Investments are valued by the investment manager in compliance with the principles of IAS 39 Financial Instruments: Recognition and Measurement, IFRS 13: Fair Value Measurement and the International Private Equity and Venture Capital Valuation Guidelines as recommended by the British Venture Capital Association.
Investments are stated at amounts considered by the investment manager to be a reasonable assessment of their fair value. Fair value is the amount at which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. In estimating fair value, a methodology is used which is appropriate in light of the nature, facts and circumstances of the investment.
Investments are valued on one of the bases described below. Typically, the earnings multiple basis of valuation will be used unless this is inappropriate, as in the case of certain asset-based businesses.
When valuing on an earnings basis, profits before interest and tax of the current year will normally be used. Such profits will be adjusted to a maintainable basis and multiplied by an appropriate and reasonable earnings multiple normally related to comparable quoted companies, with adjustments made for points of difference between the comparator and the company being valued, in particular for risks, earnings growth prospects and surplus assets or excess liabilities. In addition, factors such as the likely timing of an exit, the influence over that exit, the risk of achieving conditions precedent to that exit and general market conditions are considered when evaluating the price/earnings multiple.
Where a company has incurred losses, or if comparable quoted companies are not primarily valued on an earnings basis, then the valuation may be calculated with regard to the underlying net assets and any other relevant information, such as the pricing for subsequent recent investments by a third party that is deemed to be at arm’s length. In cases where an exit is actively being sought, any offers from potential purchasers would be relevant in assessing the valuation of an investment and are taken into account in arriving at the valuation.
When investments have obtained an exit (either by listing or trade sale) after the valuation date but before finalisation of the accounts of the relevant Candover Funds, the valuation is based on the exit valuation subject to an appropriate discount to take account of the time period between the valuation and exit dates and any risks that might impact on completion.
In arriving at the value of an investment, the percentage ownership is calculated after considering any potential dilution through outstanding warrants, options and performance-related mechanisms.