Larry Van Kirk, managing director of Valuation Research Corporation, recently spoke to Private Company Director and provided information on valuation of private companies. Below are his answers to a Q&A interview:
Why should a private company board consider a valuation of the company?
From my perspective as both a valuation professional and as someone who has served on a number of closely held boards, valuations are regularly needed. The most common driver of a valuation is the sale or purchase of company equity. Internal stock transactions — when stock is being transferred from one executive to others — as well as any incentive compensation plans also usually trigger valuations. I’ve seen valuations become part of a detailed strategic planning process when management is seeking to make a significant strategic move and would like to analyze how that move might affect the company’s valuation. The triggers are numerous, and we are increasingly seeing boards take very seriously their fiduciary obligation to scrutinize valuations.