Chapter

Valuing Private Equity

Harlan Platt and Emery A. Trahan

in Private Equity

Published in print August 2015 | ISBN: 9780199375875
Published online August 2015 | e-ISBN: 9780199375899 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199375875.003.0008

Series: Financial Markets and Investments

Valuing Private Equity

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Private equity (PE) firms generate returns by following an investment process similar to that of any investor. That is, they buy assets at a price for less than what they can be sold in the future. Sound valuation analysis is a key part of this process. PE firms must employ methods that reflect the current value of target companies as well as the potential value of these companies after realizing expected operating and financing improvements. This chapter presents a detailed discussion of the key issues involved in a valuation analysis and provides a comprehensive numerical example. Topics covered include measures of cash flow, using cash flow to estimate value, discounted cash flows (DCF), adjusted present value (APV), and multiples valuation methods, as well as estimating the cost of capital for PE valuation.

Keywords: private equity; valuation methods; discounted cash flows; adjusted present value; multiples; cost of capital

Chapter.  8786 words. 

Subjects: Financial Markets

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