| Private equity entities better to gear up for the IFRS |
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| 22/05/2005 | |
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Even as listed European companies have already made the leap to IFRS, most private companies and private equity funds still largely disregard the effect of this accounting transition on their business, which imply fair valuation. Yet, most of those entities are likely to be affected by the adoption of IFRS, according to the European Venture Capital Association (EVCA) and PricewaterhouseCoopers (PWC). In a discussion paper, PwC and EVCA's analysts point out that while only listed companies domiciled in the European Union are directly subject to the IFRS, many private equity businesses are likely to feel the heat from the international accounting standard. Group switching to IFRS as well as managed listed funds can require their controlled private equity entities to prepare consolidated accounts in line with the IFRS. Exits through IPO and sales to listed companies of private companies will now require IFRS valuations, financial information and related data. "IFRS reporting will become standard practice for potential acquisitions", state PWC and EVCA's analysts. Moreover, according to law firm Freshfields Bruckhaus Deringer, IFRS is likely to be adopted by take-privates and secondary buyouts of companies with listed high yield or securitisation bonds. "We expect EU-listed buyers increasingly to require IFRS financial information to assess the impact upon them of an acquisition", puts the law firm in a research note. Regarding private equity funds, only listed private equity funds that are registered within the EU fall under the EU legal requirements to prepare their financial statements in accordance with IFRS. There are relatively few of them for the time being, but PwC and the EVCA point out that "many investors require IFRS information for their reporting purposes and so, in practice, the use of IFRS within the industry is becoming increasingly common." In turn, IFRS are likely to spread out very quickly throughout the private equity industry. PWC and the EVCA anticipate that all companies will be expected at some point to report in IFRS compliant formats. For investors, the valuation of private equity investments could now be facilitated by the publication of guidelines on the valuation of private equity by EVCA as well as the British and French private equity associations, which emphasize the use of fair value. As of now, the valuation of private assets, unlike for public equities, still has to be estimated using various valuation methodologies that have yet to be standardised. J.L. |
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Articles of the same Topic : Private equity |
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