In his keynote address at the recent NACVA conference in Las Vegas, John Paglia (Graziadio School of Business and Management, Pepperdine University) notes that business owners aren’t very good at raising capital—and they could use some help. This is a “real market opportunity for valuation experts,” he says. Not only will this be helpful to business owners, but it also can give appraisers additional perspectives on cost of capital determinations. This “should translate into a strategic advantage in what is becoming an increasingly competitive profession,” he says.
Paglia also revealed results from a special survey conducted with NACVA in May concerning institutional debt and equity for private companies.
Regarding institutional debt:
- Appraisers believe most business don’t qualify for institutional debt;
- Most appraisers don’t check to see whether they would qualify for institutional debt; and
- Because they use public debt issues as a foundation for the cost of debt, most appraisers implicitly assume businesses qualify for institutional debt (even though they acknowledge that most businesses don't qualify).
Regarding institutional equity:
- Most appraisers say fewer than 1% of businesses could go public if they tried;
- Most say fewer than 10% of businesses qualify for institutional equity of any type; and
- Just 15% of appraisers fully evaluate whether a company has access to institutional equity.
Paglia is the founder of the Pepperdine Private Capital Markets Project, an ongoing investigation of the major private capital market segments.
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