulent environment and offer the greatest barrier to entry to competition that may have capital but lacks know-how.
”Within EY, ensuring that we follow IVS consistently across our network, as well as continuing to be cognisant of any other local guidance that may exist, is a great way to establish a common framework for approaching valuations.
With a growing market and regulator focus on ESG, how is EY’s Valuation, Modeling & Economics business responding to this trend?
Firstly, I think it is vital to recognise that ESG is here to stay. It is not a passing trend or a way for companies, if they ever wanted to, to simply virtue signal that they are good corporate citizens. There are fundamental changes which businesses not only want to but have to engage with as they are an irresistible part of their operating environment. As an example, energy transition will impact across sectors. It clearly affects utilities companies and the hydrocarbons sector. But across all industries, it is going to impact cost and security of supply, both of which are fairly fundamental to any meaningful assessment of value.
On multiple levels, climate change will have other impacts – what products do consumers now want to buy, how does that impact the supply chain, what are the impacts on labour productivity? On top of this, we are increasingly seeing both investors and customers make value decisions based on a business’s ESG credentials.
When we benchmark our valuations, all these factors are coming into play. We continue to invest in our economics and predictive analytics capabilities which will help to give us even more insight as we model scenarios as to the impact these emerging value drivers will have on companies.
How important do you think it is that the valuation profession has global standards?
Why are internationally-agreed standards important to a global firm such as EY?
Global standards are vital for the profession. Clients need to have the confidence that valuation opinions are being properly and robustly reached, the work thorough and checked, and the rationale well documented. At the end of the day, they are often going to transact or negotiate based on the advice of the valuer, so these are not hypothetical exercises. There needs to be a way that clients can distinguish between enthusiastic but potentially dangerous “amateurs” offering a view on value and those with the experience to deliver a thorough analysis. Valuation will remain both subjective and dynamically change over short periods of time, but to my mind, that makes it even more critical that the work and rationale to support a valuation is of the highest standard.
Business is international, financial markets are international, capital allocation is international. For valuation advisers to help support all these elements, then shared standards are a vital way of establishing consistency in approach irrespective of geography and helping to make the international flow of capital work as smoothly as possible.
Within EY, ensuring that we follow IVS consistently across our network, as well as continuing to be cognisant of any other local guidance that may exist, is a great way to establish a common framework for approaching valuations.