HELP - Private Company Valuation
I have the task of valuing a private business. Its a mature company in the firearm industry. I've been given 4 years of historical BS and IS. I believe I should be using a relative valuation approach as apposed to a DCF/income approach. Being new to valuation, I'm unsure whether as to where to start. Do I need to estimate the FCF or should I focus on multiples? Can someone point me in the right direction? Thanks.
If its a stable mature company, I suppose you could probably get away with using historical to build out a forecast.
For a quick back of the envelop analysis you could find comparable publicly traded companies and apply a multiple. I would also apply some sort of discount since its a private company.
Not sure what the purpose of this exercise is, so this is just a quick and dirty way.
Definitely both; however, if you're under a time constraint do the comps first.
While a hist. CF statement is nice for a dcf as it gives your balance sheet assumptions a bit of a sanity check, its not necessary. Although without it, hopefully dep.&amor. are listed on the IS.
start with your public comps to figure out what multiples the market is trading at and then cater your DCF to be slightly discounted relative to the public multiples
Private Company Valuation/Financing Rounds - Where to look? (Originally Posted: 06/29/2009)
I need to find some information regarding historical financing (how much was raised total and when), pre and post-money valuations for several private companies in the consumer goods sector. Any ideas how I can go about finding this info?
Try SDC platinum for financing data, not sure where you can go for valuation unless you can get the term sheet.
Couldn't dig much up. Tried VS as well, no luck. Looks like im at a dead end, any suggestions from here?
then it would NOT be disclosed publicly / or thru its means
Thomson/ReutersOne Private Equity (previously called venture expert) Thomson/ReutersOne also has a M&A database (previously called SDC platium)
DowJones Private Equity Source
Thedeal.com database
Pitchbook.com database
S&P databases? S&P also owns CapIQ
Factset databases?
Your firms proprietary database
.
Thanks for the info. I'll see what I can scrub up
Valuing a private company (Originally Posted: 02/26/2009)
Does anyone have any information valuing a private company with very little publicized and accurate financial information? I'm trying to do a valuation on the UFC for a school project. Thanks
I would use comps...WWE is publicly traded...
It will probably be very difficult to get their financials. I would do a public company unless you can call investor relations for UFC (which they prob don't)
It will probably be very difficult to get their financials. I would do a public company unless you can call investor relations for UFC (which they prob don't)
Comps. Pretty much all you can do in the situation.
In the past, I've seen posts on the Sherdog forums that linked to some summary financial info. You might want to check there. The problem is, a lot of it is written by MMA guys, and most of them aren't the sharpest cats around.
lol, yeah. I can't find any official financial statements and I'm not so sure if I want to trust sherdog. Thanks for the help though guys. I'm gonna stick w/ comps.
Go with Comps... it's really the only way to go here, given the limited information available.
Need help - - Private company Valuations (Originally Posted: 01/09/2014)
Im valuing a private company which is 80% geared with bank debt. Suppose I use the DCF method, and using the FCFF calculations and WACC, reach to an Enterprise valuation of 100k. Since this is a private company, I wish to apply a DLOM. Should I apply the DLOM of 30% to the Enterprise value, or should i adjust for cash and debt, determine the equity value, and then apply the 30% DLOM? Please help.
DLOM is applied to equity value, since that is the one hard to market. The marketability of the debt is not an issue, as long as you go with the (usual, simplifying) assumption of "market value of debt = book value of debt". To do so is ok, as long as the debt isn't publicly traded.
Note that while a private company's debt will often be harder to market than a public one's (giant corporations often have some of their debt financed via traded bonds vs. small private companies often using regular bank loans), it might be the other way: a private company may have public debt. This highlights that the "public vs. private" differentiation for DLOM refers to equity, but the same basic argument may be made about private vs. public debt, as well.
Private Company Valuation (Originally Posted: 08/27/2013)
New task: I need to do an enterprise valuation. I was told to do so using several buckets: assets, marketing, R&D, and IP. Are these pretty standard? If so, how do you assess each?
I've been told that marketing should be what is expected from current commitments, assets could be the value from not having to outsource production, R&D counts as the future products/pipeline, and IP could be... something else. I could imagine either the value of exclusivity or the value of licensing deals could be a reasonable assessment.
Any guidance?
They want you to essentially value each portion of the assets? Never seen someone "value" marketing or approach valuation in this manner. Have you done a valuation previously?
You realize that the other three are going to be rolled up under assets, right? Were they referring to current assets perhaps (i.e. inventory, A/R)?
Yes, that's what they want me to do. I don't think they have any idea what they are talking about, but that doesn't really help me. I did public company valuations in my last life, and I know how to do a normal private company valuation. This request was so bizarre to me that I had to find out if anyone else has heard of it.
Yes, I know, marketing/R&D/IP really should all fall into assets, and they definitely didn't mean current assets. I'm guessing there is some context for this request I am missing.
Private Company Valuation Recommendations - Local Business (Originally Posted: 12/01/2013)
Hi everyone,
I have a project due for a class that calls for valuing a private company, particularly a small, local business. My teacher wants us to take a crack at building up a DCF based upon good assumptions we have found, either through industry trends or by talking to the store owner. After speaking to the owner of this mom & pop store, we discovered that they don't really manage a balance sheet (meaning they just pay bills as they go and haphazardly track assets, etc.) yet they do project revenue.
My question is, without the historical financials...should I even attempt to do a three-statement P&L model and work towards a DCF. Or, would it be logical and justifiable to just build an income statement and start with revenue and work down to a proper EBIT number based upon what the owner claims to be their historical margins, revenue drivers, etc... obviously things like interest expense can't be modeled from a debt schedule or anything like that, but could i just make assumptions on things like that based upon % of sales or something?
Would love to hear someone's opinion... really have no clue how to proceed
Hopefully someone with more experience will chime in here.
You obviously shouldn't be doing a 3-statement model. You don't have any historicals to work from.
I would use the income statement to get to EBIT. There would be no need to build out a debt schedule or calculate interest expense. For DCF purposes, we are concerned with unlevered free cash flow, which comes before interest payments.
Next, I would hope that the company provides D&A expense for the period, since that is a crucial for unlevered free cash flow calculation. The big missing pieces are working capital changes and capital expenditures. For working capital, you could assume net working capital as a % of sales and then calculate the YOY change., However, given the lack of historical balance sheet numbers, we really have no idea what that % should be. Perhaps try to look at similar public companies and calculate an average/median for net working capital as a % of sales.
In terms of cap ex, I would first ask the company for numbers. If they are unable to provide numbers, I would probably just set it equal to D&A, which would essentially be assuming run rate capital expenditures.
According to me you are not able to do three-statement without having historical records of the business. And it is also usefull in determining other things you are talking about.
Valuation of Private Company (Originally Posted: 07/15/2013)
How would you value a private company, one with 0 cash flow and minimal earnings because it is a Biotech company? All of its income is being drawn directly back into R&D, and its an on-going process so there is not any cash flow.
Given this, a DCF seems to be out of the picture. Or is there a way to still structure a DCF with a company like this? Also given that it is private, would the best option be to derive a public comps list of the most comparable companies and calculate industry-related multiples. Not even sure how to do this, considering it is private it wouldn't necessarily have an Enterprise Value correct? Or can you still calculate equity value without share price?
Just a little confused on this, any info will help. Thanks
DCF - CF = does not work. Use another metric that you do have. Sales/Rev is a common metric used in biotech or medtech companies, particularly if they are pre-profitability (and even post).
You could also build an options or probability chain to hone in on expected revenue, cash flow and earnings.
http://www.realoptions.org/papers1999/Kellogg.pdf
What I don't understand is where these expected numbers come from. How can you accurately estimate something without any information, or any breakthrough products? I never understood this.. Sorry
Sorry last thing. I think this is what I am getting from the top half of what you said, but just want to clarify..
Can I make a comps list of around 5 or so most relative public comps and get EV/Sales multiples for each of them, and derive a current median EV/Sales number for the group. Than apply that multiple to my company's sales to get its current EV, and then work backwards to calculate Equity Value? (I need to calculate equity value as well). Not sure if that is a respectable method, but this makes sense to me and seems right, but also I skimmed through that website you provided (thanks btw) and the model used for this technique seems extremely scientific compared to what I just explained.
Yes. Students need to stop fucking around with DCFs (speaking from personal experience) and learn that multiples are more accurate at determining valuation. Vanilla DCFs are worthless in the real world.
And before someone says something, obviously the multiples method has its flaws. But, if your DCF is telling you something is worth $100 and the market multiples indicate it is worth $25, chances are buyers are going to gravitate much more towards the $25. Nobody likes to overpay and comps are used in various aspects of finance/life, not just M&A (i.e. real estate, rent, mortgage rates, credit scores, etc.).
Sorry for the rant, it was at the posters in general, not you specifically.
And the only way to have more detailed info to project out Sales, CF, etc. is industry knowledge and using the Company's mgmt forecasts. To what degree those are valuable depends on the company and CFO/controller.
^ Thanks that was actually very helpful, no need to apologize
You have to make cash/sales projections at the different stages of the approval process. Obviously, the probabilities change over time but what the poster said above about the probability chain is best. Very few of private biotech firms make money so really it comes down to evaluating whether a drug will get approval. Focus on drug approvals.
Thanks. And where exactly would such projections come from? Comparable firms of the same size and products?
Industry research, management or comparable products/drugs IMO. Hopefully some HC IB guys can weigh in.
Where to find private valuations? (Originally Posted: 03/11/2013)
Is there anywhere one could go online to find valuations of private companies like Facebook (pre-IPO) or Spotify? I'm interested in seeing the numbers behind a few valuations that have been discussed in WSJ, FT, etc, but as far as I know, all that is given is the single valuation number, and not the detailed numbers behind the valuation.
Also interested.
FWIW, from what I understand, private valuations are pretty much put together by the person who actually wants the number. I.e., you'd do your own valuation using whatever method is appropriate. I think Damodaran has some slides up on how to do it. You can derive numbers from comparable companies and plug that in with the rest of your (hopefully well-researched) drivers.
Yea there is place to get private company financial: PrivCo . I use it daily. It costs money to subscribe but I think reasonable and if anything under-priced. But you mentioned spotify and they had full on balance sheet income statement everything on Spotify when I looked up in Oct/Nov on privco. Don't know anything else...when I was on wall street at big BB firm we had Data Resources Group that I'm sure had access to every database (sometimes it took 8 hours to get my answer, meaning I was waiting there at work all night for it) but at a big BB bank they have internal Data Resources open 24/7 (for better or worse). For boutique firm, or where I am know in VC, you have to do alot of research work yourself even as a partner. So that's what I use and can't do without it.
If you're at BB firm asap when you need private company financials submit request to data resources HOURS before you need it (you can always pull the request later but get in the queue)
Here is Aswath Damodaran's website. He teaches corporate finance and valuation at the Stern School of Business at New York University. I have personally emailed him questions which he got back to me right away. Very nice guy.
http://pages.stern.nyu.edu/~adamodar/
Here is his blog also:
http://aswathdamodaran.blogspot.com
Private Business Valuation (Originally Posted: 10/10/2011)
I currently work as a private business valuation analyst. I would like to transition into vc/pe/hf firms.
How highly do they place this experience? If at all.
Depending on how highly regarded your employer is, and how reliable the valuations are considered to be, you're probably in good shape for a VC/PE shop. Seems to me that skill would be slightly less useful at a hedge fund.
Valuation of private companies (Originally Posted: 05/28/2012)
Hi guys, long time lurker, first time poster :)
I've recently applied for a Corp Dev/Fin internship (M&A role) and got reply saying that to go to next stage of application I have to come up with a valuation of a company.
I've been doing lots of research on this company however there are several issues)
1) its private 2) very little recent figures (sales / membership etc) are available online.
I have never done any financial modelling etc so this is all new to me either way....would appreciate some advice.
Atm my plan would probably be to do a price/sales ratio valuation - this is the method that was used by the last VC that did a funding round for the company.
Im guessing I would need to estimate the growth the company has experienced since then (hard to tell because they have recently entered new product markets / signed loads of new deals) and then find out what kind of multiples companies in similar sectors to figure out a valuation?
How do I take into account factors such as the company signing a partnership which gives it direct access to a platform with 6-7 times more members than their current total? Or something like increase in the merchandising range / licensing opportunities etc...say if I came up with e.g .a 9x multiple and e.g. 500mill valuation...would I then add an arbitrary figure e.g. 100-200mill to account for this "future potential"?
The previous valuation method used by VCs for this company was EV however I don't think the financial details are available to plug in values for this...and as i said earlier, they have switched to a diff ratio now..
To give me greater overview of subject I am currently reading
http://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/pvt.pdf
as well as having a look at macabus.com and whatever else googling will bring up on this subject.
any help would be really appreciated
:)
edit: 2009, 2010 financials are available from a company's register list so I guess I can use those + 2011 estimates to get growth idea and combine that with 2012 estimates? would this be the correct route to take?
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