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Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests + Website, 2nd Edition

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Praise for Private Capital Markets

Valuation, Capitalization, and Transfer of Private Business Interests

"In the years since publication of the first edition of Private Capital Markets, the concepts and ideas that it presents have been widely accepted by progressive members of the business valuation community. Now with the Second Edition, author Rob Slee has included empirical data on capital markets for midsized businesses. This book remains a must for everyone involved in appraising, buying, selling, or financing privately owned businesses."—Raymond C. Miles, founder, The Institute of Business Appraisers

"The Graziadio School of Business has used the Private Capital Markets book for several years with great success. This course, along with the Pepperdine Private Capital Markets Survey project, has helped our students better prepare for careers in middle market companies."—Linda Livingstone, Dean of the Graziadio School of Business and Management,Pepperdine University

"Our international association of independent M&A professionals recommends this text as the most comprehensive foundation for understanding the private capital marketplace. This book is essential reading for middle market M&A advisors, investors, and other decision-makers in the private capital markets." —Mike Nall, founder, Alliance of M&A Advisors

A practical road map for making sound investment and financing decisions based on real experiences and market needs

Now fully revised and in a second edition, Private Capital Markets provides lawyers, accountants, bankers, estate planners, intermediaries, and other professionals with a workable framework for making sound investment and financing decisions based on their own needs and experiences.

This landmark resource covers:

  • Private business valuation

  • Middle market capital sources

  • The business ownership transfer spectrum

  • And much more

  • Private Capital Markets, Second Edition surveys the private capital markets and presents the proven guidance you need to navigate through these uncharted waters.

    Table of Contents

    1. Cover
    2. Title Page
    3. Copyright
    4. Dedication
    5. Foreword
    6. Preface
      1. HOW TO READ THIS BOOK
      2. MAJOR GOAL OF THIS BOOK
    7. Acknowledgments
    8. CHAPTER 1: Capital Markets
      1. MARKET STRUCTURE
      2. INFORMATION
      3. WHY ARE MARKETS SEGMENTED?
    9. CHAPTER 2: Middle-Market Finance
      1. MIDDLE-MARKET FINANCE THEORY
      2. TRIADIC LOGIC
      3. MIDDLE-MARKET FINANCE THEORY IN PRACTICE
      4. OWNER MOTIVES
      5. AUTHORITY
      6. TRIANGULATION
    10. PART ONE: Business Valuation
      1. CHAPTER 3: Private Business Valuation: Introduction
        1. PRIVATE INVESTOR EXPECTATIONS DRIVE PRIVATE VALUATION
        2. PRIVATE BUSINESS VALUATION CAN BE VIEWED THROUGH VALUE WORLDS
        3. VALUATION AS A RANGE CONCEPT
        4. TRIANGULATION
      2. CHAPTER 4: Market Value
        1. LEVELS OF PRIVATE OWNERSHIP
        2. TRIANGULATION
      3. CHAPTER 5: Asset Subworld of Market Value
        1. STEPS TO DERIVE NET ASSET VALUE
        2. TRIANGULATION
      4. CHAPTER 6: Financial Subworld of Market Value
        1. SPECIFIC INVESTOR RETURN
        2. SPECIFIC INDUSTRY RETURN
        3. GENERAL INVESTOR RETURNS
        4. TRIANGULATION
      5. CHAPTER 7: Synergy Subworld of Market Value
        1. SYNERGIES
        2. CAPITALIZATION OF BENEFIT STREAMS
        3. DISCOUNTING OF BENEFIT STREAMS
        4. SELLER/BUYER MARKET VALUATION
        5. NONENTERPRISE MARKET VALUATIONS
        6. TRIANGULATION
      6. CHAPTER 8: Fair Market Value
        1. APPRAISAL ORGANIZATIONS
        2. BUSINESS APPRAISAL STANDARDS
        3. FAIR MARKET VALUE PROCESS
        4. KEY STEPS TO DERIVE FAIR MARKET VALUE
        5. DOES THE FAIR MARKET VALUE PROCESS MAKE SENSE?
        6. TEARING DOWN THE BUILDUP MODELS
        7. TRIANGULATION
      7. CHAPTER 9: Fair Value
        1. DISSENTING AND OPPRESSED SHAREHOLDERS
        2. TRIGGERING EVENTS
        3. DETERMINATION OF FAIR VALUE
        4. TRIANGULATION
      8. CHAPTER 10: Incremental Business Value
        1. NATURE OF INCREMENTAL BUSINESS VALUE
        2. PROBLEMS WITH USING TRADITIONAL METHODS
        3. VALUE-BASED APPROACHES
        4. NET PRESENT VALUE
        5. INCREMENTAL BUSINESS VALUE
        6. PRIVATE COST OF CAPITAL MODEL
        7. RAMIFICATIONS OF USING PCOC
        8. INVESTMENT
        9. PROJECT DECISION MAKING
        10. PROBLEMS WITH INCREMENTAL BUSINESS VALUE
        11. VALUE-CREATION STRATEGIES
        12. INCREASE RECAST EBITDA
        13. REDUCE RISK
        14. EMPLOY HIGH-YIELDING CAPITAL
        15. INCREMENTAL BUSINESS VALUE VERSUS MARKET VALUE
        16. TRIANGULATION
      9. CHAPTER 11: Insurable Value
        1. RISK AND INSURANCE
        2. BUY/SELL AGREEMENTS
        3. VALUATION MECHANICS
        4. TRIGGERING EVENTS
        5. KEY PERSON INSURANCE
        6. BUSINESS INTERRUPTION
        7. TRIANGULATION
      10. CHAPTER 12: FASB Value Worlds
        1. FASB FAIR VALUE (ASC 820, FORMERLY FAS 157)
        2. BUSINESS COMBINATIONS (ASC 805, FORMERLY FAS 141R)
        3. IMPAIRED GOODWILL (ASC 350-20)
        4. VALUATION
        5. TRIANGULATION
      11. CHAPTER 13: Intangible Asset Value
        1. SUBWORLDS
        2. INTELLECTUAL PROPERTY
        3. INTELLECTUAL CAPITAL
        4. TRIANGULATION
      12. CHAPTER 14: Other Value Worlds
        1. INVESTMENT VALUE WORLD
        2. OWNER VALUE WORLD
        3. COLLATERAL VALUE WORLD
        4. EARLY EQUITY VALUE WORLD
        5. BANKRUPTCY VALUE WORLD
        6. PUBLIC VALUE WORLD
        7. TRIANGULATION
      13. CHAPTER 15: Private Business Valuation: Conclusion
        1. PRIVATE INVESTOR RETURN EXPECTATIONS
        2. VALUE WORLDS
        3. PRIVATE BUSINESS VALUATION IS A RANGE CONCEPT
        4. TRIANGULATION
        5. FINAL THOUGHTS ON VALUATION
    11. PART TWO: Capital Structure
      1. CHAPTER 16: Capital Structure: Introduction
        1. PUBLIC CAPITAL MARKETS
        2. PRIVATE CAPITAL MARKETS
        3. PEPPERDINE PRIVATE CAPITAL MARKET LINE
        4. KEY ISSUES REGARDING THE PEPPERDINE PRIVATE CAPITAL MARKET LINE
        5. CAPITAL STRUCTURE TREATMENT
        6. TRIANGULATION
      2. CHAPTER 17: Bank Lending
        1. TYPES OF FACILITIES
        2. INTEREST RATES
        3. INTEREST RATE HEDGES
        4. LOAN COVENANTS
        5. HOW BANKS DEAL WITH COVENANT VIOLATIONS
        6. LOAN COSTS
        7. RISK RATINGS
        8. NEGOTIATING POINTS
        9. TRIANGULATION
      3. CHAPTER 18: Government Lending Programs
        1. INDUSTRIAL REVENUE BONDS
        2. BUSINESS AND INDUSTRY LOAN PROGRAM
        3. SMALL BUSINESS ADMINISTRATION PROGRAMS
        4. 7(a) LOAN GUARANTY PROGRAM
        5. CERTIFIED DEVELOPMENT COMPANY 504 LOAN PROGRAM
        6. CAPLINES LOAN PROGRAM
        7. EXPORT WORKING CAPITAL PROGRAM
        8. NEGOTIATING POINTS
        9. TRIANGULATION
      4. CHAPTER 19: Equipment Leasing
        1. TYPES OF LEASES
        2. LEASE RATE FACTORS
        3. LESSOR TYPES
        4. COMPARISON OF LEASING AND PURCHASING
        5. NEGOTIATING POINTS
        6. TRIANGULATION
      5. CHAPTER 20: Asset-Based Lending
        1. HOW ASSET-BASED LENDING WORKS
        2. ASSET-BASED LENDERS
        3. TIER 1 ASSET-BASED LENDERS
        4. TIER 2 ASSET-BASED LENDERS
        5. TIER 3 ASSET-BASED LENDERS
        6. NEGOTIATING POINTS
        7. TRIANGULATION
      6. CHAPTER 21: Factoring
        1. HOW FACTORING WORKS
        2. MECHANICS OF FACTORING
        3. FEES AND TERMS
        4. NEGOTIATING POINTS
        5. TRIANGULATION
      7. CHAPTER 22: Mezzanine Capital
        1. LOAN STRUCTURE
        2. MEZZANINE INVESTORS
        3. TARGETED INVESTMENTS
        4. PRICING
        5. DEBT MEZZANINE CAPITAL
        6. EQUITY MEZZANINE CAPITAL
        7. OTHER DEAL TERMS
        8. NEGOTIATING POINTS
        9. TRIANGULATION
      8. CHAPTER 23: Owners, Angels, and Venture Capitalists
        1. STAGES OF PRIVATE EQUITY INVESTOR INVOLVEMENT
        2. PRIVATE PLACEMENTS
        3. FINANCIAL BARN RAISINGS
        4. WITHIN EXISTING BUSINESS RELATIONSHIPS
        5. WHY PRIVATE PLACEMENTS FAIL
        6. PRE- AND POSTMONEY VALUATION
        7. NEGOTIATING POINTS
        8. TRIANGULATION
      9. CHAPTER 24: Private Equity
        1. STAGES OF PRIVATE EQUITY INVESTOR INVOLVEMENT
        2. HEDGE FUNDS
        3. FAMILY OFFICES
        4. TERM SHEET
        5. NEGOTIATING POINTS
        6. TRIANGULATION
      10. CHAPTER 25: Capital Structure: Conclusion
        1. CAPITAL PROVIDERS MANAGE RISK AND RETURN IN THEIR PORTFOLIOS
        2. THE PEPPERDINE PRIVATE CAPITAL MARKET LINE COMPRISES EXPECTED RETURNS
        3. PRIVATE COST OF CAPITAL EMANATES FROM THE PRIVATE CAPITAL MARKETS
        4. HIGH COST OF CAPITAL LIMITS PRIVATE COMPANY VALUE CREATION
        5. INTERMEDIATION IS RELATIVELY INEFFECTIVE IN THE MIDDLE MARKET
        6. TRIANGULATION
    12. PART THREE: Business Transfer
      1. CHAPTER 26: Business Transfer: Introduction
        1. PUBLIC MANAGER AND OWNER MOTIVES
        2. PRIVATE BUSINESS OWNERSHIP TRANSFER SPECTRUM
        3. EMPLOYEE TRANSFER CHANNEL
        4. CHARITABLE TRUSTS TRANSFER CHANNEL
        5. FAMILY TRANSFER CHANNEL
        6. CO-OWNER TRANSFER CHANNEL
        7. OUTSIDE, RETIRE, TRANSFER CHANNEL
        8. OUTSIDE, CONTINUE, TRANSFER CHANNEL
        9. GOING PUBLIC, GOING PRIVATE TRANSFER CHANNEL
        10. EXIT PLANNING
        11. TRIANGULATION
      2. CHAPTER 27: Employee Stock Ownership Plans
        1. OVERVIEW
        2. LEVERAGED ESOPS
        3. ESOPS IN S CORPORATIONS
        4. SETTING UP AN ESOP
        5. POINTS TO CONSIDER
        6. BOTTOM LINE ON ESOPS
        7. TRIANGULATION
      3. CHAPTER 28: Management Transfers
        1. DIFFERENCES BETWEEN MANAGEMENT BUYOUTS AND MANAGEMENT BUY-INS
        2. LIKELY DEAL STRUCTURES
        3. DEALS
        4. POINTS TO CONSIDER
        5. TRIANGULATION
      4. CHAPTER 29: Charitable Trusts
        1. STRUCTURE OF CHARITABLE TRUSTS
        2. CHARITABLE REMAINDER TRUSTS
        3. POINTS TO CONSIDER FOR CRTS
        4. CHARITABLE LEAD TRUSTS
        5. POINTS TO CONSIDER FOR CLTS
        6. COMPARISON OF CRTS AND CLTS
        7. TRIANGULATION
      5. CHAPTER 30: Family Transfers
        1. STOCK GIFTS
        2. PRIVATE ANNUITIES
        3. SELF-CANCELING INSTALLMENT NOTES
        4. GRANTOR-RETAINED ANNUITY TRUSTS
        5. FAMILY LIMITED PARTNERSHIPS
        6. INTENTIONALLY DEFECTIVE GRANTOR TRUSTS
        7. COMPARISON OF FAMILY TRANSFER METHODS
        8. ROLE OF INSURANCE IN FAMILY TRANSFERS
        9. TRIANGULATION
      6. CHAPTER 31: Co-Owner Transfers
        1. BUY/SELL AGREEMENTS
        2. BUY/SELL TYPES
        3. TRIGGERING EVENTS
        4. FUNDING TECHNIQUES
        5. WAYS TO HANDLE DEADLOCKS
        6. WHEN NO BUY/SELL AGREEMENT EXISTS
        7. TRIANGULATION
      7. CHAPTER 32: Outside Transfers: Retire
        1. PREPARATION FOR A TRANSFER
        2. TRANSFER PLAYERS
        3. MARKETING PROCESSES
        4. NEGOTIATED TRANSFERS
        5. PRIVATE AUCTIONS
        6. TWO-STEP PRIVATE AUCTIONS
        7. CLOSING THE DEAL
        8. AFTER THE TRANSFER
        9. TRIANGULATION
      8. CHAPTER 33: Outside Transfers: Continue
        1. CONSOLIDATIONS
        2. ROLL-UPS
        3. BUY AND BUILD OR RECAPITALIZATIONS
        4. RECAPITALIZATION POINTS TO CONSIDER
        5. TRIANGULATION
      9. CHAPTER 34: Going Public, Going Private
        1. DIRECT PUBLIC OFFERINGS
        2. WHICH COMPANIES ARE PUBLIC?
        3. INITIAL PUBLIC OFFERING TEAM
        4. IPO PROCESS
        5. ADVANTAGES OF GOING PUBLIC
        6. DISADVANTAGES OF GOING PUBLIC
        7. GOING PUBLIC KEY POINTS TO CONSIDER
        8. GOING PUBLIC ON FOREIGN EXCHANGES
        9. REVERSE MERGERS
        10. GOING PRIVATE
        11. GOING PRIVATE KEY POINTS TO CONSIDER
        12. TRIANGULATION
      10. CHAPTER 35: Business Transfer: Conclusion
        1. SEGMENTED TRANSFER ACTIVITY AND ARBITRAGE
        2. OWNER MOTIVES CHOOSE THE RANGE OF VALUES
        3. CREATING VALUE IN A PRIVATE BUSINESS REQUIRES PLANNING
        4. TRIANGULATION
      11. CHAPTER 36: Conclusion
        1. THEME 1
        2. THEME 2
        3. THEME 3
        4. THEME 4
        5. THEME 5
        6. PRIVATE CAPITAL MARKETS
        7. WHAT WE DO NOT KNOW
        8. A FINAL THOUGHT
    13. Appendix A: Corporate Finance Theory: Application to Private Capital Markets
      1. Meta-Financial Theory
      2. Corporate Finance Theory
      3. Application of Corporate Finance Theory to Private Capital Markets
      4. Summary
    14. About the Web Site
    15. Index