Private Equity Portfolio Company Valuation
Who this is for
PE sponsors preparing quarterly LP reports, operating partners benchmarking portfolio company performance, and fund administrators conducting fair value assessments will find this tool valuable for rapid, consistent mark-to-market estimates.
What drives value in Private Equity
- EBITDA growth since entry and margin expansion levers
- Leverage ratio and debt amortization progress
- Revenue quality: recurring mix, churn, and contract coverage
- Comparable public company trading multiples in the sector
- Management team stability and incentive alignment
- Strategic positioning for a potential exit (sponsor-to-sponsor, strategic, IPO)
Valuation methods we use
Portfolio companies are typically marked using prevailing public comparable trading multiples applied to LTM or NTM EBITDA, cross-checked with recent M&A transaction comps in the same sector. DCF analysis is used where long-term projections are available. This tool is informational only. Output is driven by your inputs and does not constitute a formal appraisal or certified valuation.
Typical metrics and inputs
LTM EBITDA
Last twelve months EBITDA; the primary denominator for enterprise value multiples.
Net leverage
Net debt divided by LTM EBITDA; typically targeted at 4–6× at entry, declining through hold.
Revenue CAGR (hold period)
Compounded annual revenue growth since acquisition; a key value-creation KPI.
MOIC
Multiple on invested capital; target is typically 2.5–3.5× gross for a 5-year hold.
IRR
Internal rate of return on invested equity; most PE funds target 20–25% gross IRR.
Example scenarios
Mid-market industrial platform
A PE-backed industrial services company acquired at 6× EBITDA that has grown EBITDA from $8 M to $14 M over 3 years might now be valued at 7–8× on the expanded earnings, implying a 2.5–3× MOIC.
SaaS add-on integration
A B2B SaaS add-on acquired at 8× ARR that has been integrated into a platform with upsell synergies might justify a 10–12× ARR mark as cross-sell revenue ramps.
Frequently asked questions
How often should PE firms mark portfolio companies?
Best practice is quarterly; ASC 820 and IPEV guidelines require fair value assessment at each reporting period.
What multiples do PE buyers use?
It varies widely by sector. Industrial companies trade at 5–8× EBITDA, software at 10–20× ARR or EBITDA, and healthcare services at 8–12× EBITDA.
How does leverage affect the equity value?
Enterprise value minus net debt equals equity value. As debt is paid down, equity value increases even if EBITDA is flat.
Can I use this for LP reporting?
ValueAlpha provides directional estimates. For LP reporting, comply with ASC 820 or IPEV and consider having estimates reviewed by an independent valuation firm.
Is this a certified appraisal?
No. This tool provides informational estimates driven by your inputs. Formal LP-grade valuations require independent certification.
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