SEC and private company valuations

Shiva Badruswamy · April 28, 2010 · Short URL:

What does the SEC have to say about private company valuations?

In response to a few requests from clients on what the SEC though about how private companies should be fairly valued, I talked to an official at the SEC about this specific question. The reply was on expected lines: "use your judgment and make sure that observations are justified". Though, we at Accuserve, believed that SEC may not comment that much on private company valuations as these firms aree outside their jurisdiction, we wanted to assure some of our clients who wanted to know if the valuations conformed to SEC norms, since several private firms do go public in later years. One of our question was whether the SEC had any specific inputs on what approaches were better for private company valuations and, if multiple approaches were to be used, whether they have any observations on the weightings to be used to arrive at a single weighted value. The SEC official, again, did not have a comment on any specific approaches or the weight splits to be used across the different approaches. In about 30 minutes of conversation I had with the official, one thing that stood out was the need to take into consideration all circumstances of the company in determining the proper valuation - a well established concept in private company valuations, in any case. So, we at Accuserve, are of the firm view that supportable valuations are those that can be well defended and there is no one single template to valuation.

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