What produces the variation in the estimated valuation of a private company month-on-month?
Answer
There are three distinct sources of variation in the estimated valuation of a private company:
Updates for recent private market transactions produce newer factor prices. For example, when a group of small private companies gets transacted at a premium, smaller companies’ estimated valuations change.
Updates for the annual financials of the private company produce new factor loadings. For example, a private company might report higher profitability, thus leading to a valuation change.
Updates of the financial market data produce new market factor loadings. For example, the valuation of the same industry publicly listed companies may see a sudden spike, and hence cause a valuation change.
Further Reading
More details on our factor selection, their explanatory power, and economic effects are available in our private equity valuation white paper and on our results summary page here.