Valuation and Modelling

As the leading valuation practice professional firm in Japan, PwC's valuation team provides high-quality services to companies in a wide range of industries. By helping our clients, we understand the value of their business, the value of different types of shares, the value of tangible and intangible assets and liabilities, and the effect of important management decisions on their value. We support management in M&A, intra-group transactions, capital allocation, capital expenditure decisions, and other aspects of management.

Better financial models are required to perform a variety of analyses, including value analysis. PwC's financial modelling team builds a fully tailored financial model that meets the business needs of each client to support their decision-making. We maximize the value of services provided to our clients by leveraging the latest modelling tools, theories, industry knowledge, and PwC's global network when we develop our financial model.

Transaction valuation

Enterprises face increasing pressure from stakeholders including shareholders, outside directors, and employees, and are increasingly seeking transaction valuation advice from third-party specialists to justify transaction prices as part of business reorganization or when considering M&A to accelerate growth strategies.

The PwC Valuation Team utilizes a variety of analytical methods that focus on industry-specific value drivers. This allows clients and stakeholders to have a better understanding of the potential value increase created by M&A deals.

In addition, as the number of cross-border transactions increase, sharing expertise with overseas PwC networks enables us to provide the best analysis to our clients for complex cross-border transactions.

Corporate value and business value evaluation

When considering an acquisition of controlling interest in a company or withdrawing from an existing business, we support negotiations and decision-making and provide advice on key questions. Such questions include where the value of the business is for the client and other stakeholders, what the key assumptions are for the transaction price, whether the current business value is higher or if the reorganization can further enhance the business value, and how impending industry and regulatory changes affect the value of the business.

We also provide independent third-party valuation reviews including critical considerations of valuation methods and key valuation assumptions, an independent opinion on the validity of transaction prices (fairness opinion) for corporate governance purposes or compliance with laws and regulations, and tax valuation support.

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Valuation for Other Transaction Purposes

We provide valuation services for owners and potential investors of early-stage companies (start-up ventures) with negative cash flows that are unable to apply the generally applied valuation methodology reserved for mature, stable companies. In the case of investments in preference shares, we conduct the valuation based on option pricing models that reflect the differences in the rights of each class of share.

In connection with the acquisition, sale or licensing of intellectual property rights (brands, licenses, patents, know-how, etc.) we select the most appropriate valuation methods and provide valuation services for such assets.

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Valuation for financial reporting purposes

As the use of fair value measurement for financial reporting purposes increases, the importance of valuation continues to increase for financial reporting purposes for management, shareholders, other stakeholders, external auditors, standards makers, and regulators.

PwC has professionals with extensive experience in valuation for financial reporting purposes and provides a customized approach and methodologies for our valuation service that is tailored to each subject asset.

We provide our services in accordance with Japanese GAAP, U.S. GAAP, IFRS, and other accounting standards, and have extensive experience in valuations for financial reporting purposes such as PPA for not only in domestic Japanese deals but also in cross-border deals.

Purchase Price Allocation (PPA)

Accounting standards for M&A are becoming more complex year by year and may have a significant impact on profits and losses. As the use of fair value measurement for financial reporting purposes increases, it is more important than ever to understand the effect of M&A decisions on future earnings.

PwC more accurately assess the impact of the acquisition through the implementation of the pre-deal Purchase Price Allocation from the due diligence stage, and provides useful information for designing effective acquisition structure and management decisions.

We also provide fair value analysis for various assets and liabilities acquired through M&A, including tangible and intangible assets. We also work with professionals with expertise in accounting, taxation, and industry specific knowledge to meet financial reporting requirements of clients, including communications with auditors and helping to manage the overall process.

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Impairment test

Unstable financial markets and economic conditions can affect the value of many assets on the balance sheet, and companies need to make decisions on complex issues related to the measurement and reporting of impairments. Failure to make appropriate decisions about impairment may result in losing credibility from investors, regulators, and other stakeholders.

PwC brings together valuation and accounting expertise to support impairment testing of goodwill, non-amortizable intangibles, tangible fixed assets, amortizable intangibles, and other assets.

We also provide valuation services for impairment testing or conduct independent reviews of the client's valuation model to help management address impairment issues appropriately from the viewpoint of auditors, funders, regulators and other stakeholders.

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Fair value valuation of other assets and liabilities

In response to the increasing need for valuation of complex financial instruments, such as options, earn-out, preference shares, contingent claims and contingent consideration, PwC supports the evaluation of financial instruments for transaction, financial reporting and tax purposes based on our extensive experience.

We also support the valuation of employee stock options, which is required for financial reporting at the time of the issue of such stock options, the fair value analysis of unlisted securities, loans and other receivables, and portfolio valuation based on debtor information.

We also provide support for the fair value measurements for first time adoption of IFRS and retrospective Purchase Price Allocation and impairment testing for business combinations that have been carried out in the last two years since the first adoption of IFRS.

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Modelling

We believe that most important decisions should be supported by a robust financial model. Our team of dedicated modelling experts design and deliver financial models tailored to your business needs and use our bespoke model build methodology to provide the comfort you need to make critical decisions for your business. Our team of technical experts is supported by a substantial analytical toolkit, which we combine with the latest modelling technology, industry expertise and access to PwC’s global network.

Deal Modelling

We build flexible, robust models to support investment evaluation and improve positioning with finance providers by, for example, modelling key operational and financing sensitivities. We help sellers create a credible business growth story by providing insight into the key drivers of performance and we support stakeholder negotiations in restructuring situations by modelling profit and cash flow dynamics and evaluating returns to different creditor groups.

In addition, we review financial and other models developed by third parties, with the aim of reducing exposure to errors and increasing confidence in forecasts.

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Decision Support

We build flexible, robust models to support decision making across a range of different areas from investment appraisal to pricing, product range and customer groups. We develop analytics to support single and multiple investment decisions, evaluate the impact of pricing on margins and volume, and assess and visualize the performance of different product and customer segments.

We develop models to facilitate strategic options analysis for decision making in complex situations. We offer financial objectivity by establishing a robust evaluation framework and providing a pragmatic solution or tool.

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Business Planning & Reporting

We build flexible, robust models to support business planning and reporting and use visualization tools to enable senior management to view a business from may different angles. We develop models that are easy to update, integrate meaningful variance analysis and focus on industry specific KPIs and financial metrics.

Our models support cash and working capital management by increasing the accuracy of cash forecasting and strategic planning and forecasting by aligning forecasts to a company’s strategic plan.

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Value Consulting

Do you know the Value Impact of Important Decisions?

All business decisions impact value, but do you know by how much? Applying a value lens to your most important business decisions brings stakeholder value impacts into clearer focus to help:

  • Improve decision-making;
  • Build stronger consensus and alignment among stakeholders; and
  • Increase the return on capital generated by successfully executing your growth, portfolio optimization and capital strategies.

The result – improved governance and increased corporate value.

Drawing from our pool of valuation and modelling experts, we deliver independent value insight to inform leaders on where in their portfolio value is being created or destroyed (“Value Performance”) and on the value impact of critical business decisions (“Value Impact”).

Working closely with the strategy consultants of Strategy&, as well as technical and industry experts from within our Advisory business, we help clients develop strategies that will maximize corporate value.

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Value Performance

We analyze current-state Value Performance from an Outside-In (capital markets) perspective and an Inside-Out (management perspective).

In undertaking an Outside-In analysis, we view a company in the same way that a shareholder activist would view a company. An Inside-Out analysis goes well beyond such capital market view as we utilize management information to which outsiders don’t have access.

Understanding where and why value is concentrated enables us to help management prioritize investment in the highest-potential areas for growth and returns, and identify areas within a portfolio of businesses where restructuring or rationalization needs to take place.

Using this information, we can help management teams develop a more effective plan than any plan an outsider could create.

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Value Impact

Does your organization face these types of value questions?

  • Will growth generate sufficient returns on capital in order to create value?
  • How do we deploy capital across a diverse portfolio of businesses to maximize value?
  • How can we identify businesses or assets to divest to improve capital efficiency?
  • How can management performance be measured based on value creation?
  • Which cost cutting initiatives create the most value and when?
  • How might the capital markets respond to a potential strategy?
  • What impact does global expansion have on risk profile and thus business value?
  • What hard-to-quantify intangible costs and benefits should be valued in considering whether to deploy a sustainability initiative, undertake an R&D project or other type of investment?

PwC value consultants help Clients answer questions like those above, and many others. We combine the art and science of decision analysis with a deep understanding of corporate finance to understand Value Impact

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Value Driver Analysis

Applying data analytics techniques to financial and non-financial data to reveal opportunities to improve key value drivers and increase value

Do you ever ask questions such as:

  • Are the projections reasonable?
  • How do I determine the most appropriate inputs and assumptions for my financial model?
  • Do I understand the drivers that have the greatest impact on performance?
  • Have I made best use of the financial and non-financial data available to me?
  • What external factors impact performance?
  • How do I justify my mid-term plan to internal and external stakeholders?

Whether you are acquiring another company, divesting a business, developing a mid-term plan or making an important decision, our team of valuation, modelling and data analytics experts can help you to answer this type of question.

We apply a range of quantitative techniques to advise on the critical drivers of a business, the factors that have the greatest influence on them and the options available to improve performance and increase value.

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Shareholder activism

Are You Prepared?

The sweeping changes to governance and stewardship implemented in recent years have been accompanied by a gradual increase in shareholder activism. Recent high profile successes of activists may encourage a second, potentially much larger wave of activism, both home-grown and foreign. Yet many business leaders, still adapting to ever-increasing focus on returns and value creation in Japan, are feeling unprepared to deal with the challenges from shareholder activists.

With our independent, objective viewpoint, we can act as a “friendly” activist, working with you to identify long-term value creating strategies, and help you respond effectively to an activist campaign.

Learn from activists’ value creation strategies

We believe that a lot can be learned from the value creation strategies proposed by activists, and that it has to be beneficial to periodically behave like an activist by placing an activist lens on your own business. Corporate executives can go further than any activist as they have a more powerful tool for creating value: deep knowledge of their business and its customers.

Despite the wealth of disclosures, outside activists get only a snapshot of what is going on inside a company. By contrast, management has access to deep and granular information on the company’s operations, customers, markets and competitors. Understanding where and why value is concentrated enables management to prioritize investment in the highest-potential areas for growth and identify areas where margins need to be improved. Management can use this information to develop a more effective plan than any plan an outsider could create – and do it in advance of being approached by an activist investor.

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Your “Friendly” Activist

Sometimes, what is obvious to an outsider, such as an activist, may not be so clear to those on the inside. Strategies that would seem to be value accretive in the long-run, and in the interests of a broad group of stakeholders, are avoided because they would be “too hard” to implement given existing corporate structures, decision-making processes and internal politics.

We can provide an independent, objective assessment of a company’s performance, firstly from an “outside-in” or capital market perspective (the way an activist would analyze a company), and then from an “inside-out” or management perspective (using management’s deep knowledge of its business and customers).

A key objective of the value assessment would be to determine the existence and magnitude of the value gap – the gap between the market valuation of a company and the sum-of-the-parts valuation based on management’s inside knowledge and plans – and to identify reasons for that gap. The next stage would (i) consider strategies to close that gap; and (ii) re-assess whether management current plans do indeed represent the highest value strategy.

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Responding to an Activist Campaign

We can support a company that is the subject of an activist campaign by:

  • Evaluate the Activist’s Proposal
    Working with the company’s management to objectively evaluate the activist’s proposal, comparing it to management’s own plan to assess whether the activist’s ideas are in conflict with, or complimentary to, those of management. For example, if the activist is seeking to extract value by way of a share buyback, assessing whether management’s plans make better use of excess cash by creating long-term corporate value. Or if the activist is seeking to create value by divesting an underperforming business segment, assessing whether management’s plan for that segment (which is, after all, based on information that may not be available to the activist) would create more value if successfully executed.
  • Understand the Views of Investors
    Undertaking an investor survey by conducting interviews with a selection of analysts and investors to obtain a capital market view on the performance, strategy and governance of the company, and the information disclosed by the company.
  • Develop a Communication Strategy
    Assisting the company with the development of (i) a strategy for its communication with all shareholders (and stakeholders); and (ii) its response to the activist.

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Our Team

Hidefumi Yoshida

Partner, PwC Advisory LLC

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Makoto Umeda

Partner, PwC Advisory LLC

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Steve Sloman

Partner, PwC Advisory LLC

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