How to do entry analysis on private companies?
Hey everyone,
I was recently interviewed for an internship with a local Investment Bank. More specifically, it was for their Mezzanine Capital Unit/ private equity arm.
After the interview, everything was going fine and I had a good feeling. However, they asked me to do a quick analysis on a private company in an Asian country that doesn't have any financials public, within 5 slides.
The company currently is involved with multiple tech businesses and I approached the problem by looking at the industry peers of each business (a major private MNC and established local asian companies), I estimated their valuation from the capital that they have managed to raise.
After finding that the company in question have more businesses and have lower valuation (based on capital raised), I gave them the bull case where I simply talked about the potential of the businessses by showing growth momentum in their revenue. In the last slide I talked about the bear case and concluded that there is not much of a downside.
I was then rejected, so I thanked them and asked for feedbacks to improve on. But they never replied me and it has been a week.
Initially, I was determined to just do valuation by peer analysis but turns out the peers were also private and there were no financials to do a growth projection on.
I am really sour inside but I really want to improve. So can some of you guys who have more experiencce in IB/PE industry tell me how I should have approached the problem? (Would be nice to know what you think)
How to analyze small private firms (Originally Posted: 06/02/2008)
So I am interning at this fund, I can tell which one due to confidentiality reasons, and I have to prepare an analysis of competitors of one company in a very small niche sector. Almost all the companies I found are small private companies. How should I try to analyse those? Can I find any meaningful financial data anywhere?
I would be glad if more experienced ones can give some tips. I'm sure people aspiring to work in mid-market PE firms would also want to know the answer...
Of course, your biggest problem is the lack of data. Obviously.
You mentioned it's a niche firm in a niche sector. Think about their core business, and go from there. Public comps is probably the best place to start. How unique is the business? Unless it's something like netflix was when it came out, chances are good that there are public businesses like your private target. Use those. In addition, look for conglomerates that do something much like what your firm does. Their EDGAR stuff should have segment-data.
Hope that helps! Of course, when reconciling the difference, don't forget to account for liquidity, control, and dirversification, or lack of these. You can account for them with a premium or discount.
Consider picking up a valuation book? McKinsey and Domodaran are good starts.
I'm in the same situation. Try calling up the CFO and ask for financial statements or info. I wouldn't tell them you work for a PE firm though. I just usually say i'm working on a project or something.
Ok, I'll try... Thanks guys!
Ok, lessons from my own experience:
Especially if you are working in emerging markets like me, you won't have any luck trying to find something online. It works the best to talk to people, CFOs and/or research analysts in the same sector. They can give you good insights.
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