KPMG Publication: The COVID-19 Pandemic Brings New Set of Considerations to Private Equity Valuation

Economic uncertainty driven by the COVID-19 pandemic is having an unprecedented impact within the marketplace. This has also significantly influenced the stock markets in the region triggering a sharp fall in value. The Bahrain stock market has witnessed and recorded a 21% drop in May 2020 since December 2019. Considering how the pandemic has caused distress and disruption within businesses due to the fluctuation in commodity prices, it is critical for organizations to reconsider their valuation framework and principles as they move forward with their investment strategies.

KPMG in Bahrain recently released their publication analyzing the impact of the COVID-19 pandemic on the valuation of Private Equity investments - ‘Private equity valuation issues in the midst of COVID-19‘. The publication analyzes how the stock market volatility and uncertainty has caused business disruption leading to significant fluctuations in the commodity prices. This creates new challenges for companies when providing accurate and reliable information to investors on the ‘fair value’ of their investments.

Speaking about the market shift,  Narayanan Ramachandran, Head of Advisory at KPMG Bahrain, commented, “Given the adverse impact that Covid-19 has had on most industries and their business operating environments in Bahrain and worldwide, investors must carefully consider the impact in the short term and the expected recovery over the medium to long term while assessing the valuation of their investments.”

While the ‘Valuation’ principles and their framework remain largely unchanged amidst Covid-19,  realistic and practical benchmarking; attention to detail and logical commercial narrative will continue to remain key fundamentals in the valuation of Private Equity. The business landscape we currently operate in has initiated a set of considerations and difficulties to overcome, which means that the ‘fair value’ should essentially reflect the market participants’ assumptions based on all available credible information as well as the market conditions as on the the date of assessment.

Seema Kasat, Director in Advisory at KPMG Bahrain, stated that “the uncertainty caused by the pandemic may translate into greater risk and may drive investors to expect a higher return that may have a negative impact on the valuation of investments. Organizations must be careful to avoid a “double-dip” in the valuation assessment”.

The report titled ‘Private equity valuation issues in the midst of COVID-19‘ is available here.