When can private company data be used in valuation?

When can private company data be used in valuation?

• A. In valuation, private data are never used.
• B. Only in the context of precedent transactions
• C. For public company comparables and WACC calculations
• D. In all valuation inputs including Cost of Equity

Answer: (B)

The key idea is that data from private companies aren’t reliable benchmarks for most valuation inputs because there’s no active market and disclosures aren’t as consistent. The only time private-company data are directly used as a benchmark is within precedent transactions, where you look at prices paid for private targets in real deals. Those transaction multiples provide actual, market-based evidence of value for private companies when public-company data aren’t a good proxy. Public company comparables rely on data from listed firms which are liquid and transparent, letting you form multiples that reflect public market pricing. WACC calculations depend on market-based inputs like beta and the equity risk premium, derived from public markets. Using private data to estimate these would ignore liquidity, capital structure differences, and market pricing dynamics, making the inputs less robust. So private company data fit best in precedent-transaction analysis, as it offers concrete, observed deal values for private targets, while public comps and WACC rely on public market data.

The key idea is that data from private companies aren’t reliable benchmarks for most valuation inputs because there’s no active market and disclosures aren’t as consistent. The only time private-company data are directly used as a benchmark is within precedent transactions, where you look at prices paid for private targets in real deals. Those transaction multiples provide actual, market-based evidence of value for private companies when public-company data aren’t a good proxy.

Public company comparables rely on data from listed firms which are liquid and transparent, letting you form multiples that reflect public market pricing. WACC calculations depend on market-based inputs like beta and the equity risk premium, derived from public markets. Using private data to estimate these would ignore liquidity, capital structure differences, and market pricing dynamics, making the inputs less robust.

So private company data fit best in precedent-transaction analysis, as it offers concrete, observed deal values for private targets, while public comps and WACC rely on public market data.