My son in-law is a portfolio manager for a hedge fund. We were comparing notes on how he and I make valuation judgments, and I shared with him my information request for a standard appraisal.
He was amazed at some of the things we routinely ask for and get. As he put it, “I’d kill for data like this for the public companies I cover…but if I got it, I would go to jail” (because he would be in violation of insider trading statutes). Information about forecasts, business and strategic plans, management succession, key customers, fixed and intangible asset appraisals, and contingencies (things that might occur after the valuation date) are, of course, essential for private equity valuation, and we deal with them all the time, in strict confidence, but at least we get insights about what might change.
The only time we have to worry about inside information is when we are valuing public companies for purposes of going private. In these cases, I always work through the company’s outside counsel to get what I need and make sure that I do not get anything I should not.
The next time I feel down about how tough it is value a private business, I will console myself with the knowledge that at least we get an inside look without the possibility of being jailed for it!