Insight - 21 March 2021

Insights: Valuations Outlook 2021-22

Our valuation experts discuss dominating trends they expect to see in 2021-22, industries to watch and their predictions for the next 2 years. 

In 2021-22 economies globally are expected to rebound. The forced disruption to economic activity imposed by Governments to fight the spread of the Covid pandemic is hopefully nearing an end with the rollout of vaccines on a mass scale. Restrictions will still be in place, resulting in some fundamental changes in business and customer behaviour.

Valuation Professional

Ben Roden, Head of APAC Valuations 

I am optimistic for the mining industry because of the global stimulus and construction on the back of low interest rates, Government incentives and infrastructure spending. Longer-term, I expect to see manufacturing supported and growing in many countries as Governments sure up supply chains and shift risk away from China.

Trends that we are seeing now include, an increase in valuations to support ABL activities – AR, Inventory and Plant & Equipment in Australia and Asia. There will be an increased focus on companies managing assets better to support leveraging objectives. Also, an interest in Intangible Asset Valuations – intangibles are not well understood in APAC, however its contribution to overall enterprise value is significant and needs a stronger focus.

Within the coming years, we predict that there will be innovation and growth in lending products, improved management across Australian businesses, and a better understanding of opportunities within intangible assets.

Ben Roden

Global Valuations Pioneer & Leader

Chris Hall,
Hilco Valuations Europe

The decline in the high street, tough trading conditions for casual dining establishments and manufacturing has led to unprecedented demand for disposal services. In terms of the Plant and Equipment (P&E) assets, virtually no industry will remain passive during the recovery phase from Covid. However, the P&E asset class is growing in demand, and it is very much a seller’s market.

The ‘hottest’ industries are likely to be retail and manufacturing. Manufacturing globally will increase significantly as global economies recover towards the end of Q3 in the next financial year. However, with ever-tightening operating margins for businesses, it is not entirely clear where the winners and losers will be.

Looking to the future, disposals of plant and machinery are only likely to increase as the government withdraws business support. This will stabilise and potentially even start to shrink within the coming three years as the immediate shock of a return to normal trading subsides. Demand for valuations of physical assets is only going to increase as companies look to borrow through ABL, asset transfer or for disposal.

An industry to watch is specialty finance companies, the buy now, pay later (BNPL) industry is one to keep an eye on. I’m extremely bullish on this industry growing leaps and bounds.

William Price | Hilco Diligence Service – Financial Instruments Expert

Monetisation Experts

Josh Sanders, SE Asia

In terms of industries to watch, the mining industry is expanding as miners see favourable prices for minerals through rising Chinese demand for raw materials. The mining industry has the potential to contribute to the growth of the economy through increased exports, taxes and employment. Civil Construction projects continue to forge ahead as part of Governments ‘build, build, build’ campaigns. In the Banking Industry, payment moratoriums will cease this year, triggering a surge in bad loans and an uptick in distressed assets.

We are seeing an increased demand for assets in the numerous road/bridge and tunnelling projects across the region. Companies are seeking to reduce large workforces where possible and auto manufacturing has seen a decline with two companies ceasing manufacture. The rest of the major players in the market continue to produce cars, though they may look to reduce the range of products.

With a rapidly growing e-commerce sector (government and private infrastructure initiatives) it would be fair to predict that in 3 years the region will be back on track. Lockdowns in parts of Asia have been more stringent and longer-lasting than in other parts of the region ensuring an unbalanced recovery. Over the past decade, developing Asian economies have been among the world’s fastest-growing for example the World Bank forecasts the Philippines, where Phil resides, GDP to expand 5.9% this year. It is predicted that the Philippines GDP is likely to return to its pre-pandemic peak around 1H 2022. The government’s $30 billion infrastructure budget, along with the increase in mining activity will help to create over 1.7 million jobs within the country.

Josh Sanders

Intangible Asset Expert

Nat Baldwin,
Hilco Streambank Europe

Growth during the coming year is likely to remain within the e-commerce sphere with the further advancement of the digital era. This increase in e-commerce was inevitable however, the industry has accelerated with the COVID-19 crisis and the divide between those who have invested in intangibles such as brand and technology and those who have underinvested will continue to widen. With this shift, the Intellectual Property (IP) industry can be seen as the forerunner by increasing opportunities amongst businesses and allowing them to successfully develop within these uncertain times.

Asset classes covered under IP include trademarks, copyright, IPv4, patents, proprietary software and any other intangible assets. Trends within the marketplace show ever-increasing demands for IP valuation services. This is only likely to increase as insolvency rates rise from the artificial lows of last year. There has also been an increase in demand for specialist brokerage services and the disposition of Microsoft Licences and internet protocols as companies clean up shop and reassess. As the market returns to normal trading, intangible asset valuations for insurance, restructuring, asset transfer or disposals will continue to be relied on.

It’s predicted that intangible assets will become popular commodities as the shift towards online retailing continues. The growth in online sales will create opportunities with larger firms seeking to diversify their interests and smaller start-ups appearing to saturate gaps in the market. Equally, brick and mortar businesses will continue to decline, either collapsing into larger parent companies with well-diversified portfolios or becoming more local and highly specialised. This shift in high street retailing will see demand for restructuring and we would expect Asset Based Lending (ABL) to increase significantly.

Australian Restructuring & Insolvency Expert

Chris Leeds, Head of Advisory & Finance

Governments are likely to pump money into infrastructure projects and may also look to provide incentives to local industries including manufacturing. We are expecting more insolvency activity when the Australian Taxation Office enforcement area opens up again and starts trying to collect unpaid taxes.

Notably, due to a shortage of new equipment, the price of second-hand equipment is surging in many industries.

It’s predicted that the insolvency market will get back to normal over the next 12 months. However, we still think there will be a fair bit of pain within the business community and the insolvency market to be relatively busy from the middle of the year.

Chris Leeds

HB Khoo
Valuation Professional

HB Khoo,
SE Asia Valuations

Overall, there has been a surge in delinquent accounts, corporate clients are facing cash flow problems and there has been a significant delay in projects due to social-distancing measures limiting workforces.

Industries presenting exciting opportunities include the Construction, Logistics, Manufacturing and Electronic/Semiconductor sectors. Notably, Chinese made crane equipment seems to have more appeal to users, over Japanese and European brands. However, in the manufacturing sector Japanese-made machinery is the preferred choice.

We are predicting that construction will remain active as projects that were suspended during the lockdown period still require completion. We are likely to see that many industries will gear towards IT support to digitalisation this may include investing more in data centres, automation and robotic functions. Hopefully, within the next three years, travel restrictions will be lifted which will present a variety of opportunities in neighboring countries like Malaysia, Indonesia, Vietnam, the Philippines and Myanmar.

Financial Instruments Expert

William Price,
Hilco Diligence Service

An industry to watch is specialty finance companies, the buy now, pay later (BNPL) industry is one to keep an eye on.  I’m extremely bullish on this industry growing leaps and bounds. Non-bank commercial lenders like merchant cash advance companies are likely to grow as small businesses will require additional liquidity, that isn’t able to be provided efficiently (if at all) from bank lenders. We’d also expect to see increased consumer spend in most retail industries and the travel & entertainment industries rebound of low, lows.

We would have expected an economic downturn in the US to have already started. However, the pendulum always swings and we don’t know how much higher this pendulum has to go before it starts swinging back.

Hilco Global APAC (www.hilcoapac.com)  is a privately held company and the preeminent authority on understanding and realising the value of assets through Advisory, Valuation and Monetisation solutions.  With hundreds of asset professionals located across 26 countries worldwide, Hilco Global provides helps both healthy and distressed companies in a wide array of critical business decisions, from growth to diversification or wind down.
Published: Hilco APAC