Friday, January 8, 2010

SEC and private company valuations

The U.S. Securities and Exchange Commission he...Image via Wikipedia

In response to a few requests from clients on what the SEC though about how private companies should be fairly valued, I talked to an official at the SEC about this specific question. The reply was on expected lines: "use your judgment and make sure that observations are justified". Though, we at Accuserve, believed that SEC may not comment that much on private company valuations as these firms were outside their jurisdiction, we wanted to assure some of our clients who wanted to know if the valuations conformed to SEC norms. One of our question was if the SEC had any specific inputs on what approaches are better for private company valuations and, if multiple approaches were used, whether they have any observations on the weightings to be used to get at a single value. The SEC official, again, did not have a comment on any specific approaches or the weight splits to be used across the different approaches. In about 30 minutes of conversation I had with the official, one thing that stood out was the need to take into consideration all circumstances of the company in determining the proper valuation - a well established concept in private company valuations, in any case. So, we at Accuserve, are of the firm view that supportable valuations are those that can be well defended and there is no one single template to valuation.
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