
Company valuations in times of low interest rates
For some time now, the importance of company valuations has been increasing in practice. This increase is due not least to the fact that valuation occasions have increased significantly in the past. This applies both to voluntary company valuations for the purpose of potential takeovers and to valuations that are mandatory due to obligations under company law or due to disputes under family or inheritance law. This development will continue in the future. In this context, for example. the upcoming inheritance tax reform will lead to a significant increase in the number of business valuations, partly because the existing exemption options for business assets will undergo a serious adjustment. Where in the past no valuation of existing assets was necessary for inheritance tax purposes due to the statutory provisions of the ErbStG, in future there will be no way around a business valuation in many cases.
In our daily practice, however, we are already observing an increased willingness on the part of companies and entrepreneurs to take advantage of the benefits of a company valuation, for example. for the purpose of securing a purchase price for themselves — not least against the background of increasing compliance and corporate governance requirements.
The current low-interest phase is currently affecting almost all companies across all industries and regardless of company size. For companies that use e.g. have to perform an annual impairment test under IFRS due to existing goodwill, the low interest rate means that the company’s assets may be valued higher than they actually are based on their actual net assets, financial position and results of operations. The danger of the formation of a so-called goodwill bubble is great.
In general, it can be assumed that a large number of companies tend to be overvalued due to the low level of interest rates. It is not yet possible to assess what the consequences will be in individual cases if interest rates rise again. Another problem is that the possibilities of influencing the interest rate are very limited. Moreover, it is uncertain when the interest rate trend will reverse again. It is therefore important for companies to keep an eye on the effects of the low interest rate and to initiate measures at an early stage to counteract potential risks in good time.
About Prof. Dr. Christian Zwirner
Prof. Dr. Christian Zwirner is Managing Director of Dr. Kleeberg & Partner GmbH WPG StBG in Munich. He focuses on issues of business valuation. To this end, he publishes regularly. Prof. Dr. Zwirner is also the editor of the Handbook of Business Valuation and contributes his expertise to various professional bodies.
About Dr. Kleeberg & Partner GmbH
Kleeberg, based in Munich and Hamburg, advises national and international clients comprehensively on tax and business management issues as well as on all issues in the field of auditing. Our highly qualified employees are proficient in the full range of consulting services in the areas of tax consulting, auditing, business consulting, international support and corporate finance. Kleeberg is also a member of Crowe Horwath International and, in its Advisory division, specializes, among other things, in corporate valuation issues.