Contributing to the development of valuation practice in the wider African market
Lack of financial information remains one of the key challenges of doing deals in Africa, with the inability to agree on value reported as the leading cause of deal failure
PwC's biennial Valuation Methodology Survey focuses on technical valuation issues and seeks data from practitioners that is intended to provide investors with a starting point for investment analysis in African markets.
Deal-making in emerging markets presents its challenges. Understanding the pitfalls underlying deal failure and the drivers of deal success enables us to provide sound advice to our clients throughout the deal-making process.
In addition to the technical issues normally surveyed, we have in the 2016/2017 publication asked respondents about their experience in doing deals in Africa.
Deal-making in emerging markets can be challenging. This is particularly the case when market conditions are challenging and fluid. Failing to complete a transaction results in considerable opportunity costs in the form of management attention, time and money, not to mention the potential of missing out on a value adding opportunity. We queried respondents on the relevance of factors they think might have caused their deals not to be completed.
While the income approach remains the most popular approach, valuation practitioners increasingly seldom use only one approach to value businesses. In this section, we highlight the most popular valuation approaches being used in business enterprise valuations in Southern Africa and amongst the main themes investigate the various components of the CAPM. We were particularly interested in determining whether any changes have taken place in the choice of approaches followed by market participants since our previous survey in 2014.
Variations in the breadth and depth of financial markets in West Africa may explain the wide range of approaches used by respondents in deriving benchmarks for valuation purposes. The availability of publically-traded government bonds influences the choice of proxy for the risk-free rate whilst local analysts often prefer to subscribe to information systems and databases as sources for beta rather than use observable raw data, for example, share prices. We queried respondents from West (and Francophone) markets on their current practices and report on the findings in this section.
In the East Africa market, where there are relatively few listed companies that can be used as a reliable source for market multiples, it is not unsurprising that the market approach presents practitioners with some challenges. The majority of respondents indicated that they consider making adjustments in determining appropriate multiples in terms of the market approach. We queried respondents from East markets on their current practices and report on the findings in this section.
Of this total funding commitment, 83% is reported as having been earmarked for projects in the transport and energy sectors, with commitments being defined as direct funds approved in any given year for projects over their lifetime. These funds derived from various sources, including private equity investors, debt financiers, national governments, developers and major contractors. The sourcing of funding for smaller-scale developments such as the increasing range of renewable energy opportunities still presents significant challenges, though.
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