We examine how Danish investors and corporate financial
advisers apply present value approaches in valuing
privately held companies. We interview 39 corporate
advisers and private equity investors who apply present
value approaches as a valuation tool for privately held
firms (market coverage of approximately 90%). Our
findings indicate that many of the participants comply
with the recommendations outlined in the valuation
literature. However, the findings also indicate that
some practitioners apply the present value approaches
incorrectly. For example, some participants do not
adjust for differences in financial leverage when
applying peers’ beta estimates.
Our research also confirms that valuation of privately
held firms involves a great deal of judgement.
Especially if the literature does not provide clear cut
answers. For example, estimating the marketability
discount and control premium often involve guesstimate
among the participants. Further, several participants
argue that the literature in some cases is inadequate.
For example, some argue that beta estimates from peers
are imprecise and contain severe measurement problems.
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