Don’t throw Ibbotson’s out with the bathwater

BVWireIssue #58-2
July 11, 2007

“As analysts of private equity, we can access many sources of information from public and private databases,” writes Nancy Fannon, responding to the recent BVWire item on the possible obsolescence of Ibbotson’s and other cost of capital data (and methods) drawn from the public securities market.   “But let’s step back and think about what we’re doing when we value a private company, and why we use market transactions data in the first place.  Each source of data can inform the analyst about investment risks.  All require careful analysis, understanding, and adjustments before being applied to any private company.”  Neglecting to consider certain sources just because they require diligence and care—or adjustment—“is like throwing the baby out with the bathwater.”

Fannon is currently slated to lead a session on the use (and abuse) of market transaction data at the AICPA BV conference in December.  She’s also hard at work (with co-author Heidi Walker, also from Fannon Valuation Group) on BVR’s Complete Guide to Applying Market Data in Valuation Analyses, due out this fall.  Look for an excerpt in an upcoming issue of Business Valuation Update™.   

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