UCP Investment Group and SKOLKOVO Moscow School of Management present findings of their joint Business Value Index research

Today, UCP Investment Group and the Moscow School of Management ‘SKOLKOVO’ jointly presented their new ‘Business Value Index’. More than 150 representatives of the investment and business communities as well as representatives of the State Duma committees attended the presentation at the Moscow Exchange where UCP and SKOLKOVO presented their research findings.

Taking part in the discussion was Andrey Sharonov, the Dean of SKOLKOVO; Anatoly Aksakov, of the State Duma Committee on Financial Markets; Alexander Afanasiev, CEO of Moscow Exchange; Alexander Shevchuk, Executive Director of Association of Institutional Investors (API); as well as non-executive directors from many of Russia’s largest companies
The research analyzed the performance of the top 30 global economies and demonstrated that Russian businessmen selling their companies usually receive 50-75% less than their peers, not only from Western Europe or the Unites States, but also from the majority of developing countries.

Russian companies have been undervalued due to the following reasons:

1) Insufficiently high level of corporate governance (the quality of accounting and audit standards used in the country, the protection of non-controlling shareholders’ rights and the share of public companies’ profits paid out as dividends, etc.),
2) Inadequate legal asset protection (efficiency of property rights protection, efficiency of challenging government decisions and settling commercial disputes in court),
3) Poor availability of capital (the level of the financial market development and availability of financial services, stock market liquidity, free float held by institutional Russian and foreign investors, the presence of foreign-owned companies in the domestic market and the absolute inflow of foreign direct investments),
4) Fiscal system lacking focus on investments (level of average effective income tax rate of public companies, payroll taxes and assessment by businesses of the fiscal favorability for making investments).

UCP Group, together with SKOLKOVO School of Management, has developed a proprietary index to assess the overall quality of environment for selling a business in Russia. The index is calculated based on 19 indicators, selected from a universe of 400, that showed a significant correlation with the valuation multiples of companies in the top 30 global economies.
The findings demonstrate that the low valuation of a company sold by a Russian businessman is mainly underpinned by objective factors. In all selected categories, indicators for Russia are below average compared to average indicators for both the 30 largest global economies and developing markets (as well as the average for the BRICS countries).
The analysis has revealed several potential areas for improvement:
• Improvement of legislation and law enforcement practice related to the protection of non-controlling shareholders’ rights in public and private companies;
• Enhancement of property rights protection;
• Increasing dividend payout ratios;
• Improvement of accounting and audit standards, wider use of IFRS;
• Adjustment of the fiscal system to stimulate investments.

“The subject of this study is relevant both for Russia and for the rest of the world. High quality business valuations are essential for founders, investors and governments throughout the world” said Andrey Sharonov, Dean of the Moscow School of Management SKOLKOVO.

“As one of the country’s largest investors, we are extremely concerned by the low valuation of Russian companies compared to their foreign competitors. We can see significant potential to increase the capitalization of the Russian stock market and we are particularly interested in the practical side of business valuation. The identification of factors influencing a valuation will help reveal the real situation and the issues that need to be resolved by businesses and the state to make Russia highly attractive for investors. The joint research presented by UCP and SKOLKOVO was dedicated to these exact practical aspects,” said Mikhail Trofimov, UCP Investment Group partner.

“The approach taken by the research authors considers the mutual influence between different factors and the capitalization of a business,” said Alexander Shevchuk, Executive Director of the Association of Institutional Investors. “The need for change in the identified areas is obvious to many. We need political will and a readiness to take on the responsibility for making these changes happen.”

The full text of the research is available at BVI_Eng