Determining Volatility, Cost of Equity, and Equity
Valuation of Private Business for M&A

Abstract

The valuation of private company that is not traded in the market requires comparables analysis for determining its volatility, cost of equity and value of equity. The private company which is acquired by another company does see high future growth has it’s the major reason for acquisition. The private business sees many stages of growth before becoming mature in the respective industry. These growth phases are divided into three phases for purpose of valuation of private business. In these phases there are different debt ratios depending upon growth rate and volatility of cash flows and as the cash flows become more and more stable the debt ratio keeps increasing as well as eventually becoming industry average debt ratio. At these debt ratios and cash flow growth rates the valuation of private business was done.

TOPICS: Private equity, fundamental equity analysis, volatility measures, portfolio construction