Public versus Private: New Insights into the Private Company Discount

Abstract

We examine whether private companies are valued with a discount compared to publicly traded companies. The analysis is based on a comparison of private company transactions with those of public companies. Whereas prior studies build pairs based on industry membership, we match private companies with public counterparts that are comparable in value relevant firm characteristics, i.e. profitability, risk, and growth, to calculate the percentage difference in valuation multiples. We find that private companies are valued on average with a discount on the EBITDA-multiple of 13% compared to their public counterparts. Private companies sell at lower discounts, if the acquirer firm is publicly listed. As size is associated with lower risk, we show that larger private companies sell at lower discounts.