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Private Capital Markets: Valuation, Capitalization, and Transfer of Private Business Interests + Website, 2nd Edition by Robert T. Slee

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CHAPTER 2

Middle-Market Finance

A premise of this book is that private capital markets are unique. As such, unique capital market theories are required to explain and predict behavior of players in those markets. The main theory described in this book is middle-market finance theory, which is an integrated body of knowledge that applies to valuation, capitalization, and transfer of middle-market private companies. Several macro-events over the past 20 years have set the stage for the study of middle-market finance theory. These are:

  • Private business valuation has become a career path. Dr. Shannon Pratt started this movement by publishing his landmark book, Valuing a Business: The Analysis and Appraisal of Closely Held Companies (McGraw-Hill) in 1981. Dr. Pratt was the first to bring structured thought to private business valuation. Partially due to his continued work, private business valuation has become quite sophisticated. There are now more than 5,000 practicing appraisers in the United States.
  • Since the early 1990s, the private capital markets have developed many new capital alternatives. Prior to 1990, commercial lenders were the primary source of capital to private companies. In fact, if the local banker could not supply all of the capital needs of the owner-manager, the company probably went without necessary funding. Since that time, asset-based lenders, mezzanine players, private equity groups, and others have appeared. The variety of capital purveyors has enabled owner-managers ...

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