The BVR LinkedIn group has a number of interesting discussions, including an ongoing thread about the implied private company pricing line (IPCPL). This is a new approach designed to be more reliable in estimating the cost of capital for a privately held business and eliminate the inherent problems in comparing public and private data. An article explaining the new model was featured in the September issue of Business Valuation Update. In response to the interest, BVR has posted the article on its website as a free download.
Database questions: Some of the LinkedIn discussion centers on the underlying transaction data used by the model. The concern is that the data will likely require some adjustments or massaging, so the question is: What is being done to the transactions database in this regard?
Two of the IPCPL developers and authors of the BVU article, Bob Dohmeyer (Dohmeyer Valuation Corp.) and Peter Butler (Valtrend LLC) responded. “We use a very large sample size of 500 transactions that represents an unbiased, and relatively tight estimate of Ko,” says Dohmeyer. “We do provide a statistical analysis in the article of how potential data noise from the transactions is minimized.” Butler adds: “Of course, the transactions need some ‘massaging.’ It is what it is. Listen to the webinar [see below] and make up your own mind if you think the adjustments/assumptions are problematic relative to the many problems with using publicly-traded data—particularly if you are still guessing as to an appropriate CSRP. The law of large numbers also helps with the ‘massaging.’”
Learn more: Butler is referring to a recent webinar (archive available) BVR conducted with Dohmeyer and Rod Burkert (Burkert Valuation Advisors LLC), another of the IPCPL developers and authors. They explain their new approach and address a number of questions and concerns.
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