ValuationsHi everyone,
Currently I am doing my internship at Doughty Hanson (privet equity firm) in Frankfurt and this morning I had a chance to speak to one of the managers who does structural LBOs for high tech companies. I was interested in how you can place a value on a small pharmaceutical company like Gap. I described to him briefly at what stage Gap is right now, and basically what he said is that usually it is hard to place a value on this type of company without any CF and so far from product commercialization. But he said that the approach private equity or institutional investors use at these early stages is valuing through the real options and specifically growth and compounded options. There is a huge uncertainty with these types of companies but he said that usually here in Europe PVGO in this sector is around 90%. I told him that 5 dose results is coming soon and he said that expect a huge price correction from institutions that follow Gap because all these option models are based on outcome probabilities and if Gap is successful with its 5 dose then it can substantially influence Gap’s opportunity. But again he said to be careful because with this uncertainty many institutions have different exit and entry strategies and they interpret results differently than general public. Then I asked him why you would want to get out at this time if there is big upside, and again he said that for example our company targets 20%-25% IRR annual on these types of companies and after usually gets out. Same goes for other institutions, and he said that you have to know their targets on a company. Basically at the end he told me if I want more information on how to use these options to value I have to go and speak with one of the technicians here at the company. I know this information is somewhat useless but I decided to share it with you anyway. When I have a chance to catch one of those whiz kids here I will ask him and hopefully he will give me a better technical approach on how to value. I will keep posting on the progress.
GLTA
OP