Specific Company Risk Premium

The vulnerability a company faces when critical knowledge, relationships, or capabilities are concentrated in a small number of individuals. Key person risk is a major factor in intangible asset valuation and due diligence, particularly for professional services firms, early-stage companies, and fund management teams.

A market approach valuation technique that estimates the value of a subject company by reference to the trading multiples of publicly listed companies with similar business characteristics. The method involves identifying comparable public companies, selecting appropriate valuation multiples (such as EV/EBITDA or P/E), making adjustments for differences in size, growth, risk, and marketability, and applying the adjusted multiples to the subject company's financial metrics.

The additional amount a buyer pays above the pro-rata market value of a company's shares to acquire a controlling interest. The control premium reflects the value of being able to direct the company's strategy, operations, capital allocation, and management.

An additional return demanded by investors for holding the equity of smaller companies, reflecting the empirically observed tendency for small-capitalisation stocks to earn higher returns than predicted by the Capital Asset Pricing Model alone. Size premiums are commonly sourced from the Duff & Phelps (now Kroll) Cost of Capital Navigator and are added to the cost of equity in the build-up method or as a modification to CAPM.

A business in which a private equity, venture capital, or growth equity fund has invested. Portfolio companies receive not only capital but also strategic support, operational guidance, and governance oversight from the fund, with the aim of accelerating value creation and achieving a profitable exit.

The process of modifying an observed equity beta to better reflect the risk characteristics of the subject company being valued. Common adjustments include unlevering betas from comparable public companies to remove the effect of different capital structures, relevering to the subject company's target capital structure, and applying the Blume or Vasicek adjustment to account for beta's tendency to regress toward 1.0 over time.

The initial acquisition made by a private equity fund in a particular sector or sub-sector, intended to serve as the foundation for a buy-and-build strategy through subsequent add-on acquisitions. Platform companies are typically larger, more established businesses with strong management teams, scalable infrastructure, and a proven operating model.

The additional value attributed to a business or asset that can grow revenue significantly without a proportional increase in cost. Scalability premiums are characteristic of intangible-heavy businesses — particularly those built on software, data, and network effects — where marginal costs approach zero at scale.

How do you value a company's team and talent as an intangible asset?

Talent value is assessed via domain expertise, retention rates, and competitive replaceability. A founding team with strong execution history is a significant intangible asset.