Valuations high for private firms, says new Pepperdine report

BVWireIssue #135-2
December 11, 2013

The value of privately held businesses is very high right now, according to the 2014 Capital Markets Report from Pepperdine. This annual report benchmarks both the current climate and projected outlook across multiple market segments for lending, investing, and acquiring capital.

The effect of the economy continues to be a problem. “The cost of economic uncertainty on the private capital markets and privately-held businesses is nearly incalculable,” says Dr. Craig R. Everett, director of the Pepperdine Private Capital Markets Project and assistant professor of finance at Pepperdine University’s Graziadio School of Business and Management. Current low interest rates means affordable capital for small-business expansion, but access to the funds remains a challenge for small firms. “On the other hand, there appears to be an abundance of private equity capital currently on the sidelines looking for quality deals,” says Everett. “Valuations are very high right now, making it a seller’s market for owners of businesses with strong financials and healthy growth trends.”

Other interesting findings:

  • According to investment bankers surveyed, the top three reasons for deals not closing were valuation gap (26%), unreasonable seller or buyer demand (21%), economic uncertainty (12%), and insufficient cash flow (12%);
  • Almost half (46%) of venture capitalists surveyed are targeting information technology, and another 11% are planning to invest in basic materials and energy; this is a change from the 2013 PPCMP report in which 33% said they were targeting information technology and 23% were planning to invest in healthcare or biotech; and
  • Approximately 41% of angel investors surveyed base valuations on gut feelings when valuing privately held businesses.
Please let us know if you have any comments about this article or enhancements you would like to see.