You cannot create value for shareholders if you don’t know what affects or is driving value, says the AIF lecturer. 

Matti Suominen’s career in equity trading began when he became an equity investor, quite unexpectedly, at just 16 years old. “I inherited some stocks, not a lot, just a small amount. I knew nothing about business or equities, but I started trading and I became intrigued by it. I was so into this stock trading that I went to business school – the first in a family of doctors and lawyers. At 21 I became a trader, and at 23 I was chief dealer in a firm in the Finnish futures market.”

His interest in equities never left him. “It still is fascinating to me. I’m currently advising one of the largest financial institutions in the Nordics. Every day we discuss the equity markets. Every day, I try to understand what is happening in the markets.”

He has a special interest in valuation, which is what he will be teaching at Amsterdam Institute of Finance on an online edition of the Valuation program in November 2020 

“Valuation has been present in a lot of my activities throughout my career, both in investment banking and on the asset management side. I was a consultant with McKinsey & Co, involved with large acquisitions worth more than $10 billion where I had valuation responsibility. I also worked for many years in equity and in asset management, in a hedge fund and an alternative investment fund. In all of this work, estimating the fundamental value of firms is essential.

“My recent research is about how financial markets value assets, bonds and equity. This subject is my passion and therefore it’s my hobby as well as my work,” he says. “I love to share what I have learnt and to help people develop the skills to make their investment decisions or understand better how to be involved in mergers and acquisitions. I’ve been sharing these skills for 20 years, at AIF and also at INSEAD, Wharton and Aalto.”

Valuation practice today

The practice of valuation has become more complex and also more essential in recent years. Once the preserve of specialists, the ideas, approach, and techniques of valuation are increasingly important to all businesses.

The growth and importance of the private equity world is a factor in the mix, he says. “This affects overall valuations, and it’s also significant because the private equity people are very skilled in managing for value and the skills that they employ have spread to other institutions. More people are learning these techniques. Companies are adopting the approach of private equity and becoming more value conscious.”

Matti explains that in this “hot” M&A environment, everybody has to understand the valuation principles. “It’s now essential for corporations to bring this thinking to their decision-making. Cheap money allows firms to make more large investments. Right now, there are a lot of firms being taken over, or taking over someone else, it’s a case of ‘eat or be eaten’. If you need to make an acquisition to survive or gain efficiency in the marketplace, you have to have these valuation skills. You can’t do these acquisitions without having an understanding of the value of the company you are selling or buying.”

The essential valuation skills have a clear and dramatic effect, says Matti: “When people know what they are doing, they can increase the share price significantly. But if you don’t, you may destroy an enormous amount of value in one transaction. Sell a company with a worth of $10 billion, and get it 10 percent wrong, that’s a billion.” 

There are significant factors impacting the field right now. The increased role of central banks, development in technology and specifically in artificial intelligence and machine learning, as well  as the low-interest environment are all part of the puzzles for people trying to understand valuation, says Matti.

Managing for value

Matti’s course deals with the fundamentals of valuation and tends to attract people who are somehow involved in M&A, he says. 

“They might be lawyers, business unit executives participating in the management discussions related to large acquisitions, sometimes CEOs. They are people who need to understand what is going on in the space and acquire some skills. Shareholders want you to create value, which means you have to learn to manage for value. You cannot do that if you don’t know what affects or is driving the value. That’s something very different from just making more profits.”

Valuation is rarely taught, even in business, says Matti. “These are skills that take time to acquire, and these are the skills I am trying to impart.” 

Take a look at the online edition of the Valuation program this November.

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