The Study In Valuation Of Private Equity Investment In China

The private equity investment immersed in 2004 in China and then increased rapidly. The numbers of private equity investors have increased from several to hundreds. However, this new kind of investment lacks in theory study. People do not know how to explain the development of private equity investment, and there is not enough authorized research on main problems which appear with its development. That is why I choose this topic as my assay.In my assay, I mainly study the present and future of the private equity investment according to my years of experience. Moreover, I analyze some basic problems in valuation of this investment.First, I analyze the situation in the development of private equity investment by logically deducting, classifying and comparing. I summarize and clarify the concept, the connotation, the specialties, the type of organizing and the kinds of private equity investment. I simply introduce the history and the state of private equity investment in USA and EURO countries. I present the situation of private equity investment in China from economic and social background, from the starting, developing and competitive characteristics and environment of private equity investment, and from the problems existing in its development.In this part, I generally survey the private equity investment, resolute the background and the nature of competition in the development of private equity investment, which I hope can be a theoretical and practical guide for people to make clear the real content and the original character of private equity investment in China.Second, I focus on the valuation of private equity investment. In this part, I introduce four kinds of classic valuation theory: present value of cash flow, comparable valuation, asset valuation and option valuation. Basic on financial and static state, I sum up two main thoughts of the four valuation theory, and then point out the setting of its generation and the logic assumption.The basic logical assumption of classic valuation theory is that supposed it invests in the enterprises which belong to industries with stable and balanced structure. Yet, in China, in most industries, the structure is unstable and imbalance. This is a big problem. However, the classic valuation theory is still used, especially the comparable valuation. This makes the private equity investors to compete each other in a very simple way and low level and the investment cost rise ultimately up and up. In present, private equity investment is in its peak. Meanwhile the investment cost is in peak too. Obviously the investment risk gathers a lot. Nevertheless, there is no any authorized opinion on these problems.In the most important part of my assay, I make an attempt on discussing and solving valuation problems, and I give a valuation assumption based on competitive positions. Different from the classic valuation theory, my valuation assumption based on competitive positions suppose the industrial structure is unstable and imbalance. With a simple competitive positions model, I analyze the basic principle of the valuation assumption based on competitive positions. Then by competitive positions analysis, case analysis, comparing analysis, and with nine cases, I elaborate two kinds of usable types of valuation assumption based on competitive positions, which are the valuation based on constructive efficiency improvement and the valuation based on stronger competitive position. The nine cases show from all around the wide applicability of the valuation assumption based on competitive positions in private equity investment in China. Although the model is simple and does not test in practice, we can not ignore ether the theoretical or the practical meaning to China private equity investment.One thing I need declare is that the valuation assumption based on competitive positions does not totally negate the classic valuation theory. It just develops the useful and discards the useless of the classic valuation theory. In some cases, we need to combine them so that we can make valuation more accurately.