KPMG Global Valuation Institute has issued a new research paper on private equity (PE) which calls into question the way in which buyout firms evaluate their performance, a subject which has been fraught with uncertainty and controversy for many years.
KPMG Luxembourg Partner Yves Courtois, co-Head of KPMG Global Valuation Institute and Head of the Luxembourg Deal Advisory practice, explained the conclusions of the paper:
“When PE firms are involved in any kind of transaction, like a merger or buyout, they are faced with a huge challenge in knowing exactly how much value will be created by the transaction, and assessing what the return to investors might be. A technique known as ‘the value bridge’ is frequently used to report performance. However, our research paper reveals that this method has many shortcomings, even if the numbers add up. For a true and meaningful reflection of economic performance, more care needs to be taken with the interpretation of the figures.”
The paper was authored by Peter Morris, a former banker with Morgan Stanley. It is the seventh management paper to be issued by the KPMG Global Valuation Institute and forms part of a though-provoking research agenda launched in 2008. Yves Courtois went on to explain how the research series came into existence:
“Many high quality research papers on valuation subjects never find their way to practitioners, so they have no influence on the evolution of standards and practice. Our goal is to act as a catalyst for the adoption of breakthrough valuation research, by bridging the gap between the academic and business worlds. Our Academic Advisory Board is made up of professors from Northwestern University in the US and Oxford University in the UK. We’re proud to have such high-profile institutions involved in designing the research agenda, and selecting and reviewing the research we sponsor. There’s a real appetite for research that’s both thought-provoking, engaging and academically sound.”
“Evaluating Private Equity performance” is available for download here.
KPMG Press release