AI in Business Valuation: Can Machines Value Private Companies?

In the era of digital transformation, Artificial Intelligence (AI) is reshaping industries and there is no exception to the corporate finance services. One of the most talked-about applications is the use of AI in business valuation, particularly for private companies where market data is limited and assumptions drive much of the valuation exercise.

But the big question remains: Can machines accurately value a private company?

Morrison Consultants always believe that the answer lies in a hybrid approach where human judgment is enhanced, rather than being replaced by AI. In this article, we explore how AI is being used in business valuation, its current limitations, and how it can complement professional expertise.

Is Private Company Valuation Challenging?

Valuing private companies is inherently complex due to:

• Lack of market comparable (no movement on share price in the public market)

• Inconsistent financial reporting standards

• Reliance on forecasts and subjective assumptions

• Limited access to transactional or peer data

Traditional valuation methods like DCF (Discounted Cash Flow), comparable, and asset-based approaches require expert judgment to interpret company-specific factors, industry risks, and macroeconomic trends. AI will not replace the overall process. Instead, AI will help to streamline, accelerate, and enhance accuracy of related works.

How AI Supports Business Valuation?

1. Data Aggregation and Benchmarking

a. AI tools can rapidly extract, clean, and compare financial data from thousands of private and public companies.

b. This speeds up the process of identifying suitable industry peers for comparable-based valuation.

2. Pattern Recognition for Forecasting

a. By referring to the historical financials, AI can detect patterns in revenue growth, cost structure, and working capital cycles for producing more consistent forecasts than manual inputs alone.

3. Risk Profiling and Sentiment Analysis

a. AI systems can analyse market news, customer reviews, ESG risks, and regulatory developments to generate qualitative insights that influence valuation multiples and risk premiums.

4. Scenario and Sensitivity Simulations

a. Machine learning models can generate multiple "what-if" scenarios to test assumptions under various macroeconomic or industry conditions for helping advisors to prepare clients for valuation negotiations.

Limitations of AI in Private Company Valuation

Despite having several advantages, AI tools are not a silver bullet:

• Garbage in, Garbage out: AI relies on data integrity. As many SMEs lack clean and standardized financials, it is more likely to have the “bad” outcomes or solutions if incomplete and inaccurate data or information is given.

• Lack of qualitative nuance: AI may miss strategic factors such as key-person dependency, customer concentration, or founder reputation.

• Valuation is context-driven: A company’s valuation in an M&A deal versus a fundraising round can differ substantially. AI struggles to account for deal-specific motivations.

Ultimately, valuation remains a mix of art and science. AI can process the science, but human advisors interpret the art.

The Hybrid Advantage: AI + Human Expertise

Morrison Consultants harnesses AI-enabled tools to enhance, not replace our valuation engagements. By combining the following skillsets and tools:

• Data-driven AI benchmarking and analytics

• Financial modelling expertise

• Industry knowledge and judgment

• Market-tested valuation methodologies

We can deliver business valuations that are defensible and tailored to each client’s strategic objectives for various purposes such as fundraising, M&A, shareholder buyouts, or dispute resolution.

Conclusion

AI has undoubtedly changed the game in corporate finance by making valuation faster with more data rich. However, when it comes to private companies, especially in emerging sectors or complex ownership structures, human insight remains indispensable.

Machines can assist the process, but the final call on valuation still requires professional judgment, stakeholder understanding, and negotiation readiness.

Need Support with Business Valuation?

Whether you are preparing for a sale, seeking investors, or resolving a shareholder dispute, Morrison Consultants can really provide independent, data-informed valuation services which are powered by both digital tools and expert advisory.

Contact us today to explore how we can assist.