Empirical Examination of Valuation Methods Used in Private Equity Practice in the Czech Republic

Abstract

Business valuation of privately held companies has become increasingly essential as the number of merger and acquisition deals in the private equity industry has increased. The focus of this article is to provide the evidence on the popularity of valuation methods commonly used. We use a combination of direct interviews and questionnaires to analyze behavioral differences among 45 private equity funds managers and financial advisors. Findings suggest that the most popular valuation approaches are transaction multiples followed by discounted cash flow approach. Additionally, the most dominant valuation multiple is EBITDA, followed by the sales multiple and EBIT multiple. In terms of cost of capital estimation procedures, CAPM and the estimation based on internal rate of return appear to be the most applied in the Czech private equity sphere.

TOPICS: Private equity, emerging, security analysis and valuation, quantitative methods