Blog

An investor in a public company can sell their shares instantaneously. In comparison it usually takes time for an investor in a private company to find a buyer and exchange contracts. According to the Pepperdine 2023 Private Capital Market report, business brokers...

A recent paper by Randy Priem and Andrew Gabellone analyses the relationship between ESG scores and the observed cost of capital of six hundred European-based companies. The research examines the impact of the individual components of ESG on the cost of equity, beta...

Compared to a hypothetical diversified investor in a public company, a hypothetical controlling investor in a private business can potentially suffer from two key disadvantages: reduced opportunity to diversify away unsystematic risk; the business may be their main...

The market share price of a listed public company represents the portfolio interest price. That is to say, the price an investor is prepared to buy or sell a small parcel of shares, typically less than 5% of the company. In takeovers of listed companies, an acquirer...

The value of a privately-held business maybe calculated using a discounted cash flow method or a capitalisation of earnings method; both methods require an estimate of the cost of capital. The cost of capital can be estimated using pricing from public markets. Shares,...

I wondered if I should be using the Capitalisation of Excess Earnings method to value a business? The method originated in 1920 in the US, from a Treasury Department memorandum and later update as an Internal Revenue Service (IRS) Revenue Ruling. During prohibition,...

The Pepper Private Capital report was recently released. I’ve saved you the trouble and ploughed through it! I personally wouldn’t want to rely on it for valuation inputs (its US based anyway) but it might be an interesting sanity check (or not!). These are the bits...

Risk-averse investors demand a higher rate of return on an average equity risk investment compared to a risk-free investment. The difference in return is the Equity Risk Premium (ERP). ERP is the price of risk. What, however, are the factors that influence the ERP?...

Often business valuers use a higher required equity return for a small business compared to a similar, but larger business. The difference in equity returns is the small-cap premium. It refers to the premium small capitalised businesses (a low market value) are...

I like Professor Damodaran’s simple Bermuda triangle of valuations. According to the Professor, the three simple truths of valuation (the sides of the triangle) are: All valuations are biased. You just need to think about how you are biased and by how much. Be aware...

risk /rɪsk/ — a situation involving exposure to danger, from Italian risco “danger” Business value is a function of the future expected cash flows from the business and the risk attached to those cash flows. The value of a business is the present value of future cash...

Marketability discounts are often applied by business valuation experts to reflect the difficulty in selling shares in a private business compared to selling shares in a publically listed company. You can sell shares in a listed stock at the click of a button, with a...

The similarities between valuing and selling a business and valuing and selling art. Leonardo da Vinci’s Salvator Mundi (“Saviour of the World”) was sold last year for $450 million. $450 million! Only sixty years earlier the painting sold for just $60. Can there be...

An earnings multiple may be used to provide a guide to the valuation of a business. The relevant earnings base is multiplied by the earnings multiple to arrive at the business valuation. The earnings multiple reflects the risk attached to future earnings. The lower...

\ ˈek-ˌspərt — expert Having, involving, or displaying special skill or knowledge derived from training or experience. \ ˈˈe-və-dən(t)s — evidence Information drawn from personal testimony used to establish facts in a legal investigation or admissable as tesimony in a...