The fact the your interest lies in a private company, you cannot estimate its beta.... The firm does not have stock prices which you can use. The best and easiest approach is to find a similar firm which is listed. Use this firm's beta.

Good luck

Some stock exchanges publish a sectorial beta index, if you have that information you could calculate the beta for companies with the same sector, and then you should fit the Beta index market with Robert Hamada's model, it leverages the beta index including the capital structure of the company. 

I think you can not measure beta because this type of business is not listed in the stock exchange and thus doesn't  have closing prices needed to measure beta.

According to Aswath Damodaran, there are two methods

1- Accounting Beta: it is found by regressing changes in earnings for the private company against changes in the S&P 500.  The slope of the regression is the accounting beta

2- Estimating Beta through the following steps

- Estimate the average beta the publicly traded comparable firms.

- Estimate their average market value debt-equity ratio of these firms, and calculate the un-levered beta for the business, which is equal to  average beta/ (1 + (1 - tax rate) (Debt/Equity))

- Estimate a debt-equity ratio for the private firm, then the beta of the private firm is b unlevered (1 + (1 - tax rate) (Optimal Debt/Equity)

You can use the following steps :

i) The firm could be private but it must be having some public limited "peers" from the same industry( preferably in the same country) . If it has , then find out the average equity beta of those peers.

ii) You can use the industry average equity beta as the proxy equity beta of the firm under consideration.. if needed you can fine tune the average upwards or downwards .. to be as close to the firm under consideration as possible.

iii) If there is a possibility  that the firm will change its D/E ratio ..then you can  first unlever estimated/proxy equity beta of the firm using  the firm's D/E ratio ,  to get the estimate for the firm's asset beta or business risk and then re lever with the new D/E ratio to get the estimate of the new equity beta .....otherwise you will have to use the industry average , fine tuned as the estimate of the equity beta of this firm.

Firstly you need the unlevered beta, referring to the industry where your firm is operating, which consider the operating systematic risk, no matter the indebtness policy of your specific firm. Secondly, you have to obtain from the unlevered beta the levered one, levering in order to consider the effect of the financial policy of yout firm, by using the following reletionship: levered beta=unlevered beta + (unlbeta-debt beta)*D/E.

You can find the industry unlevered beta on Bloomberg datasets or (free) the dataset on prof. Damodaran website

The systematic risk Beta exists and can be used in the CAPM to estimate for example the cost of equity capital only for publicly traded firms whose shareholders are well diversified. So, Beta cannot be used for a private company given the definition of the Beta coefficient. Furthermore, the Capital Asset Pricing Model (CAPM) is not applicable to a privately held company simply because the owners of a private company are not well diversified. If you absolutely want to use the CAPM to assess the performance of a private firm, then you have to find a publicly traded firm that is comparable to the private firm you are interested in. By comparable, I mean a publicly traded firm that has the same business risk and the same financial risk as the private firm. For this to be, both firms must have similar asset structure and similar capital structure. Overall the dept policy and the optimum capital structure must be similar. 

This completes my first answer to this question. Once you have identified a publicly traded firm which is comparable to your private firm, use the beta of this comparable publicly traded firm as the beta of your private firm. Both the private firm and the comparable publicly traded firm must have the same business risk and the same financial risk. The asset structure of the two firms must be similar as well as debt policy and optimal capital structure.

Beta for private companies can be estimated by,

1. Identify industry in which it belongs from the public listed companies and compute the beta.

2.use the market beta computed above and express as ratio of correlation of returns between the company return and market returns. This shall give you the risk factor for the private company for estimation of required return.

Dear Florin,

Why would you even need Beta/ alpha or regression model to valuate a Private Company? 

• Valuation is a Real ART. The Art for Private Companies is to understand the management, their vision, achievements, in both Good & Bad times.
• What is the scope and scalablity of the market they serve? (Local & Semi-local)
• Does the business has any franchise value and can that be scaled (Number game).
• What level of Tangible Operating assets you need to run such business effectively?
• The Most important of All: Analyse all the Operating Intangible Assets of the Business. This is where ART comes into play. Believe me, a major portion of the Valuation will be attributed to Operating Intangible assets only. And Please do not read the typical Financial Statements to understand the Accounting Intangible assets (ie Goodwill/ trademark etc). They are just a small portion of Actual Operating Intangible Assets. Broadly Intangible assets can be divided into: Competitive Intangible Assets & Marketing Intangible Assets. There can be more. As i say, "IT's A REAL ART". (PERIOD)

Thanks

Ankur

Sorry Florin,

It is a bit late, but ,have you managed to have an answer to your question?.I'm working on this area and i see that CAPM can be estimated on public and private companies the same way.

It is rf=alpha+beta(rm-rf), whee rf is the risk free parameter ( you can use a proxy for this one), for example bond interest rate , rm is the return on market ( any proxy represents market return). Happy to help further if you still did not get an answer to your question.

Hope this helps

I agree with Ankur, but if you decided to use CAPM, you might be able to calculate the Beta index per industry sector, it would be just an approximation, but you must know that it is skewed.