Valuing a private wealth or asset management business isn’t just about crunching numbers—it’s about understanding how recurring revenue, client relationships, and advisory talent translate into long-term value. In an industry built on trust, calculating equity value demands precision, transparency, and context.
Whether you’re planning for succession, evaluating an acquisition, or considering a capital raise, understanding equity value is essential. Here’s how to do it right.
What Is Equity Value?
Equity value is simple at its core: it’s the portion of a company’s value owned by its shareholders, stripped of debt and other obligations. In a public company, it’s easy to figure out. Share price times shares outstanding—done.
For private companies, though, there’s no such shortcut. The lack of market data means you’re working from raw financials and valuation methods. For RIAs and asset managers, equity value is a crucial figure used in:
- M&A transactions
- Ownership transitions
- Equity buy-ins/buyouts
- Succession planning
- Capital raising efforts
How to Calculate Equity Value of a Private Company
Equity value is derived from enterprise value (EV), the total worth of the business when you account for all stakeholders—equity holders, creditors, and more. Here’s the basic formula:
Equity Value = Enterprise Value – Net Debt
Net debt includes:
- Outstanding debt: What the company owes.
- Cash and cash equivalents: What’s on hand to offset those obligations.
But private company calculations don’t end there. You need to account for:
- Convertible securities (stock options, warrants, etc.).
- Non-operating assets.
- Adjustments for dilution.
Every piece matters. If you miss one, you risk an inaccurate valuation that could undermine critical decisions.
But in the wealth and asset management space,You’ll often need to adjust for:
- Advisor retention liabilities or earn-outs
- Deferred compensation arrangements
- Equity-like instruments (phantom equity, profit interests, options)
- Non-operating assets (e.g., excess cash or real estate owned by the firm)
How to Determine the Valuation of a Business
You can’t calculate equity value without first determining enterprise value. This requires valuation methods designed for private companies. Each method has its strengths—and weaknesses.For RIAs, wealth and asset managers, this is typically derived using a mix of these methods:
Comparable Company Analysis (CCA)
The simplest starting point: compare the private company to similar public companies. By applying valuation multiples (like EV/EBITDA) from the public peers, you estimate enterprise value.
Sounds easy, right? It’s not. Comparability depends on how closely the companies match in size, market, and financial performance. Subtle differences can distort the results.
Precedent Transactions
This method looks at recent M&A transactions in the wealth and asset management space. For example, RIAs with $500M–$1B in AUM and 30–40% EBITDA margins have recently sold for 10–14x EBITDA, depending on growth, client demographics, and platform fit.
These real-world benchmarks provide a clear signal of market behavior and buyer appetite—but require access to proprietary data and context. This is where an advisor like InCap adds significant value.
Discounted Cash Flow (DCF) Analysis
DCF is the most detailed method. It calculates enterprise value by forecasting future cash flows and discounting them to present value using a chosen rate (typically WACC). It’s most useful for RIAs with clear growth plans, high client retention, and consistent margins.
However, DCF is only as accurate as the assumptions behind it—especially growth rates and terminal values. For firms with volatile cash flows, this method can produce wide valuation ranges.
Equity Value vs. Enterprise Value
Don’t confuse equity value with enterprise value. They serve different purposes:
- Enterprise Value: The total value of the business, accounting for equity and debt.
- Equity Value: The portion attributable solely to shareholders after debts are settled.
Think of it this way: enterprise value represents the entire cake; equity value is the slice left for equity holders.
Why does this distinction matter? Because using the wrong value in negotiations or planning can be costly. Enterprise value is relevant when considering total acquisition cost, while equity value tells you what shareholders take home.
Why Calculating Equity Value Is Tricky
Private companies don’t have the luxury of market transparency. Valuation data isn’t handed to you on a platter—you need to work for it. Therefore, you should be aware of some common traps, such as:
Inconsistent Financials
Many RIAs run lean operations without GAAP-level accounting. Normalizing financials and owner comp is essential for clarity.
Subjective Judgments
Selecting comparable companies, determining discount rates, or projecting growth rates requires professional judgment. Poor assumptions lead to poor outcomes.
Market Conditions
Value standards don’t stay the same. They change along with the economy, business trends, and the way the market works.
Choose the Right Valuation Method
The most reliable way to value your firm is by triangulating results from multiple valuation methods—not just relying on the one that gives the highest number.
Using a blend of approaches—such as precedent transactions, earnings multiples, and discounted cash flow—provides a more balanced and defensible equity value. This cross-validation helps ensure that your firm’s valuation reflects both market reality and financial fundamentals, which is especially important when negotiating with buyers or onboarding new partners.
Why Equity Value Matters
At its core, equity value comes down to getting useful information that you can use. It tells you:
- Acquisition terms.
- Ownership transition strategies.
- Capital-raising efforts.
- Negotiations with stakeholders.
For RIAs, equity value reflects the transferable portion of your firm’s worth. It’s the foundation of ownership and liquidity. knowing equity value isn’t optional. It’s the bedrock of decision-making. Equity value is more than a number. It’s the financial truth of what shareholders own, stripped of debt and distractions. Calculating it for private companies demands rigor, objectivity, and expertise.
In this space, shortcuts don’t cut it. Every assumption, every adjustment, every method matters. If precision and clarity are what you’re after, leave guesswork to someone else.
Because equity value isn’t a mystery—it’s a measure of the facts. Get those facts right, and you’ll find that everything else follows.
InCap Group Stands Ready to Guide You
At InCap Group, we specialize in helping wealth and asset management firms understand and maximize their equity value. From valuation to negotiation, we provide expert guidance based on real-world deal flow and deep industry knowledge.
Whether you’re contemplating a full sale, onboarding new partners, or exploring a recapitalization, we’ll help you define your equity value with accuracy, credibility, and confidence.