Kroll reviews 2021 capital markets

BVWireIssue #232-2
January 19, 2022

cost of capital
cost of capital, discount rate, risk analysis, cost of equity, equity risk premium (ERP)

Capital Markets Insights—2021 Year in Review” offers a look at the past year in terms of notable S&P 500 performers, DJIA performers, M&A deals, PE deals, IPOs, SPACs, bankruptcies, cost of capital, and private markets. Here are a few highlights:

  • Kroll is maintaining its recommended U.S. equity risk premium (ERP) of 5.5%, developed in conjunction with a “normalized” 20-year yield on U.S. government bonds of 2.5% as a proxy for the risk-free rate, implying an 8.0% (2.5% + 5.5%) “base” U.S. cost of equity capital estimate as of Dec. 9, 2020 (this estimate held constant through 2021);
  • LTM EBITDA multiples decreased a median 2.1x for the major indices since Dec. 31, 2020;
  • The EBITDA multiple for the Nasdaq Composite index increased 3.8x (S&P 500 decreased 2.0x, and the DJIA decreased 2.7x) since Dec. 31, 2020;
  • U.S. companies raised a record $302 billion through stock market listings;
  • Over 700 SPACs went public in 2021, more than five times the number from the year 2020; and
  • The CBOE Volatility Index (VIX) closed at 17.22 on Dec. 31, 2021, a 24% decrease since Dec. 31, 2020.
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