Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests (Wiley Finance) [Paperback]

Performing fair market valuations keeps thousands of appraisers busy in the United States. Most professional appraisers rarely venture outside of this one standard of value. Now imagine if fair market value accounted for less than 10% of the appraisal needs of the private capital markets. The private appraisal market would be huge! This is just one of the many messages contained in Robert T. Slee's book, Private Capital Markets.

Slee's book is not strictly a valuation book; rather, it is a conceptual Lewis & Clark-type survey of the private capital markets. This is the first book that attempts to develop a unified structure for the analysis of these markets. Think of it as a private finance textbook. Why do we need this?

Slee's premise is that the body of financial knowledge explaining the behavior of private players differs from corporate finance. Economists created corporate finance in the 1960s to explain the behavior of large public companies. Since that time, business professors have taught finance as if only public companies exist in the market. In fact, more than 99% of the companies in the United States are privately held. Private Capital Markets, on the other hand, focuses on the financial motives and needs of private company owners and their advisors.

In this book, Slee establishes private capital markets theory. This theory describes an integrated body of knowledge encompassing the valuation, capitalization and transfer of private companies, particularly those with annual revenues between $5 million and $500 million. Slee designed this theory to help players make better financing and investment decisions in private markets. He asserts that business owners can create competitive advantages with these tools.

Slee explains that valuation, capital, and transfer issues are inter-related and inter-dependent. This means that you cannot fully understand valuation, capital, or transfer discretely: You must first understand how they all fit together. He calls this holistic interconnection Triangulation. Each chapter of the book triangulates the reader's position so they understand their position within the private markets.

Slee introduces the new framework of value worlds to explain valuation, capital, and transfer. Value worlds dramatically extend the appraisal concept of standard of value. We all know that value is relative to the purpose of an appraisal. Slee illustrates how purpose selects a value world. As many value worlds exist as there are appraisal purposes. There are dozens. Because the valuation rules are different in each world, every private company has dozens of correct values at the same time.

Who sets the rules? Various authorities create and enforce the rules in each value world. For instance, in the fair market value world, the IRS, tax courts, ERISA laws, appraisal societies, and various other authorities tell appraisers how to value business interests within each's sphere of influence. Some authorities (IRS) have fairly strong sanctioning power; others (administrative rulings) can only suggest a course of action. Most value worlds, such as the owner or investment value worlds, have only one or two authorities. Slee's value world construct puts appraisers in their true role: as interpreters of authorities' decisions. This won't sit well with many appraisal purists, who for years have believed that they are authorities.

Slee views valuation as the common language that unites the private capital markets. He argues that we need this language to communicate with each other over capital structure and business transfer issues. Thus, the book surveys the entire capital and transfers spectrums of the private capital markets. It describes all institutional types of capital in terms of their access, sample terms, and effective all-in costs. Finally, Slee explains all transfer methods making up the private business transfer spectrum.

One surprise that springs from the book is that transfer methods select value worlds. This means that once a business owner chooses the method (ESOP, recapitalization, estate-planning, etc.) of transferring their business, they also choose (unknowingly in most cases) the transfer value as well.

This book and subsequent analyses of the private markets will likely impact fair market value appraisals significantly in a way that the book does not address. Businesses appraised for fair market value purposes are real flesh and blood businesses that operate in the private markets. As our young profession matures, continuing to treat private companies as if they operated in a market similar to the public markets will appear more futile.

Private Capital Markets is comprehensive and is aimed at the serious reader. Because we can competently value private businesses only to the extent we understand the private markets, this book belongs in every appraiser's library.

This book clarifies several obscure aspects and concepts of valuation of any company by providing an innovative approach to the subject, and its content also reflects well the needs of those working with evaluating non listed assets or willing to further understanding myriad aspects that are important in any transaction involving small to middle market companies.

Valuation and deal making practitioners will find in this book an in-depth conceptual understanding of the risk-reward trade-off existing in major capital structure decisions by looking at all major funding alternatives, their risk, cost to borrower and return to fund providers at different levels of claims and their consequent pledges.

In addition, this book provides a fresh view on different levels/structures of financial sponsoring companies, ownership and/or control issues and other intricacies regarding the relation of entrepreneurs and financists when dealing with transaction's high level issues.

Rob Slee, the author, spoke at our CVBBA meeting and made a compelling presentation of the past, present and future. I immediately purchased this book. It is too heavy to read cover to cover, but each chapter is clear and to the point for the subject you seek. A great resource! I sell businesses and have sold over 200 at Pro Biz in the last 17 years. More and more M&A situations tend to arise as one continues to attend educational classes and meetings such as this. If you aspire to the M&A level of transactions, dear broker, buy and read book. It has a long shelf life, so don't let the price put you off. it has helped my appraisal business and probizappraisal has resulted. So has capventure as well as probiz consulting. Helpful and informative.