Professional Documents
Culture Documents
1) Financial Statement Adjustments - May have to change the presentation of the financial statements to make them more in-line with GAAP or IFRS.
Properly classify "Dividends" or "Owner Draws" and consider them an IS expense if you're marketing this company for a sale.
Make the tax rate in future periods in-line with the potential buyer's rate to properly reflect future of the business.
2) Public Comps and Precedent Transactions - You still select the same types of companies and transactions (same industry, ideally close to the same
size if you can find any like that, match the geography / customer base, etc.).
BUT… you'll almost certainly have to apply a "private company discount" or "liquidity / illiquidity discount" to the multiples, certainly from the public
comps but also sometimes from the transactions depending on what they look like (e.g., if they're all for much bigger companies).
Might range from 10-30% depending on the size/scale of the private company, and who the potential buyer is. Don't apply this in an IPO scenario
because the company is about to go public anyway.
3) DCF Analysis - Still project FCF in the same way, and over the same type of time period (5-10+ years). Financial statements should already have been
adjusted when you do this.
Cost of Equity and WACC - In practice, you'll still un-lever Beta from the comps and re-lever based on the comps' median capital structure or
"optimal" capital structure.
Private companies don't have current market caps, so need to use this targeted structure instead.
May use "Total Beta" and divide Unlevered Beta by R, the square root of the "Market Correlation" factor; may further adjust by the potential buyer's
overall portfolio diversification.
Discount Rate will pretty much always be higher for a private company since they're less liquid and since the potential buyers themselves are often
private, which means less diversification and more risk.
Terminal Value - Can still calculate by using the Multiples or Gordon Growth Method, but you need to apply some type of "Going Concern" discount due
to the nature of very small businesses.
Or, calculate using the company's Liquidation Value, or just assume that there is no Terminal Value because the company ceases operations in the
future (and project FCF out until this happens).
4) Valuation Summary - Stop at Implied Equity Value or Implied Enterprise Value since share price is not relevant for private companies.
Should almost always apply it to multiples from public comps since those companies, being public, are all a lot more liquid; sometimes apply it to M&A
comps; tend not to apply it in a DCF analysis since the Discount Rate is higher and the Terminal Value is already lower, which reflect the PrivCo status.
Valuation is highly dependent on the buyer; tends to be lowest for other private companies or individuals, higher for large, diversified public companies
with broad shareholder bases, and sometimes even higher in IPO scenarios because no discount is applied to the comps then, and Discount Rate and
Terminal Value in a DCF don't need to be adjusted.
Sample Private Company Financial Statements - Capital Capable Media LLC:
($ USD as Stated)
Historical Projected
Revenue and Expense Drivers: Units Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Course Sign-Ups: # Customers 1,011 2,051 2,978 4,000 4,500 4,800 5,200 5,600 6,000 6,500
Average Customer Value: $ / Customer $ 107.24 $ 128.31 $ 145.64 $ 145.76 $ 163.26 $ 175.00 $ 190.00 $ 210.00 $ 225.00 $ 240.00
Expense Percentages:
Commission Rate - Affiliates: % 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%
Commission Rate - Coaches: % 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%
Commission Rate - Sales Reps: % 0.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
Payment Fees % Gross Sales: % 2.9% 2.8% 2.8% 2.8% 2.8% 2.8% 2.8% 2.9% 2.9% 3.0%
Refunds % Gross Sales: % 3.0% 3.1% 3.5% 4.0% 4.1% 4.5% 4.5% 5.0% 5.0% 6.0%
Tax & Legal Fees % Gross Sales: % 0.6% 0.4% 0.2% 0.3% 0.2% 0.2% 0.2% 0.3% 0.3% 0.3%
Online Advertising % Gross Sales: % 0.0% 2.5% 3.3% 2.6% 3.1% 3.1% 3.3% 3.5% 3.5% 3.7%
IT Infrastructure % Gross Sales: % 0.9% 1.2% 1.6% 2.0% 2.1% 2.2% 2.4% 2.4% 2.6% 2.6%
Travel & Moving % Gross Sales: % 2.7% 2.2% 1.0% 0.7% 0.7% 0.7% 0.6% 0.5% 0.4% 0.4%
Depr. & Amort. % Gross Sales: % 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.3% 0.4% 0.4%
Effective Tax Rate: % 25.0% 27.0% 28.0% 29.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
Historical Projected
BS and CFS Drivers: Units Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Accounts Receivable % Gross Sales: % 0.0% 0.5% 1.0% 1.0% 1.2% 1.2% 1.3% 1.4% 1.5% 1.6%
Accounts Payable % OpEx: % 0.5% 0.9% 1.3% 1.8% 2.1% 2.2% 2.4% 2.4% 2.6% 2.6%
Accrued Expenses % OpEx: % 1.0% 1.0% 1.5% 1.5% 1.5% 1.7% 1.7% 1.9% 1.9% 2.0%
Deferred Revenue % Gross Sales: % 0.0% 0.2% 0.5% 0.8% 1.0% 1.2% 1.4% 1.5% 1.7% 1.9%
CapEx % Revenue: % 0.4% 0.5% 0.5% 0.5% 0.6% 0.6% 0.7% 0.7% 0.8% 0.8%
Sales / (Purchases) of Other Assets: $ (127) (254) (321) (423) (501) (500) (600) (750) (900) (1,100)
Change in Other Non-Current Liabilities: $ 53 102 1,211 2,310 3,123 3,500 3,800 4,100 4,400 4,700
Owner Draw % Gross Sales: $ 37.6% 24.7% 19.6% 19.8% 21.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Dividends / Owner Draw: $ 80,000 100,000 120,000 150,000 200,000 222,576 264,169 314,589 364,321 422,141
Owner Draw - G&A Allocation: % 25.0% 20.0% 15.0% 10.0% 10.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Owner Draw - S&M Allocation: % 50.0% 50.0% 50.0% 55.0% 55.0% 60.0% 65.0% 65.0% 65.0% 65.0%
Owner Draw - R&D Allocation: % 25.0% 30.0% 35.0% 35.0% 35.0% 35.0% 30.0% 30.0% 30.0% 30.0%
Owner Draw - G&A Allocation: $ 20,000 20,000 18,000 15,000 20,000 11,129 13,208 15,729 18,216 21,107
Owner Draw - S&M Allocation: $ 40,000 50,000 60,000 82,500 110,000 133,546 171,710 204,483 236,809 274,392
Owner Draw - R&D Allocation: $ 20,000 30,000 42,000 52,500 70,000 77,902 79,251 94,377 109,296 126,642
Historical Projected
Income Statement: Units Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Gross Sales by Category:
Online Courses: $ $ 108,419 $ 263,157 $ 433,718 $ 583,030 $ 734,675 $ 840,000 $ 988,000 $ 1,176,000 $ 1,350,000 $ 1,560,000
Product Sales Referred by Affiliates: $ 40,392 52,631 61,087 37,859 47,706 59,633 71,559 82,293 90,522 99,575
Coaching & Resume Editing Services: $ 36,140 44,534 54,978 60,575 66,789 73,467 80,814 87,279 94,262 99,917
Sales to Institutions: $ 8,503 20,243 30,544 53,003 76,330 106,862 144,263 187,542 243,805 304,756
Commissions from Other Products: $ 19,133 24,291 30,544 22,715 28,624 32,917 36,209 39,830 43,016 46,458
Total Gross Sales: $ 212,587 404,857 610,871 757,182 954,123 1,112,879 1,320,846 1,572,945 1,821,606 2,110,706
Commissions by Category:
Commissions Paid to Affiliates: $ 20,196 26,316 30,544 18,930 23,853 29,816 35,780 41,147 45,261 49,787
Commissions Paid to Coaches: $ 18,070 22,267 27,489 30,287 33,394 36,734 40,407 43,640 47,131 49,959
Commissions Paid to Sales Reps: $ - 8,097 12,217 21,201 30,532 42,745 57,705 75,017 97,522 121,903
Total Commissions: $ 38,266 56,680 70,250 70,418 87,779 109,295 133,892 159,803 189,914 221,649
Gross Sales Less Commissions: $ 174,321 348,177 540,621 686,764 866,344 1,003,584 1,186,954 1,413,142 1,631,691 1,889,057
Net Sales After Fees and Refunds: $ 161,779 324,290 502,136 635,276 800,509 922,344 1,090,532 1,288,879 1,487,785 1,699,094
Operating Expenses:
Tax, Bookkeeping & Legal Fees: $ 1,250 1,500 1,500 2,000 2,250 2,226 2,642 4,719 5,465 6,332
Customer Support: $ - 30,000 30,000 45,000 60,000 62,400 97,344 101,238 140,383 145,998
Online Advertising: $ - 10,000 20,000 20,000 30,000 34,499 43,588 55,053 63,756 78,096
Web Design & Development: $ 10,000 30,000 60,000 60,000 60,000 93,600 97,344 134,984 140,383 145,998
Sales Reps - Base Salaries: $ - 10,000 12,000 12,000 12,000 12,480 25,958 26,997 28,077 29,200
Marketing Staff: $ - - 40,000 60,000 80,000 83,200 86,528 89,989 116,986 145,998
IT Infrastructure: $ 2,000 5,000 10,000 15,000 20,000 24,483 31,700 37,751 47,362 54,878
Travel & Moving Expenses: $ 5,768 8,798 6,012 5,123 6,763 7,790 7,925 7,865 7,286 8,443
Depreciation & Amortization: $ 568 792 1,011 1,523 2,024 2,226 2,642 4,719 7,286 8,443
Product Creation: $ - - 40,000 40,000 80,000 83,200 86,528 179,978 187,177 194,664
Content Creation: $ - - 30,000 30,000 30,000 31,200 48,672 50,619 70,192 72,999
Total Operating Expenses: $ 19,586 96,090 250,523 290,646 383,037 437,304 530,871 693,911 814,353 891,051
Operating Income: $ 142,193 228,200 251,613 344,630 417,472 485,040 559,661 594,968 673,432 808,043
Income Taxes: $ 35,548 61,614 70,452 99,943 125,242 145,512 167,898 178,491 202,029 242,413
Net Income: $ $ 106,645 $ 166,586 $ 181,161 $ 244,687 $ 292,231 $ 339,528 $ 391,763 $ 416,478 $ 471,402 $ 565,630
Historical Projected
Key Metrics and Ratios: Units Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
EBITDA Calculation:
Operating Income: $ $ 142,193 $ 228,200 $ 251,613 $ 344,630 $ 417,472 $ 485,040 $ 559,661 $ 594,968 $ 673,432 $ 808,043
Plus: Depreciation & Amortization: $ 568 792 1,011 1,523 2,024 2,226 2,642 4,719 7,286 8,443
EBITDA: $ 142,761 228,992 252,624 346,153 419,496 487,266 562,303 599,687 680,718 816,486
Revenue Growth: % N/A 90.4% 50.9% 24.0% 26.0% 16.6% 18.7% 19.1% 15.8% 15.9%
Operating Margin: % 66.9% 56.4% 41.2% 45.5% 43.8% 43.6% 42.4% 37.8% 37.0% 38.3%
EBITDA Margin: % 67.2% 56.6% 41.4% 45.7% 44.0% 43.8% 42.6% 38.1% 37.4% 38.7%
Net Margin: % 50.2% 41.1% 29.7% 32.3% 30.6% 30.5% 29.7% 26.5% 25.9% 26.8%
Effective Tax Rate: % 25.0% 27.0% 28.0% 29.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
Historical Projected
Balance Sheet: Units Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Assets:
Current Assets:
Cash & Cash Equivalents: $ $ 52,348 $ 117,867 $ 181,225 $ 279,274 $ 374,608 $ 495,283 $ 625,504 $ 732,775 $ 844,948 $ 990,625
Accounts Receivable: $ - 2,024 6,109 7,572 11,449 13,355 17,171 22,021 27,324 33,771
Total Current Assets: $ 52,348 119,892 187,333 286,846 386,058 $ 508,637 $ 642,675 $ 754,797 $ 872,272 $ 1,024,397
Long-Term Assets:
Plants, Property & Equipment: $ 10,038 11,270 13,314 15,577 19,277 23,729 30,333 36,625 43,911 52,354
Other Assets: $ 127 381 702 1,125 1,626 2,126 2,726 3,476 4,376 5,476
Total Long-Term Assets: $ 10,165 11,651 14,016 16,702 20,903 25,855 33,059 40,101 48,287 57,830
Total Assets: $ $ 62,513 $ 131,543 $ 201,349 $ 303,547 $ 406,961 $ 534,492 $ 675,734 $ 794,897 $ 920,559 $ 1,082,227
Long-Term Liabilities:
Deferred Revenue: $ - 810 3,054 5,679 9,541 13,355 18,492 23,594 30,967 40,103
Other Non-Current Liabilities: $ 53 155 1,366 3,676 6,799 10,299 14,099 18,199 22,599 27,299
Total Long-Term Liabilities: $ 53 965 4,420 9,355 16,340 23,654 32,591 41,793 53,566 67,402
Total Liabilities: $ $ 347 $ 2,790 $ 11,435 $ 18,946 $ 30,130 $ 40,708 $ 54,357 $ 71,631 $ 90,212 $ 108,391
Equity: $ $ 62,166 $ 128,753 $ 189,914 $ 284,601 $ 376,831 $ 493,784 $ 621,377 $ 723,266 $ 830,347 $ 973,836
TOTAL LIABILITIES & EQUITY: $ $ 62,513 $ 131,543 $ 201,349 $ 303,547 $ 406,961 $ 534,492 $ 675,734 $ 794,897 $ 920,559 $ 1,082,227
Balance Sheet Check: OK! OK! OK! OK! OK! OK! OK! OK! OK! OK!
Historical Projected
Cash Flow Statement: Units Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Net Change in Cash: $ 26,582 65,519 63,357 98,049 95,335 120,674 130,221 107,272 112,173 145,678
Beginning Cash Balance: $ 25,766 52,348 117,867 181,225 279,274 374,608 495,283 625,504 732,775 844,948
Ending Cash Balance: $ $ 52,348 $ 117,867 $ 181,225 $ 279,274 $ 374,608 $ 495,283 $ 625,504 $ 732,775 $ 844,948 $ 990,625
Sample Private Company Financial Statements - Capital Capable Media LLC - US GAAP / IFRS-Compliant
($ USD as Stated)
Assumptions:
Historical
Income Statement: Units Year 1 Year 2 Year 3 Year 4
Operating Expenses:
General & Administrative: $ 39,415 97,836 136,604 158,201
Sales & Marketing: $ 78,266 126,680 202,250 244,918
Research & Development: $ 20,000 30,000 112,000 122,500
Depreciation & Amortization: $ 568 792 1,011 1,523
Total Operating Expenses: $ 138,249 255,308 451,866 527,142
Historical
Key Metrics and Ratios: Units Year 1 Year 2 Year 3 Year 4
EBITDA Calculation:
Operating Income: $ $ 67,961 $ 136,998 $ 137,625 $ 199,753
Plus: Depreciation & Amortization: $ 568 792 1,011 1,523
EBITDA: $ 68,529 137,790 138,636 201,276
torical Projected
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Long-Term Assets:
Plants, Property & Equipment: $ 10,038 11,270 13,314 15,577
Other Assets: $ 127 381 702 1,125
Total Long-Term Assets: $ 10,165 11,651 14,016 16,702
Long-Term Liabilities:
Deferred Revenue: $ - 810 3,054 5,679
Other Non-Current Liabilities: $ 53 155 1,366 3,676
Total Long-Term Liabilities: $ 53 965 4,420 9,355
Financial Assumptions for DCF: Operating Assumptions for Extended Projection Period:
Terminal Value - Multiples Method: Terminal Value - Perpetuity Growth Method: Terminal Value - Liquidation Value Method:
Baseline Terminal EBITDA Multiple: 5.7 x Baseline Terminal FCF Growth Rate: 3.0% Final Projection Year Liquidation Value: $ 1,431,523
Baseline Terminal Value: $ 3,054,203 Baseline Terminal Value: $ 3,054,203 Cumulative FCF Beyond Final Year: 1,541,716
Terminal Value After "Going Concern" Discount: 2,290,652 Terminal Value After "Going Concern" Discount: 2,290,652 Terminal Value Based on Asset Liquidation: 2,973,239
Implied Terminal FCF Growth Rate: (0.4%) Implied Terminal EBITDA Multiple: 4.3 x Terminal Value After Discount: 2,973,239
% of Implied EV from Terminal Value: 31.1% % of Implied EV from Terminal Value: 31.1% % of Implied EV from Terminal Value: 36.9%
Plus: Cash & Cash-Equivalents: 407,072 Plus: Cash & Cash-Equivalents: 407,072 Plus: Cash & Cash-Equivalents: 407,072
Plus: Equity Investments: - Plus: Equity Investments: - Plus: Equity Investments: -
Plus: Other Non-Core Assets, Net: - Plus: Other Non-Core Assets, Net: - Plus: Other Non-Core Assets, Net: -
Plus: Net Operating Losses: - Plus: Net Operating Losses: - Plus: Net Operating Losses: -
Less: Total Debt: - Less: Total Debt: - Less: Total Debt: -
Less: Noncontrolling Interests: - Less: Noncontrolling Interests: - Less: Noncontrolling Interests: -
Implied Equity Value: $ 2,253,971 Implied Equity Value: $ 2,253,971 Implied Equity Value: $ 2,425,001
Revenue: $ 1,062,800 $ 1,261,408 $ 1,494,298 $ 1,730,525 $ 1,984,064 $ 2,235,067 $ 2,473,123 $ 2,687,071 $ 2,865,787 $ 2,999,073
Growth Rate: N/A 18.7% 18.5% 15.8% 14.7% 12.7% 10.7% 8.7% 6.7% 4.7%
OpInc (EBIT): 270,254 303,417 288,244 316,397 394,345 433,058 466,817 493,766 512,277 521,108
EBIT Margin: 25.4% 24.1% 19.3% 18.3% 19.9% 19.4% 18.9% 18.4% 17.9% 17.4%
Less: Taxes: (94,589) (106,196) (100,885) (110,739) (138,021) (151,570) (163,386) (172,818) (179,297) (182,388)
NOPAT: 175,665 197,221 187,359 205,658 256,324 281,488 303,431 320,948 332,980 338,720
Plus: D&A: 2,226 2,642 4,719 7,286 8,443 11,175 12,366 13,435 14,329 14,995
Change in WC: 5,174 6,032 8,325 8,878 7,031 7,530 7,142 6,418 5,361 3,999
Less: CapEx: (6,677) (9,246) (11,011) (14,573) (16,886) (22,351) (24,731) (26,871) (28,658) (29,991)
Unlevered FCF: 176,388 196,648 189,391 207,250 254,913 277,842 298,207 313,931 324,013 327,723 294,951 265,456 238,910 215,019
Growth Rate: N/A 11.5% (3.7%) 9.4% 23.0% 9.0% 7.3% 5.3% 3.2% 1.1% (10.0%) (10.0%) (10.0%) (10.0%)
PV of FCF: 164,594 159,782 133,995 127,677 136,742 129,778 121,287 111,178 99,917 87,999 68,962 54,044 42,352 33,190
Discount Period: 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 10.000 11.000 12.000 13.000 14.000
Mid-Year: 0.500 1.500 2.500 3.500 4.500 5.500 6.500 7.500 8.500 9.500 10.500 11.500 12.500 13.500
Terminal Value - "Cease Operations" Method:
Err:502
Unlevered Preferred Equity Levered
Beta Debt % Debt Stock % Preferred Value % Equity Tax Rate Beta
"Optimal" Capital Structure: 1.93 14.0% – 86.0% 35.0% 2.14
WACC = Cost of Equity * % Equity + Cost of Debt * % Debt * (1 - Tax Rate) + Cost of Preferred Stock * % Preferred Stock
Maximum $ 1,924.7 $ 2,280.4 $ 474.6 $ 542.5 $ 616.1 $ 127.4 $ 143.6 $ 169.6 26.8% 26.5% 27.5% $ 46.4 $ 61.6 $ 78.2 2.11
75th Percentile 768.2 632.0 440.0 438.5 458.8 99.4 95.5 103.0 22.6% 22.0% 23.0% 37.9 41.9 45.8 1.48
Median 633.1 550.9 385.3 400.2 414.4 82.3 85.2 89.6 21.4% 21.0% 21.1% 32.1 38.9 42.5 1.20
25th Percentile 210.3 176.9 334.9 332.2 350.6 28.1 27.2 31.4 12.8% 12.1% 14.4% 9.2 13.7 15.5 1.12
Minimum 52.9 74.7 127.8 119.6 124.2 (34.3) (45.0) (15.6) (10.4%) (14.1%) (4.6%) (75.4) (18.8) (3.4) 0.32
Maximum $ 1,924.7 $ 2,280.4 4.8 x 4.2 x 3.7 x 17.9 x 15.9 x 13.4 x 72.9 x 31.3 x 24.6 x
75th Percentile 768.2 632.0 1.5 x 1.4 x 1.4 x 7.0 x 6.7 x 6.4 x 23.7 x 19.0 x 17.2 x
Median 633.1 550.9 1.4 x 1.4 x 1.3 x 6.4 x 6.7 x 6.0 x 21.1 x 18.2 x 16.2 x
25th Percentile 210.3 176.9 0.8 x 0.8 x 0.8 x 6.1 x 6.6 x 5.9 x 15.7 x 14.5 x 13.7 x
Minimum 52.9 74.7 0.2 x 0.2 x 0.2 x 5.9 x 6.3 x 4.9 x 14.5 x 13.6 x 12.1 x
Err:502
($ USD as Stated)
Precedent Transactions:
LTM EV / Revenue: 2.5 x 1.7 x 1.5 x 1.4 x 0.9 x $ 915,004 30.0% 983,525 1,303,776 1,367,826 1,495,927 2,008,329
LTM EV / EBITDA: 13.5 x 12.1 x 11.1 x 10.1 x 8.0 x 226,259 30.0% 1,674,124 2,006,725 2,165,106 2,323,488 2,545,222