Why is company valuation important within PE

Depending on the value of the VBC the PE will choose between the hands-on or hands-off approach.

Depending on the value of the VBC the PEI will choose either to buy existing or newly issued shares.

Depending on the value of the VBC the PEI will choose between the US format or the EU format.

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The higher the surplus assets are, the higher the equity value is.

The higher the NFP is, the higher the equity value.

The higher the WACC is, the lower the equity value is.

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When the WACC is very high (rule of thumb: 10%)

When the VBC company issues new shares

Very rarely, when possibile you should use them together

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EV/Sales

EV/EBITDA

EV/EBIT

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An average between the cost of debt net of tax and cost of equity

An average cost of debt capital

An average cost of equity capital

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0.885

3,186

0.7965

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The PEI wants the equity value to be as low as possible in the beginning of the investment while the value has to be as large as possible at the end of the investment.

You want your counterpart to file for Chapter 11.

You want your counterpart to know that you want to launch an IPO.

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When the IRR is unknown

For development financing deals

When it is difficult to determine the percentage of the investment held by the equity investors

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It is not possible to say due to missing data.

15.74%

43.19%

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Why is company valuation important within PE

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