ANNUAL REPORT 2007 | 2008 - Gimv

VALUATION
AT GIMV
Methods used and link with the development
of fi nancial markets
Gimv values its investment portfolio on a quarterly basis. This is done on the basis of the International Private
Equity and Venture Capital Valuation Guidelines (IPEV). These valuation rules have been subscribed by around
35 international organizations and are used worldwide in the private equity sector. These recommendations
allow the general and theoretical IFRS accounting rules to be adapted to the specifi c worlds of private equity
and venture capital.
These accounting rules start from the principle that the portfolio
value should represent the fair value. This is the value at which
the investment could be sold, at the particular point in time, in
a voluntary sale. Forced sale or liquidation prices cannot be
used as a basis for valuation. This means that the portfolio valuation
can vary from one quarter to the next in line with market
circumstances.
Determining the fair value of a listed company in the portfolio
is in principle a simple matter. This value is the listed price of
the enterprise at the reporting date, multiplied by the number of
shares owned by Gimv. This stock market value has to be used
for valuation purposes, even if Gimv would be unwilling to sell at
that price. In the past fi nancial year, 17 percent of the portfolio
consisted of listed companies. In this way fl uctuations in the
stock market and in the price on reporting date immediately
impact the valuation of the Gimv portfolio.
The majority of the portfolio consists of unlisted shareholdings.
As these enterprises lack listed prices, an alternative valuation
method is called for. It is here that the IPEV guidelines are of
great importance. For investments less than one year old, the
original investment cost is retained as the most relevant valuation,
except if clear indications exist of revaluation during this
fi rst year. At the end of March 2007, 7 percent of the Gimv
portfolio was valued at original investment cost.
18 | Gimv Annual Report 2007-2008 | Operating and fi nancial report
In the case of buy-outs and growth capital investments, Gimv
generally looks for a group of comparable listed companies as
a reference. An average of the valuation multiples of this group
is then used to estimate the value of the unlisted shareholding.
In many cases this valuation is further corrected with a discount
to refl ect the more limited liquidity of unlisted shareholdings.
In this way a market-related valuation is obtained, and a link
created between value development on capital markets and
the valuation of the unlisted shareholdings. This explains why
unlisted shareholdings, even if they are doing well, can be the
subject of negative valuation corrections on falling markets. At
the end of March 2008, Gimv valued 31 percent of its portfolio
in this way. Given that this valuation is totally independent of the
original investment costs and fl uctuates with capital markets, it
is possible that, on sale, a capital loss is obtained against the
most recent carrying value, and at the same time an attractive
capital gain in comparison with the original investment costs.
Many companies that are fi nanced with venture capital are still
at the starting phase and develop unique products. For this
reason it is impossible in most cases to put together a reference
group of listed companies. The most objective way of valuing
such technology starters is therefore to use the value of the
latest fi nancing round for the shareholding in question. At Gimv,
17 percent of the portfolio is valued in this way.