valuation
Fair value, as defined in IFRS 13, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is an exit price, classified in a three-level input hierarchy.
IFRS 13 (aligned in substance with US GAAP ASC 820) defines fair value as an exit price on the measurement date, in the principal (or most advantageous) market, using the assumptions market participants would use. It is not "value to the current owner", not a fire-sale, and not automatically the price in a relationship-driven private deal.
The standard forces a hierarchy of inputs:
| Level | Inputs | Typical example |
|---|---|---|
| Level 1 | Unadjusted quoted prices in active markets for identical items | Liquid listed equity |
| Level 2 | Observable inputs other than Level 1 | Yield curves, comparable multiples with adjustments |
| Level 3 | Unobservable inputs | Private-company DCF, unlisted fund NAVs with significant judgement |
Highest-and-best-use and unit-of-account rules can change the conclusion for specialised assets. Non-performance risk is included when measuring liabilities.
Market value in IVS and fair value in IFRS 13 are close cousins; intrinsic value is a different project (fundamentals to a specific analyst). A control premium that a particular strategic would pay may be excluded from fair value if market participants as a class would not pay it.
A fund holds 18% of invented private company Oak & Wire Lighting. No quote exists. Illustration only.
| Input | Choice |
|---|---|
| Calibration | Recent arm's-length primary round 11 months ago at €28m equity value |
| Current indication | Comparable companies median EV/EBITDA 9.0x vs 10.5x at last round; earnings +12% |
| DCF cross-check | Unlevered DCF EV €41m, equity after net debt €34m |
| IFRS 13 conclusion (fund view) | Equity fair value €32m for 100%; 18% stake €5.8m, Level 3, with a liquidity/marketability adjustment documented |
| What it is not | The €40m a named strategic whispered on a call (entity-specific synergy) |
Deal price can exceed or undershoot IFRS 13 fair value because buyers underwrite synergies, scarcity and process dynamics. Boards still need fair value for reporting, option grants, and related-party rules. Funds are judged on fair-value discipline: stale cost, ignoring a down-round, or marking only on hope fails both IFRS 13 and IPEV.
Level 3 measurements are model-dependent. The hierarchy ranks inputs, not methods: a DCF can still be IFRS 13-compliant if it uses market-participant cash flows and discount rates. Disclosure of sensitivities is how users see the uncertainty the single point conceals.
Dazur's deal work is about transaction price, which is allowed to differ from accounting fair value. We still insist that any number labelled fair value can survive IFRS 13's exit-price test: observable evidence first, then a documented Level 3 model, never a marketing round number.