I'm interested in learning more about the valuation of private equity deals (multiples, DCFs, etc.). Is there any website/PE magazine (do these even exist?)/publication/books that I can read to learn more about private equity valuation models?
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A good way to learn more about the process and the valuation techniques used by firms is to simply stay up to date on market activity and read the merger documents filed to the SEC. It is helpful to learn the various forms that firms file related to varying actions and processes, and these can all be picked up with time.
A good start would be searching the SEC EDGAR system. This system is located here. Click "Boolean and advanced searching, including addresses" and type the query you prefer. For practice, I suggest a straightforward search of "Kinder Morgan" for the SEC Filing Date of 11/15/2006. Read through this DEFM14A as it is a walk-through of the merger process involving a P/E buyout of the firm from some of its management. You will get a lot of background information as to the timeline of the deal, who the players are, who the financial and legal advisors are, what prices are offered and finally agreed upon, etc. in this form.
Popular valuation techniques include Comparable Companies, Comparable Transactions, Merger Premium, and of course DCF. Multiples are used for the first two, usually Price/EPS or Price/EBITDA. The premium looks at comparable deals and the premiums offered to the target shareholders. DCF is straightforward enough.
I tried to pull this up but the document seemed be scrambled. Any suggestions?
Be sure to open the html version and not the text version. Here is a direct link to the document: http://sec.gov/Archives/edgar/data/54502/000104746906014243/a2174701zde…
You have to scroll down to get to the good stuff.
Check out the Financial Analysis if you want to see how the advisors arrive at expected values from varying methods.
P/EBITDA? That's a new one.
I'm not supporting one method over another, but many multiples are used to find a fair price or to leverage negotiation.
Price / EBITDA and Aggregate Value / EBITDA or EV / EBITDA are different things. You don't value firm using P / EBITDA (except maybe banks?..).
Sorry for the double post (new to posting).
No one uses P/EBITDA.
Do not understand P to EBITDA as well...P is to minority shareholders whereas EBITDA is to both shareholders and debtholders...a bit inconsistent....
McKinsey & Co. - Valuation. One of the better books out there for just understanding valuation. http://www.mckinsey.com/ideas/books/valuation/index.asp
EV/EBITDA is by far the most important metric PE houses use in pricing - this is what banks lend on and is thus the main constraining factor on leverage. DCF is no more than a cross check and often ignored completely as PE houses only hold companies for 4-6 years so terminal value is largely irrelevant.
Valuations for Private Equity Firms (Originally Posted: 06/26/2013)
Hey folks,
Here's the predicament I'm having. We are taking a look at a Global PE shop that has $500mm+ AUM, with a pipeline of another $500mm+ in funds that should all close within 12 months.
I have basic information like the amount of management fees that will be generated from existing funds. I'd like to take this information, and pair it with a ballpark of when the new funds management fees will start trickling in.
Also, I'd like to figure out how to value the management co. that has all these funds. How are publicly traded PE firms valued? Would it be any different in this case because the AUM is so much less?
On a side note- if someone is looking for a quick $25 to do all of this for me in excel, I'm happy to pay as long as I can get it by tomorrow morning early. Shouldn't take more than 30 min for someone that knows modeling/PE stuff well.
PE firm valuation: (1) Mgmt fee income 14-16x, plus (2) NAV of GP Investments .8-1.0x, plus (3) Incentive Fee Income, multiply residual on both current and future funds by 5-6x
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