Private firm valuations surge, per Pepperdine report

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From BV Wire

Business valuations have been significantly increasing, according to new results from the “2018 Private Capital Markets Project” from Pepperdine Graziadio Business School. Survey respondents from investment banks report that average company valuation multiples have increased from 8.0 to 8.7 times recast EBITDA for firms with EBITDA between $25 million and $50 million. The increases are similar for other deal sizes, which are also on the rise after a slight softening in 2016-17.

“Last year, it looked like valuations were starting to soften a bit, after years of very high levels,” said Craig R. Everett, Ph.D., finance professor at Pepperdine who runs the project. “However our current survey results reveal that valuations have been aggressively increasing again. Tax cuts and general business optimism are the likely reasons for this new surge in company valuations. It is definitely still a seller’s market.”

The survey represents the hard work of Pepperdine researchers in developing a private cost of capital method as a legitimate alternative to looking to the public markets. To do this, they ask private capital market players what returns they project. The players are divided into six segments aligned with the major institutional arms of the private investment world, each with different return, investment, and research characteristics. The segments are: bank lenders, asset-based lenders, mezzanine lenders, private equity groups, venture capital, and angel investors.
Extra: Dr. Everett will give a presentation on Pepperdine’s research at the ASA/USC 13th Annual Fair Value Conference in Los Angeles on May 10. You can attend either on-site or via a live streaming webcast.