Private company valuation

CFA General
#1

Hi, I am trying to build a financial model (LBO) for a private company. Financials only provides Revenue, EBITDA and EBIT. Is there a way to figure out Taxes and Interest expense to arrive at Net Income. What would be best way to estimate the purchase price for a private company. Thanks,

#2

insensitive Wrote: ------------------------------------------------------- > Hi, > > I am trying to build a financial model (LBO) for > a private company. Financials only provides > Revenue, EBITDA and EBIT. Is there a way to figure > out Taxes and Interest expense to arrive at Net > Income. What would be best way to estimate the > purchase price for a private company. > > Thanks, Do they give you any balance sheet data to work with?

#3

Obviously, you would rather get more data, like balance sheet. Perhaps the company has no debt, though, in which case you wouldn’t have to deal with interest expenses. It’s also true that many private equity types just look at EBITDA multiples, so that’s something you can do in a pinch… use comparable public companies, figure out the EBITDA multiple, and then come to some conclusion about how much of a discount you want to add in for the fact that private companies are liquid. Obviously, when doing valuation, it’s good to use several techniques and see what the range of values are. That helps prevent any one assumption from taking you far afield.

#4

It sounds like they only gave you the summary financials. If thats the case I don’t know how you could come up with a valuation that could be relied upon. You need to look at much more information to get comfortable with their business and operations (assets, customer contracts, etc.)

#5

Thanks for response guys. Supersad >They did provide a balance sheet, and has very little debt. Is there a way to work out Taxes and Interest from balance sheet and income statement. Bchadwick> I did use EBITDA multiple, but wanted to value using unlevered cashflow. So, I need the Taxes. Stocks & Blondes> they just provided Income Statement with revenue, EBITDA and EBIT and full balance sheet.

#6

If you are modeling an LBO transaction, it’s likely the capital structure, balance sheet, historical interest expense, etc. will change significantly going forward, and I would expect that the focus of any LBO investor would be on the future expectations.

#7

thanks for your advice BValGuy.

#8

BValGuy Wrote: ------------------------------------------------------- > If you are modeling an LBO transaction, it’s > likely the capital structure, balance sheet, > historical interest expense, etc. will change > significantly going forward, and I would expect > that the focus of any LBO investor would be on the > future expectations. What BvalGuy said is right. If I were you, I would make some assumptions regarding all that crap going forward but create your spreadsheet so that you can modify this stuff by changing a single cell - i.e. assume that they finance the transaction with X million of debt at Y interest, but try and make your spreadsheet not a nightmare to change if it turns out your assumptions are crap. That is to say, have your assumptions based off of key cells “interest rate” and so on that you can modify as needed. Then, frankly, I’d run it past someone senior to myself to try and get a handle on what assumptions sound reasonable - when you’re starting out with such limited information (i.e. not even an entire set of financial statements…), you can generate a huge range of ‘reasonable sounding’ future estimates. Someone a little higher up than you might be willing to lend you a hand once you show that you’ve gotten the ball to the five yard line as far as modelling stuff in excel.

#9

Thanks Supersadface, that was very helpful. I thought I might seek some help on this forum before turning to my seniors. Thanks guys again for all the suggestions and advice!