How do private equity firms value portfolio companies?

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. For fund reporting, the fund measures its investment in each portfolio company at fair value at every reporting date, usually following the IPEV Valuation Guidelines, which set out five investment-level techniques: multiples, industry valuation benchmarks, available market prices, discounted cash flows and net assets. Where a portfolio company makes an acquisition, a purchase price allocation (PPA) identifies and values the intangible assets acquired for financial reporting. Intangible assets also matter 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 Intangibles gives investors a portfolio view of the intangible assets recorded across their holdings in the Value Drivers Register, with the evidence behind each one, so that value creation through the ownership period is documented.

For private equity firms, intangible asset analysis is particularly valuable during the value creation phase of portfolio ownership. Identifying which intangible assets can be developed, protected, or monetised during the hold period enables more targeted operational improvement programmes. Similarly, understanding which intangible assets are at risk — key person dependencies, expiring contracts, or unprotected intellectual property — helps portfolio managers prioritise risk mitigation. Opagio Intangibles provides a structured framework, the Opagio 12, for conducting this analysis across portfolio companies.

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