Mike Thornton, partner and head of ‘valuation services’ at Grant Thornton (UK), was in India last week to train his colleagues at Grant Thornton India. While he shares the surname with firm’s founder, he is not related to the family. Grant Thornton is the largest audit, accounting and consultancy firm outside the big-four (Deloitte, PricewaterhouseCoopers, KPMG and Ernst & Young). It employs 25,000 people worldwide with the Indian team being 800 strong. Thornton spoke to
about the valuation business.
Your surname suggests you own the firm.
That is a coincidence. I think it helps to have that surname when I work for this firm, but really I am not related to the founder of this firm. In fact, there is another partner in London named Bruce Thornton, who is actually a grandson of the founder. We often joke about it and say that between him and myself we own the firm.
A lot of Indian companies have made acquisitions overseas. The worry has been that whether they have gone wrong in their valuations of acquisition targets. Does a company from an emerging market value a company in a developed market in a different way?
Often synergies that companies can find with an acquisition target lead them to value a company differently. The price-earnings ratios in Indian equities right now are higher than those in the US and that may mean that Indian companies can raise money cheaper than an American company. Valuations are also often driven by what someone is prepared to pay. For information technology, the valuation view of a company changes with the ability to outsource work back to India.
So an Indian company will obviously have that advantage while an American company may have to work without that when deciding on the value of another American company. Then there is the question of growth. Indian companies that want to serve the huge growing Indian market will value a company like Jaguar-Land Rover differently than one that is not looking to serve a high-growth market. Then again, another objective of an acquisition is to spread the risk and a company from emerging economies can do that by buying into a company in a developed country.
How is it valuing an unlisted firm? A lot of private equity investments are likely to happen now and these firms invest more in unlisted companies.
Actually, it is more fun valuing an unlisted firm, as there are a lot of unknowns. I agree that a lot of private equity deals will happen now as these firms lost their way in the crisis over the credit crunch. Now there is a build-up of money in these firms and they are coming back aggressively. The basic objective of a PE firm is to find an investmet opportunity cheaper than the markets. And they also have to compete with the stock exchanges, as the promoters of the firm would always try to see if they could raise money easily through the markets.