American Appraisal
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American Appraisal
How much is your business worth? Putting a price on something that you have built up from scratch, accounting for all the sweat, tears and joy that you have invested in it over the years, may seem near impossible.
Business valuation is, in fact, a relatively new discipline, having first arrived on Wall Street around 25 years ago when it entered the world of CPAs and those trained in finance. As the base of knowledge expanded, business valuation emerged as a consulting specialty.
American Appraisal, which celebrates its 110th anniversary this year, was one of the pioneers in building this important tool to add to its arsenal of multi-discipline valuation services, and has become one of the most trusted names in the complex world of business valuations.
Patrick Y W Wu (above), President & Managing Director of American Appraisal China Limited, explained that the appraisal business became increasingly complex with the dawn of the knowledge economy, where a substantial part of a business' value is based on intangible assets.
Employing an accountable methodology to putting a price on the seemingly "unpricable" has been American Appraisal's forte into new markets.
"If you look back, when we came to Hong Kong 30 years ago, there was a real need to provide international standards to value machinery, trademark registration, third-party value exports, and so forth up to the present day where business valuations are extremely complex," he explained.
The global convergence of accounting standards has been some time coming as there has always been the desire for the U.S. GAAP to establish as much "common language" as possible with the International Accounting Standards, which Hong Kong adopted in January 2005. This adoption has brought about a lot of accounting reforms requiring independent valuation experts to work in conjunction with accounting evaluations.
The change has shifted part of American Appraisal's income from independent valuations for transactions, to accounting driven. While this has driven up income, it has also changed the requirements of the skills sets of staff who now have to be well versed in the knowledge economy.
"How in the new economy, you have to look at the entire business, including the income prospects of the company's underlying intangible assets and financial assets," Mr Wu said.
Finding and retaining staff with these skills is not easy.
"You cannot just hire people that can meet our requirements immediately. We would look for someone in accounting with some finance experience, and some business modelling. To be a full-fledged business valuer, you need two to three years of practical experience," he said. "Together with our other professional staff covering real estate and plant, machinery & equipment, American Appraisal is able to provide a one-stop valuation service for clients who want to look at the value of a target company from any angle."
"American Appraisal is also an employee-owned company. We believe this ownership is the only way to guarantee quality, and to create a sense of belonging and ownership among staff."
Mainland opportunities
The rise of Mainland companies into the international arena has created a whole new set of opportunities, but with its challenges. Mr Wu explained that state-owned enterprises (SOEs) are very careful that they are not perceived to be creating a loss of state assets, so in pricing their assets, they tend to stick to cost of assets, regardless of the age, or usefulness of those assets.
Mr Wu feels that it is increasingly common for Chinese firms to make use of foreign capital for their own development, but if they want to attract foreign investors, they will have to make accounts more in line with international standards, so that people will see how they are spending their money.
Starting from January 1, 2007, public companies in Mainland China will have to largely comply with International Accounting Standards, a transition that is creating a host of issues, but also additional demand for appraisal services.
"I think there still will be a lot of business for firms like us, as we can advise companies on joint ventures or acquisitions," Mr Wu said. "Then this 2007 compliance will also create additional demand for accounting valuations, so on the whole, I would anticipate a good year for us in 2007."
Restrictions on foreign appraisal firms working in China are still out there, but Mr Wu said he hopes the industry will eventually open up so that international firms can compete directly with domestic valuation firms. China's dilemma on the one hand is that it must follow International Accounting Standards -- the whole world is moving to one standard -- and on the other hand they would like their own valuers to get up to speed before they open the gate.
"There needs to be a balance. Eventually that will happen, but it is very difficult to say when," he said.
