Private Company Valuation Techniques
Private companies have major importance in the world’s economy albeit often smaller in size and less financially transparent than their publicly traded peers. Among the +300,000 firms operating in the United States that generate greater than $10 million in annual revenues, roughly 90% are privately-held companies. A privately-held company is owned either by non-governmental organizations or by less than 2000 shareholders so as not to require reporting with the Securities and Exchanges Commission. The private company’s owners do not publicly issue or trade shares of the private company, instead, they keep ownership and associated transactions discreet.
Valuation of such closely-held private companies can be expensive and difficult due to a lack of exact financial information. Although it may be difficult to research private companies, it is not impossible. There are methodologies and financial tools available to assist in making reasonable estimates of a private company’s value. With an estimated value and a good intuition, one can arrive at a reasonable range of a private company’s intrinsic value.