​New insights into the Private Company Discount

I examine whether private companies are valued with a discount in comparison to publicly-traded companies because of their illiquidity of shares. Following prior research, I match private companies with comparable public companies and compare their EBITDA-Multiples. Whereas prior investigations match comparables based on industry membership, I match public counterparts based on valuation relevant characteristics, such as profitability, risk and growth. The investigation is based on 341 transaction pairs of the SDC Platinum database by Thomson and Reuters of U.S. domiciled target companies from 1997 to 2014 and supplemented by accounting data from orbis. I find that private companies are valued on average 13 % less than their public counterparts. The Private Company Discount is unaffected by intra-industry acquisitions where target firm and acquirer firm are in the same industry. I find that private companies sell at lower discounts, if the acquirer firm is publicly-listed. As size is associated with lower risk, I show that larger private companies sell at lower discounts.

Sabrina Goetz is Research associate in the Department of Business Administration: Accounting and Finance with research focus on valuation using multiples; promoted by research fellowship; Master of Science in Management, gained practical insights in various topics regarding accounting, taxation, auditing and controlling; interdisciplinary and international team player with strong analytical skills.