Valuing Private Equity

Dirk Schoenmaker and Willem Schramade
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Willem Schramade: Nyenrode Business University

Chapter 10 in Corporate Finance for Long-Term Value, 2023, pp 269-287 from Springer

Abstract: Abstract Private equity funds are set up to invest in private companies for a predefined multiyear period. Private equity companies, i.e. the companies that run private equity funds, come in several types, with different goals and methods. Private equity performs an important role in funding and fostering companies that are as yet too small for the stock market and/or too risky for bank loans. By nature, private equity is very well suited to sustainable investing since it is a fundamental form of investing with active ownership, multiyear investment horizons, and close consideration of the company’s business model and circumstances. However, in the application of sustainability considerations, private equity falls behind the public equity space. The main difficulty lies in getting the right information for the investors in private equity funds, as many of these funds are still reluctant to systematically report on environmental and social factors—although this is improving. The integrated view on private equity is again similar to the one on public equity, but with the added challenge of data and comparability.

Keywords: Active ownership; Buyout; Buyout equity; Burn rate; Convertible notes; Deal; Due diligence; EBITDA; Equity raising; Exit; Financial engineering; Formal private equity; Fundamental analysis; Fund structure; General partner (GP); Growth equity; Impact PE; Informal private equity; Intentionality; Investee company; J-curve; Late-stage; Leveraged buyout (LBO); Limited partner (LP); Management buy-in (MBI); Management buy-out (MBO); Milestones; Minority stake; Multiples valuation; Pre-deal; Private equity (PE); Private equity companies; Private equity funds; Price-earnings (P/E); Sustainability integration; Start-up; Strategic buyer; Valuation; Value creation; Value driver; Value driver adjustments (VDA); Venture capital (VC); Venture philanthropy (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/978-3-031-35009-2_10

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