Any one who has been following Rob Slee’s (Robertson & Foley) research on private capital markets knows that he’s a strong advocate for the guideline public company method—even for small private companies. “It’s the one place where you can get longitudinal data that incorporates risk and growth factors,” he’s been saying. “Particularly if you’re trying to convince a judge or jury, you have very little else to go on now that will justify the huge changes in value that have occurred in this economic cycle.”
Slee also sees GPCM as the one reasonable defense against cost of capital calculations that seem to produce values higher than this market will justify. “GPCM is a way to support this decrease,” he says.
One other advantage: GPCM ties into betas because it looks at historical data, normally trailing 12 months. Though, as Rob points out, public company data, whether through EDGAR, Compustat, Moody’s, FetchXL, CapIQ, Pitchbook, or other source, gives you the flexibility to use three year medians, six months, or “whatever your judgment demands. And, you can use average, median, quartiles, or other measures as best fits your subject company,” he says.
“It’s really important for appraisers to look at multi-year information so that you can see the long-term trends,” says Slee—even more than for other analysts. “When I was at Price Waterhouse, as long as our numbers footed, we were OK. That’s not true in business valuation.”