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Owner’s opinions of their business value can be influenced by inherent biases, flawed valuation methodologies, and factors lurking beyond their control. Owners often seek valuations from CPAs or similar entities for purposes such as insurance, estate planning, or internal events.
Business Valuation - Determining the value of assets or entire companies. Example Imagine you manage a conglomerate called TPD Corporation, which has three main divisions: healthcare, entertainment, and logistics. First, identify the divisions you want to evaluate—in this case, the Healthcare, Entertainment, and Logistics segments.
The most digitally mature firms saw valuations 23% above pre-crisis levels, on average, within six months of the pandemic’s start, said BCG recently when releasing the results of a study. . The post Digitally mature firms saw valuations of 23% on average above pre-crisis levels appeared first on FutureCFO.
And they were really down there running a leveraged loan in a high yield business again, which was fit really nicely with what I was doing. We also bought a, a, a business in, in the UK that was a, a parallel, it was a, a leveraged loan and mezzanine investor called Duke Street Capital Partners. It was really a CLO and loan manager.
is about broadening access to knowledge, capital and well-being by leveraging existing networks and protocols, and building trusted brands. So along those lines, there are some venture firms that don’t really seem to care a lot about valuations and others seem to focus on a little bit. How do you fall in that spectrum?
So I had some experience in Africa that was able to leverage for this role. That is not being reflected in valuations from a top down standpoint. One is, if you think about EM, equity valuations versus the s and p, the EM index is trading at, you know, 10 to 11 times forward pe. So my original focus was Sub-Saharan Africa.
And so I kind of leveraged that when I went to Morningstar because they’re very focused on quality, the whole concept of economic moats, but also about buying companies when they’re trading at a discount to intrinsic value. But there’s always gotta be some element of the valuation really being compelling.
JEFFREY RAYPORT: Well, maybe the best way to bring it to life is to talk about one of the companies that we’ve spent a lot of time with, and that’s King Digital Entertainment. Can you just explain what extrapolation is? It’s a London-based game maker. Many people will know it. It’s been recently acquired by Activision Blizzard.
Valuations tended to crash and burn very, very cheap valuations tended to do well. 01:11:20 [Speaker Changed] So starting with what’s keeping you entertained these days? Closing of the American Mind, or entertaining ourselves to 01:12:56 [Speaker Changed] Death. Right, right. Very, very high. There we go.
CHANCELLOR: And look — yeah, but then if you look at the valuation of the market at that time, the market was — the U.S. CHANCELLOR: And look — yeah, but then if you look at the valuation of the market at that time, the market was — the U.S. CHANCELLOR: They had the equity allocation.
But there wasn’t an active m and a business, there wasn’t a leveraged finance business. But there came to be, in certain situations, buyers that were bootstrap, buyers that were, we would call ’em today, they then leveraged buyout financiers. And, and we wanted to have relatively modest leverage.
But, but I think if I was to go back through my career, that moment in time, you know, when there is this big wave coming, because it was the start of the high yield market, the leverage loan market grew dramatically, you know, from 200 billion in the mid nineties to $5 trillion today, high yield and leverage loans. And still growing.
He has a very interesting approach to thinking about market valuations and strategies and when to deploy capital, when to go with the crowd, when to lean against the crowd, and has amassed and excellent track record. Second part of our framework is valuation fundamental work. Well, that means valuations are probably too high.
The, the security that 00:19:47 [Speaker Changed] Is 5% is high yield these days 00:19:49 [Speaker Changed] You had the, the Fed come in and, and push a lot of the banks and say, Hey, you, you can’t have a tunnel of leverage on the high yield issuance. But I, I think this extreme leverage is not as prevalent as it once was.
And so in the 1990s, I developed the, the late 1980s, early 1990s, I developed a skillset around valuation, in particular discounted cash flow or residual income type models, along with a couple of peers out of the consulting industry. And so it is important that at least you’re able to entertain that.
And you can go long, you can go short, you can have leverage, you could have higher exposure levels, but the securities are in the liquid public markets versus private equity, which are in illiquid private markets. The best example I always love to give is that Amazon’s last private round was at a $60 million post money valuation.
One, when people have asked me to compare and contrast today versus 2007, 2008, what you hear from a lot of people is, yes, there’s some fairly heady valuations. But I would say generally, there’s less leverage in the system. What’s been keeping you entertained?
And when they look at a sector, they want to be long, the very best stocks at the best valuations they can, and short the worst stocks at the worst valuations. Tell us what you’re either watching or listening to, either, you know, video or podcasts or whatever’s keeping you entertained.
You know, we’ve talked about sale leaseback, we’ve talked about music royalties, talked about film and TV royalties, asset-based lending in addition to just casual lending and leverage loans. RITHOLTZ: Is that valuation issue ongoing? What — what’s keeping you entertained? You’ve seen some of those. RITHOLTZ: The Serpent.
So if it’s, for example, a strategy tracking a Nasdaq Index, or an S&P, or a MSCI, typically, you leverage an index that is already available through the index providers. I mean, I do think there is a market for leverage and inverse ETFs out there. Tell us a little bit about what that process is like.
What happened over the last year and a half or so is rates went up and valuations went down. How do you institutionalize data management and, and how do you leverage the idea of, hey, we know a lot about this, here’s how we monetize it. What’s been keeping you entertained either video or audio, Netflix or, or podcasts?
You know, people are comfortable, leverage builds. Now, we’re shifting to more international places like China, Europe, et cetera, that are really growing, and that valuations are cheaper. You know, the leverage in the system builds. And then all of a sudden, sometimes violently, it recalibrates.
The exposure you get in investment banking, I was a leveraged finance banker by background. And so we go back to the basics of what our job should be, risk underwriting, risk assessment, asset prices are different from asset valuation. I mean the valuation is the future cash flow discounted at a risk-free rate plus a risk premium.
And we’d sort of turn that into a valuation business. MILLER: Well actually I thought, leading up to the great financial crisis, I thought to myself, we’re going to be out of business within a couple of years because nobody wanted an independent valuation. What’s keeping you entertained? RITHOLTZ: Is it not?
And I think a lot of investors and, and lenders and really lost their way and agreed to terms and conditions that in under today’s market environment would not be acceptable levels of leverage that would not work. And if they don’t, we’re happy to own them at the valuation that we are creating that company act.
RITHOLTZ: Because the underlying owner just kept leveraging and leveraging and leveraging, and somebody very smart in private equity, went out and bought up 51 percent of the debt for pennies on the dollar. MCCARTHY: Well, I would — RITHOLTZ: Or is that just leverage and don’t — MCCARTHY: Yeah.
And I think that’s reflective of employee having a lot of leverage over employers. And last market question, so we’ve seen equity valuations come down. I get the sense you’re expecting cheaper valuations, if not much cheaper valuations. RITHOLTZ: Right. And free lunch. So in perspective view is skewed.
In the short run, there can be distortions in public market valuations as we saw in 2001 and we saw prior to that in 2007, and prior to that in 2000, in ‘99. I mean, there have been leveraged loans and high yield bonds since the 1980s. You get paid for the incremental risk that you’re taking in a more leveraged capital structure.
So it used to be within private markets that you would find a good business, apply quite a bit of leverage to it, at least in the private equity business, and be able to make a pretty good return by buying good solid businesses as they are. Leverage levels have come down materially. LAYTON: Leverage levels have changed.
And I think what I’m trying to imply is there’s a lot of informational value that’s already held within the valuations where these equities are trading that you can calculate, you know, a sense of the implied market probability of success for an opportunity for a company. There, 00:10:35 [Speaker Changed] There is.
Everybody wants to sell a company when they get a good valuation. Obviously, profits, very important to company valuation — BERNSTEIN: Absolutely. The other thing we do, Barry, is we group valuation as a sentiment indicator. So we do a lot of valuation work. BERNSTEIN: Correct. RITHOLTZ: Right. RITHOLTZ: Right.
It’s that the, so that’s the core competency and it’s just leveraged into, if it’s a loan, if it’s a security backed by a loan, if it’s the actual estate itself. We ask all of our guests starting with what have you been entertained with these days? So from a data perspective, think about it this way.
One, two, there was a theory that these businesses had volatile cash flows and therefore couldn’t be leveraged, which was the, you know, the whole point of leveraged buyouts. These 10% are what’s driving the entire valuation. We’ll buy the rest of it at a, a full valuation, which we did.
The transcript from this week’s, MiB: Howard Lindzon, Social Leverage , is below. Literally the first check-in to Robinhood, which went public in 2021 at about a $34 billion valuation. So with no further ado, my discussion with Social Leverage’s Howard Lindzon. HOWARD LINDZON, MANAGING PARTNER, SOCIAL LEVERAGE: Hello, Barry.
00:24:49 [Speaker Changed] So let’s talk a little bit about valuation in the public markets. Does that valuation difference in the public markets extend to private markets as well? Does that valuation difference in the public markets extend to private markets as well? Hence the valuation gap.
But I think the reality is right now, we just have an overhang from, I certainly in my world, I can speak to healthcare and FinTech, a number of companies going public and then disappointing or valuation just being excessive compared to the maturity of the businesses. What’s keeping you entertained?
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