There is broad consensus that, among the different business valuation methodologies and techniques offered by both scholars and professional practitioners, the discounted cash flows method is is the best approach to value a company or a business as a going concern. According to this generally accepted model, a company's value is driven by its future results and, therefore, must be analyzed according to investment valuation methodologies as if it was a standalone project or a financial asset. As a result, any given company’s valuation will depend on the cash flows that the company is expected to be able to generate in the future and on the related risks, and will be equal to the present value of such future cash flows discounted at a rate that reflects the perceived risks. However, on the basis of the assumption that the market accurately prices, on average, a company’s value, companies are often valued by reference to supposedly comparable companies. This methodology, which is broadly accepted due to a great extent to some institutional investors’ success in the M&A market, has been called relative valuation or market appraisal. According to this technique, which is discussed in this chapter, a company is worth a certain number of times (a multiple of) a particular economic or financial parameter. Private equity and venture capital as a business activity have their own legal framework in Spain, which is currently subject to an in-depth review process. The upcoming reform is the result of the need to transpose and incorporate the European directives on the subject, as well as of the interest of promoting private equity and venture capital as an alternative and complementary instrument to traditional bank financing. This chapter reviews the development process of the Spanish regulatory framework and briefly analyzes both laws currently in force, and the ongoing reform, which, to some extent, has been triggered by the impact of the most recent financial crisis.
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