The Next Valuation Challenge: Unlocking Companies' Valuation Framework
19 October 2010
By Jean-Sébastien Lénik
Valuation exercises are at the heart of any company's decision-making process. These exercises serve as the main quantitative tools to support decisions within a company being used in a wide range of contexts such as strategy, management, accounting, tax, and legal. The expression the "next valuation challenge" refers to the urgent necessity for companies to connect the dots between valuation exercises that they carry out in those different contexts. In this paper, NERA Associate Director Jean-Sébastien Lénik highlights the importance of a sound and consistent company valuation framework in managing for value creation.
In this context, Mr. Lénik underlines the central role of "intercompany pricing" (the economic and financial discipline that looks at the determination of prices of transactions between entities of the same group) in all companies' valuation exercises. After an overview on the framework of this challenge, he uses real-life examples in different industries to illustrate how valuation exercises, conducted in isolation of each other, have led to significant exposures and/or missed opportunities for companies.
