Assessing Impact of COVID-19 Related Lockdown Restrictions on Valuations

The COVID-19 pandemic has disrupted businesses, caused market volatility and triggered asset devaluations across the globe.

Bill Conerly, a Forbes economist, states that the pandemic hurts economies in four ways:

• Supply chains failures;
• Direct effects of illness in terms of lost work by those who are sick or tending to the sick (currently insignificant impact in South Africa);
• Indirect effect of quarantines, travel restrictions, restaurant and company closures, and so forth; and
• Demand shocks as people’s incomes are limited by job loss and, in the case of small business owners, profit and loss.¹

Our team of valuation and deal advisory professionals sought the views of local participants from various sectors to assess their views on how lockdown restrictions had impacted their businesses and value drivers.

We also looked to determine whether valuation metrics and models had been adjusted to incorporate the effects of this unprecedented crisis.

In addition, were participants considering using impairments to account for the impact of the pandemic in current and future financial reporting?

Amongst other questions, the survey investigated whether various stimulus packages put in place by the South African government had been utilised by local businesses to alleviate the impact of COVID-19 and how these were accounted for.

The results of the survey reflect the views of 22 participants, and while these should not be generalised to entire sectors, they provide fascinating insights into the challenges currently faced by businesses.

The participants surveyed are South African entities operating in various sectors as summarised below:

• Mining
• Technology
• Financial Services
• Private Equity
• Energy

To access the report, click here.

Footnotes:

1: Source : Bill Conerly , (20 March 2020) , Economic Forecast Update March 20, 2020 For COVID-19, Coronavirus Impacts. Forbes. Available at https://www.forbes.com/sites/billconerly/2020/03/20/economic-forecast-update-march-20-2020-for-covid-19-coronavirus-impacts/#237c51c42f07 (Downloaded: 15 October 2020)