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Usually run a WACC analysis using public comps, otherwise may refer to equity research reports published on comparable companies to see if they have mention of the discount rates used
In my personal valuations of public’s I keep it simple. 10Y rate + ERP from Dhamadoran and CapIQ 5y beta. Been a while since I valued a company with material amount of debt but I would go with either their stated spread or weighted average outstanding rate. I don’t care about accuracy because I look at sensitivity ranges more than anything.
I am curious what others reference for their ERP so following for that.
To add, in terms of assumptions for your model, Kroll is often used for equity risk premium, 10Y treasury rate for risk free rate and you should apply some sort of size premium
You’re never going to win mandates if you use 409A approach to valuing companies. Ditch the size premium
You can run the gauntlet and build a model to calculate your own WACC figures. You’d need to make assumptions on your Cost of Equity and Cost of Debt from historical financials or strip the same from a data service such as BBG
For those of you doing private company Vals, do you bother pulling WACC from comps, de-levering and then re-levering? Or would just use a model plug and then sensitise using a data table for 10-20%?
Thanks - do you have a typical sensitivity range, or dependent on size, industry etc? (Specifically thinking 20-250m EV businesses)
Sometimes i use 10%, sometimes 12%. I just throw a dart on the board and let that be my WACC
Select comps. Run regressions of stock price changes to the market (ie equity volatility) over a set period of time. Unlever it with the capital structure of each company. Pick a beta - probably something in the middle.
Relever it with your targets capital structure. Use the CAPM model to get a cost of equity. Consider a small stock premium, country risk premium, and maybe something company specific if there’s drama or BS forecasts at the entity. Get the post tax cost of debt (post tax yield). Weight both with the capital structure.
ChatGPT can tell you better / faster and give a quick Q&A
Depends, are we coming out too high or too low!?