In today's post Magdalena Antrobus interviews Ascanio Salvidio about the state of art in business valuation industry in Italy. Ascanio (ODCEC, ACA, FRICS) is a business and intangible assets valuer providing valuation services in a variety of industries as well for Italian civil and criminal courts. As member (2011-2018) of the Management Board of the Italian valuation standard setter (OIV), he has contributed to the drafting of the first edition, issued in 2015, of national valuation standards (Principi Italiani di Valutazione). He also sits in the Business Valuation Committee of the Italian National Board of Chartered Accountants.
MA: Hi Ascanio. Could you share some insights into the emerging trends or methodologies that are gaining traction within the business valuation industry in Italy? How are these new approaches enhancing the accuracy and reliability of valuation outcomes?
AS: Rather than the emergence of specific methodological trends, the main novelty has been the publication, in 2015, of the Italian Valuation Standards (Principi Italiani di Valutazione or, in brief “PIV”). PIV have been issued by our national standard setter, which is the OIV (Fondazione Organismo Italiano di Valutazione, www.fondazioneoiv.it). OIV has been established, in 2011, by foremost national entities concerned with the quality of valuations: Assirevi (society of major audit firms in Italy), Aiaf (society of Italian financial analysts), Andaf (society of Italian companies’ CFOs/CAOs), Consiglio Nazionale dei Dottori Commercialisti ed Esperti Contabili (institute of Italian chartered accountants) and by Bocconi University. PIV are largely inspired by the standards issued by the IVSC. But they are enriched by references to our national practice in business administration and finance, as well by the deepening of valuations that are required by certain Italian corporate laws. Since their issuance, PIV have gained a high recognition in the Italian valuers’ community. This, in turn, has resulted and is still resulting in a general improvement not only in the quality of valuations in terms of accuracy and reliability, but also in the transparency of valuation process and communication of results.
MA: Are there any specific regulatory or legislative updates in Italy that have had a significant impact on the business valuation profession? How have professionals like yourself adapted to these changes to ensure compliance and maintain best practices?
AS: In 2005, adoption by many Italian companies of International Financial Reporting Standard has, for the first time, brought out a demand for recurrent valuations of goodwill, intangibles and business interests. Regular scrutiny of these valuations by managers, auditors, and investors has, in turn, led to a growth in valuation specialism. In the following years, various legislative and regulatory updates have also directly or indirectly increased demand for valuation services. I am referring to the reforms in the area of bankruptcy proceedings, which, already since 2007 and up to the present, have given increasing importance to non-liquidation solutions for the resolution of business crises. Now, it is clear that the preference of the restructuring of the company over its liquidation depends mainly on its suitability to preserve and create value. It is, therefore, a matter of being able to reliably measure whether this can occur. The technical tools are those of business valuations, although used in the context of more complex solvency and planning analyses. The culture of reliable, accurate and traceable business valuation has also found its way into insolvency proceedings. A further boost to the development of the demand of valuation services of companies and intangible assets has been given in recent years by various tax measures, such as: the recurrent provisions on the alignment of the historical cost of equity investments to their market value and the so-called "patent box" benefits.
Increase of demand of valuation services has also boosted competition and the way valuation professional that would like to keep pace with new developments is, basically, the same in Italy as everywhere: investing time in study and money in information sources.
MA: Italy has a diverse business landscape, ranging from traditional industries to innovative startups. How does the business valuation profession in Italy address the unique challenges and intricacies associated with valuing companies operating in different sectors or stages of development?
AS: According to World Bank, Italy ranked, in 2022, at n. 10 in terms of GDP size. While this puts our country among the wealthiest ones, the average size of businesses is smaller than that of most other strong economies. Most Italian businesses are closely held by their founders and/or their heirs and families. This means, in other words, that whether in traditional industries or not, most Italian companies bear a significant risk of management and generational change and this phenomenon represents a true challenge for business valuers. The key to a reliable valuation would be, in this case, the attentive scrutiny of a company’s prospective financial information, rather than trying to increase cost of capital to off-set company specific risk on the basis of additional premia. It is, however, common experience of Italian (and I guess also of many non-Italian) valuers that planning and forecasting is one of the weakest traits of most of our medium and of not few of our large companies. So the true intricacy is to find the way to deliver in an acceptable time a valuation that tries to minimise the recurse to standardises cost of capital adjustments, when company prospective financial information is poor and your client will not wait weeks or months for you to review and generate the “perfect business plan” (not considering the responsibility that a valuer will take on its shoulders when venturing in the field of corporate planning, which should be the “hortus conclusus” of managers only).
MA: Collaboration and knowledge sharing play a crucial role in advancing any profession. In Italy, are there any notable initiatives, organizations, or networks that foster collaboration among business valuation professionals? How do these platforms contribute to the professional growth and development of practitioners in the field?
AS: Business valuers in Italy operate from/through various entities and organisations: international consulting firms, investment banks and funds, chartered accounting firms of various sizes. There is no unique “platform” (a society, a body, etc.) of reference for valuers. In terms of collaboration and knowledge sharing, Italian chartered accountants are, in my view, very prolific in terms of courses and seminars in the field of business valuation. And the only Italian BVPO known to me, “Acova” (www.acova.it), has been created in 2018 by a group of chartered accountants. Finally, there is no Italian valuer designation. Not yet, at least. I believe that the reason is very simple: there are many authoritative valuers credentials world wide and Italians are very practical and do not like to re-invent the wheel.
MA: Lastly, what do you envision as the future direction of the business valuation profession in Italy? Are there any specific areas or aspects that you believe will undergo significant transformations or require further attention in the coming years?
The limit of every valuer today is that we live into a world that has never been so rich of information, but when we are instructed to value a company or an intangible asset, we barely have the time to collect what is (supposedly) relevant and to process it. AI developments will likely meet these time and process capacity constraints. Some of my fellow valuers I talk with tend to think that AI will force many out of this industry. I believe, instead, that the demand of valuation services will significantly grow thanks to AI and will attract more people than today in this industry.
MA: Ascanio - thank you so much for talking to us!