2.30 A range of valuations were undertaken during the privatisation process, including the market valuation placed on the business by Carlyle. To understand what drove the change in value the NAO commissioned the Parthenon Group to provide an opinion on the valuations undertaken at the various stages of the privatisation.26 As part of this process, the Parthenon Group also undertook its own valuations. Although these valuations are based on the financial data that would have been available to other parties at the time they cannot take account of the prevailing market sentiment or other intangible factors that could influence the value of QinetiQ. The values ascribed to QinetiQ at key stages, with explanations for the differences, are set out in Figure 8. The Department believes that Carlyle's bid was the first market valuation by a willing buyer and dismisses any other estimated value as unproven and theoretical. We note, however, that to achieve market value the competitive process needs to be strong (see paragraphs 2.8 to 2.10).
8 | The Parthenon Group's analysis suggests that QinetiQ was undervalued | |||
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Date | Comparative Valuation(£ million) | Parthenon Group Valuation (£ million) | Explanation | |
Jul 20011 | £862 (PwC) £467 - £649 (KPMG) | £773 - £856 | Broadly in line with PwC valuation. KPMG used more conservative assumptions. | |
May 2002 | £495 - £625 (UBS Warburg) | £577 - £657 | UBS Warburg used conservative assumptions to value Solutions Business. Intellectual Property Rights held by QinetiQ were valued at cost although these could potentially generate significant revenue. UBS Warburg valuation of the estate was based on net asset values not cash flows. | |
Nov 2002 | £319 (Carlyle) | £341 - £513 | Carlyle did not value potential revenue from Intellectual Property Rights. Reduction of £30 million for the LTPA was insufficiently justified. All excess property excluded from the valuation. | |
Source: The Parthenon Group report on the Formation and Privatisation of QinetiQ commissioned by the National Audit Office, July 2006 | ||||
NOTE 1 See paragraph 2.22. | ||||
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26 The Parthenon Group analysis includes the following disclaimers:
■ 'Value can only be truly determined in an open market. Valuation of companies is a matter of judgement which is impacted by the valuer's interpretation of available financial information, prevailing market sentiment and other factors, including, but not limited to, the quality of management.
■ 'Valuations undertaken by parties involved in the formation and privatisation of QinetiQ may (and probably would) have used additional data sources to support their assessment for QinetiQ.
■ 'While Parthenon has used professional judgement and knowledge of QinetiQ and the private equity and capital markets as we deem appropriate at the time to qualify our valuations for the business, there will have been market factors and prevailing market sentiments among the participants that were not then quantified and that cannot be incorporated in our retrospective valuations.
'Parthenon has not had access to management in forming retrospective valuations, which would be a critical part of advising any client on valuation of their business or prospective acquisitions.'