Private COC database—scorched earth or valuation oasis?

BVWireIssue #113-5
February 29, 2012

John Paglia (Pepperdine Private Capital Markets Project) recently put out a “call for action to expand the thought leadership on private cost of capital by performing rigorous research on relevant topics such as minority interests, DLOMs, using private cost of capital (PCOC) for fair value engagements, case studies, etc.,” he says, in a posting at LinkedIn’s BV Professional’s forum (membership required).

In the lively debate that followed, commentators such as Pete Butler (Valtrend) and Rick Warner (Great Lakes Valuation) believe that the PCOC is an important tool in the valuation analyst’s tool box, but not to the exclusion of an analyst’s traditional reliance on data from Ibbotson’s, Duff & Phelps, etc. “Be very careful with the scorched-earth mantra,” Butler tells Paglia. “While I like what you are attempting to do, I could never rely upon your surveys as my only cost of capital reference source.”

“I certainly understand the importance to have many tools,” Paglia responds, “but having a hammer or a Phillips head screwdriver to apply to a flat head screw is completely inappropriate. The same is true with public and private data. Privately held companies don't get their funding from public markets. They get their capital from banks, asset-backed lenders, factors, mezzanine funds, venture capital, private equity, hedge funds, angels, etc.,” the very sources that the Pepperdine PCOC database tracks.

Listen to both sides. Don’t miss Point/Counterpoint: Debating the Private Capital Markets Project, BVR’s webinar on March 15, when Paglia will discuss all aspects of the Pepperdine project and PCOC database with Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos).

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