When I read about Farrow and Ball being sold by a private equity house for £500m to a Danish company, it chimed with two aspects that I have been lecturing on in the past two weeks. The first is private equity. According to unconfirmed reports the private equity group will receive nearly double what it paid for the company. It demonstrates the possibilities of success for private equity. These come with considerable tax opportunities but also complexities.
The second interesting element relates to pricing and illustrates the importance of understanding pricing mechanisms in order to attribute value to a product. According to reports I read, Farrow and Ball are able to sell 5 litres of white paint for £84 whereas Dulux would set you back £16. In terms of the attribution of value whilst there may be some difference in the cost of materials and the manufacturing process it would appear that at least a large part of the differential is a result of the brand, marketing and social media presence of 1.2m Instagram followers. It would make a great case study in terms of the attribution of value and the contributions to profit created by a 5 litre pot of paint.
Tax authorities around the world are paying increasing attention to transfer pricing issues and are extracting ever greater amounts from multi-national companies. It is an area which all companies ignore at their peril.
Primondell runs a series of courses separately on private equity and on transfer pricing. Please get in touch via email at jpmind20@gmail.com or through the website at www.primondell.co.uk if you want details of the next courses.
