Valuation of private equity companies

Valuation is a process in which the private equity professional estimates the value of a company's assets based on a series of relevant variables that are perceived to affect the long-term performance of the company. Managers of private equity (PE) funds are required to carry out periodic valuations of their portfolio investments as part of the reporting process to their investors. The International PE and Venture Capital Valuation (IPEV) Guidelines Board has developed a set of guidelines for this purpose. When valuing a PE investment, an important check is comparing the size of any discount applied at the valuation date against the difference between the multiples at the date of acquisition. Many valuation processes are affected by accounting conservatism. One of the initial complaints against the valuation guidelines is the use of multiples that can make a private equity investment “volatile”.