Valuation of one-off government subsidies during Covid-19

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by a searcher from INSEAD
in Hamburg, Deutschland

4yrs ago

Valuation of one-off government subsidies during Covid-19

Dear search community,

I'm currently negotiating the company value for a business that received substantial government subsidies as Covid-relieve measure which boosted EBITDA.
I'm wondering whether this subsidy needs to be adjusted for in the EBITDA-baseline? You could argue that this is clearly non-operational. At the same time, the loss in revenue caused by the lockdowns was also an outside-effect. Any experience or thoughts on how to handle this?

Thanks a lot in advance,
Philipp

2 Likes

724 Views

reply by a lender 4yrs ago
from California State University, Sacramento in Seattle, WA, USA

From the lending perspective we adjust out PPP infusions and we don’t make any assumptions about what the company would have done.We look at how the company ACTUALLY performed inredactedand 2021 making credit decisions on a specific deal by deal basis.Some companies had Covid tailwinds and some headwinds.How the company did in 2021 and current 2022 pipeline are going to be helpful in deciding how to proceed especially in relation to pre Covid levels.

reply by an investor 4yrs ago
from Northwestern University in Chicago, IL, USA

I think you'd need to look at what occurred operationally during the period in which they received the relief. If the business was shut down during the period or had some sort of revenue loss, I would normalize payroll spend if possible. However, there were plenty of companies that received a 2nd PPP loan after things had returned to normal so that should be adjusted out as if it was never received