Privately held firms: A study of relative valuation in the Nordic region 1998-2005
Abstract: The notion that a closely held company all other things equal should attract a lower valuation compared to its publicly traded peers is widely accepted among both valuation professionals and academics. Limited marketability, lack of diversification for major shareholders and the monitoring benefits of public stock markets are some potential determinants of this discrepancy. This thesis provides a detailed description of the theories relevant to the private company discount and in addition presents an empirical study on the Nordic market. For a sample of 78 transactions of privately held firms between 1998 and 2005, we estimate a median discount of 8.9 percent based on the enterprise value-to-sales multiple and 4.5 percent based on the enterprise value-to-EBIT multiple, results that are not statistically significant. The data exhibits a trend of decreasing discounts over time, which we suggest could be due to the proliferation of organised private equity. A regression framework used indicates that the probability of a discount could be related to the size of the company and its risk of financial distress.
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