Earlier this year, NACVA and Wiley published “Business Valuation: Fundamentals, Techniques, and Theory,” the authoritative guide to private enterprise valuation for both entry-level and seasoned business valuation professionals. The book collects in written form the core concepts NACVA has used to train more than 25,000 professionals on the ins and outs of business valuation.
Among other things, the book emphasizes the critical role that valuation databases play in supporting well-reasoned, defensible conclusions. It explains how to incorporate data from a variety of sources, including:
The book traces its origin back to 1991, when NACVA introduced a two-day course of the same name. The course expanded through the years to become a globally recognized program.
Recently, the book’s four “technical authors,” who oversaw the massive project and coordinated more than a dozen NACVA experts, sat down to discuss what went into producing the book and why now was the right time to do so. Here are some of the highlights of the conversation with Janae Castell, Richard Gray, Lari Masten, and Pasquale (Pat) Rafenelli.
Author Insights
According to Gray, changes in business valuation were among the primary drivers for compiling the book. “Business valuation is a very dynamic field,” he said. “There have been a lot of changes since this was first introduced back in the early ‘90s — lots of new materials, changes in thought, changes in perspectives.”
The data that valuators use in their valuation process has also evolved. “There’s been changes in the providers of data that we use, the databases,” Masten said. “Our models for cost of capital haven’t necessarily changed, but the resources for cost of capital have changed and even some of the names of databases.”
According to Masten, it took years to put together the new book. “One of the more challenging aspects was integrating new developments while preserving the core framework that practitioners rely on,” she said. “We focused on trying to ensure alignment across the book, bridging theory and practice and also trying to be practice-oriented, rather than textbook-oriented.”
Castell pointed out that the course materials have been extensively updated for the book. “There are some chapters that I was really excited to get into and update because there was so much development in the industry and so much out there that we could add to the existing materials.”
The book also recognizes that valuation today is less about applying formulas and more about explaining analytical judgments — explaining not just the method used but also why data resources were selected.
“We’re really trying to bring in more of the basis for some of the core materials that we use and explain the merits of a resource,” Masten says. “That’s an important feature that this book has throughout it.”
Castell stressed the importance of including numerous authors and perspectives in the guide. “It’s like anything we do with valuation. You can’t necessarily just look at it one way because there’s no one right answer. Ultimately, it’s extremely valuable that the book wasn’t authored by just one person but a whole host of very experienced people.” The end product reflects the collective experience of all of the contributing authors, across the thousands and thousands of different valuation engagements they’ve performed.
“I’ve been doing valuations for 25-plus years and took the NACVA course way back in the 1990s,” Gray says. “Sometimes we fall into a comfortable position of doing one thing, one way, and what amazed me going through the process with these authors was how much I learned. The book is a way to update your point of view on valuation and the performance of engagements.”
The book, like the course, is structured around the step-by-step valuation process depicted in NACVA’s Valuation Pyramid. The pyramid illustrates key business valuation principles and outlines the steps required to construct a solid valuation.
“I equate doing a valuation to building a house,” Rafanelli says. “You can’t start with the roof; you have to start with the foundation. The pyramid provides the building steps to get all the way to the completed project.” The purposes and premises defined early on affect the method and standard of value applied and, in turn, all of the subsequent steps.
What’s Next
NACVA has indicated that it plans to update the book every three to four years, in line with credentialing requirements. It’s also developing a workbook that will accompany the book and be used in trainings. Whether you’re new to business valuation or an experienced valuation practitioner, these resources can help you improve your practice.
