How do private equity firms value portfolio companies?
Short Answer
PE firms typically use a combination of EBITDA multiples, discounted cash flow (DCF) analysis, and comparable transactions, with increasing focus on identifying and valuing intangible assets that drive sustainable growth.
Full Explanation
Private equity valuation combines several approaches. The most common is the comparable company or precedent transaction method, applying EBITDA multiples from similar deals. DCF analysis models future free cash flows and discounts them at the weighted average cost of capital (WACC). For growth-stage companies, revenue multiples may be used instead. Post-acquisition, PE firms conduct purchase price allocation (PPA) to identify and value all intangible assets for financial reporting. This is increasingly important for demonstrating value creation during the hold period — showing that customer relationships have deepened, technology has improved, and brand value has grown provides evidence for a higher exit multiple. Opagio's Investor Platform gives PE firms portfolio-wide visibility of intangible asset health, benchmarked across sectors, with exit-ready valuation reports that document value creation through the ownership period.
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