Cogent M&A Database - Cogent Valuation has built a database of almost 1,000 merger and acquisition transactions covering all major industries, primarily in the middle market.  The most beneficial attribute of this database relative to other sources of M & A transaction data is a set of proprietary procedures that Cogent Valuation has devised in order to derive the most meaningful valuation multiples from these transactions.

Through the painstaking application of these normalization procedures to every transaction, Cogent Valuation invariably derives more usable valuation multiples than other sources reporting on the same transaction.  In addition to the valuation multiples, the database includes the target business description, the purchase price breakdown, and a variety of quantitative risk measures, including size, liquidity, leverage, activity profitability and growth.

Members of Cogent Valuation and the San Francisco-based investment research firm VentureOne teamed up over an eighteen month period to examine the private venture capital financings of 479 technology and life sciences companies that successfully completed their initial public offerings of common stock between January 1993 and June 1997.

The findings of the study were published in the Journal of Business Venturing in September 1998, and again in the Journal of Private Equity in spring 1999.  The study explains changes in the value of venture capital-backed high technology and life sciences companies from their initial equity-financing round through the interim rounds to their initial public offering.

Through careful analyses of VentureOne’s proprietary database of venture capital investments, we made observations of venture investors’ activities and identified key factors involved in the pricing of venture capital investments in these companies. The findings and significant drivers of pricing from that study are still relevant today.

In determining the fair market value of a noncontrolling, fractional ownership interest in a closely held real estate holding entity, the strongest market pricing data can found in the syndicated real estate limited partnership market, commonly referred to as the “secondary market.”  Limited partnership interests traded in the secondary market are registered for public sale, although they are not actively traded on any exchange.  The market for such partnership interests is comprised of a group of 10 to 12 independent broker intermediaries or facilitators who attempt to arrange trades matching buyers and sellers of these publicly-registered, but non-listed interests on request.  This market reflects the trading of limited partnership interests that have historically combined elements of both lack of control and lack of marketability; however, with the network of buyers, sellers and broker intermediaries now providing a reasonably efficient mechanism to facilitate trades, pricing in the secondary market in recent years is primarily a reflection of the value of fairly liquid, though passive noncontrolling ownership interests. Despite increased liquidity in the secondary market in recent years, the vast majority of secondary market limited partnership interests still trade at prices well below the partnerships’ underlying net asset values.

For over 10 years, members of Cogent Valuation have prepared bi-monthly studies analyzing the trading prices of limited partnership interests in the secondary market relative to the underlying net asset value of the partnerships.  The net asset value for each partnership observed in our studies was calculated by adjusting the partners' equity by substituting the estimated market value of real property (as determined by either an independent real estate appraisal or the general partner's estimate) for the book value of real property.  Our substantial database of historical pricing in the secondary market has provided us with unique insights as to the key factors that influence pricing adjustments relative to the underlying fee simple value of real property holdings.

Because the value of any investment is ultimately tied to the ability of an investment to provide a return, Cogent Valuation also produces indications of value based on a comparison of market pricing in the secondary market relative to various measures of investor return.  Absent the ability to compel liquidation, cash distributions represent the primary source of liquidity for noncontrolling ownership interests in real estate holding entities.   Market multiples or capitalization rates derived from the secondary market are useful metrics for developing indications of value for fractional ownership interests in such entities.

Cogent Restricted Stock Studies – Closely held securities lack the inherent liquidity of publicly traded securities and are, therefore, less attractive for investment purposes.  It is accepted valuation practice to discount the value of closely held securities to reflect the liquidity difference between closely held securities and publicly held securities that are actively traded in public markets.  Empirical evidence for the discount for lack of marketability as demonstrated in the marketplace can be found by measuring the difference between the sales price of restricted securities and their publicly traded counterparts.  Several studies have been published providing limited data regarding the average size of indicated discounts.

Cogent Valuation has undertaken its own proprietary study analyzing discounts observed in private placements of restricted stock.  Rather than relying on average discounts to apply to widely varying situations, we have carefully analyzed the observed discounts relative to several financial variables in order to identify the key factors that influence the magnitude of the discount.  With access to our own proprietary data, Cogent Valuation is able to determine the appropriate discount for lack of marketability based the unique facts and circumstances of each valuation engagement.