Fascinating stuff at Doughty Hanson. The spat over the valuation at which two of the co-founders, Nigel Doughty and Richard Hanson, can buy out a third, Bruce Roe who retired last summer, raises eyebrows on a number of fronts.
The company’s rules say that the founders, of whom there were originally five, have the right to buy any stakes being sold at fair value as determined by an independent auditor. The auditor in the case is PwC - and Mr Roe is challenging the value placed on his shares by the accounting firm.
But what is astonishing is the discrepancy between the two sets of numbers. PwC reckons that Mr Roe’s 12,240 shares are worth £9.4m. Mr Roe thinks they are worth 11 times that - £104m.
But this is what everyone here does for a living, right? Value things. Value businesses, more specifically.
Mr Roe’s lawsuit disputes the methodology used by PwC.
So you tinker with the growth rates or discount rate in a DCF model, perhaps take some carefully chosen comps to edge a valuation in the preferred direction. That’s a given. But what kind of methodological difference creates a variance of 11 times? If there’s that kind of slack in private equity valuations of businesses, we’re all in trouble.
Note too that Doughty Hanson pulled a plan to raise €1bn late last year through a fund on Euronext. They were floating a fund, rather than the company, but presumably work done in preparation for such a listing would give you a headstart in determining roughly how much your business was worth overall.
We don’t know currently how large Mr Roe’s stake is - and therefore the implications for Doughty Hanson’s total valuation. On Tuesday, PwC was unable to discuss why its numbers were so out of kilter with those of Mr Roe, referring requests for further information to Doughty themselves.
