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In the good old days, private companies were worth less than comparable public companies. This was due to their smaller size, lack of diversification, lack of access to capital, dependence on key people, and illiquidity, among other things.
Enter the “unicorns,” private companies currently valued at $1 billion or more. Many of these steeds are valued at stratospheric multiples of revenue, earnings, and cash flow (if they earn any).
What is driving these valuations?
In short, the demand for apparently hot private companies exceeds their supply.
Unfortunately, this situation is not sustainable. None of the above drivers is permanent. When investor expectations change, there will be a last roundup of the unicorns, so to speak, to the glue factory.
I have seen four investment fads end with stampedes:
This fad will end the same way, because unicorns are not horses of a different color!
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About Western Reserve Valuation Services LLC
Western Reserve Valuation Services LLC, based in Columbus, Ohio, is a leading provider of valuation services and financial opinions relating to corporate finance transactions, corporate tax planning and compliance, succession planning and wealth preservation, employee stock ownership plans (“ESOPs”), financial reporting and portfolio / fund valuations. For more information, visit www.wesresvaluation.com or call (614) 448-3700.
Western Reserve Valuation Services is an affiliate of Western Reserve Partners LLC, a FINRA-member investment banking firm offering financial advisory services relating to mergers and acquisitions, capital raising and financial restructuring. For more information on Western Reserve Partners, please www.wesrespartners.com or call (216) 589-0900.