How do you calculate the WACC for a private company?
Answer
We know the WACC is two pieces: CoE and CoD.
Cost of Debt you will be able to calculate using the formula since you should have the amount of debt and associated interest rates.
Cost of Equity you will have all of the components except for Beta. For Beta, you will have to use a comparable set of betas, unlever them and re-lever them using the capital structure of the private company.
Once you have CoE and CoD, you’ll be able to plug them into the WACC formula.
Why this matters to bankers
Most acquisitions are of private companies. Understanding how to calculate certain metrics, such as the WACC, that are not available publicly is key to ascribing accurate valuations.