My answer to that is in two parts. First of all, I absolutely believe that globalization, ongoing globalization and the current and prospective economy now does, and will going forward, impact the determination of business value. But I distinguish between direct impacts and indirect impacts.
So for some businesses, not all businesses, I believe that globalization and changes in the economy – particularly after 2007 – has and prospectively will impact business value directly for many companies. I further think that some of those companies could be impacted enormously to the point of their viability being at risk. Things that might directly impact could include industry consolidation where a business that wasn’t consolidated found itself in an ever more competitive environment with shrinking margins, a non-competitive cost structure, loss of customers and so on.
I also think that ongoing globalization may result in some offshored jobs returning, contribute to ongoing technology change, and – among other things – contribute to ongoing movement of some types of service jobs.
Second, I think there are going to be indirect impacts from globalization and ongoing economic change having to do with government, central banks, and financial market’s behavior. Government behavior, where virtually all developed country governments are over levered, I think is going to inevitably result in much higher business taxes at all government levels – federal, provincial/state, and municipal. I also think that since 2008 the financial markets have been and continue to be buoyed up to a great degree by central bank quantitative easing and general easy money policies. I think that those markets are going to be negatively impacted at some point, because quantitative easing and easy money policies are going to have to end at some point.
Specifically with respect to the relationship of these things and business valuation, people – experts and otherwise who do valuations in notional context, but also in an open market context – rely to varying degrees on prevailing financial market metrics. I think the financial market metrics are today much more volatile and much less predictable and frankly lend much poorer underpinnings to sustainable business value than they did pre-2008.
So my short answer is that I believe globalization and prospective economic and financial market changes all are going to impact business value going forward in ways that may be more severe and volatile than was the case up to 2008.
Speaking frankly, I think that rendering a business valuation opinion in a notional context today is far more difficult than it was five or six years ago, and going forward may be increasingly so. It is much more difficult to forecast business operating results, and I don’t think that if financial market metrics in what arguably is a trading and not investment environment are not adjusted for globalization and prospective economic changes then notional business valuations done today and until conditions become for predicable may with hindsight prove to be quite unreliable.
Now curiously I don’t hear or see very many people in the valuation business talking about these points. That may mean readers who read and think about my views may find this discussion helpful even if they disagree with them.