Private Company Discount: The European Case

Abstract: The common approach to valuing privately-held companies is to compute the acquisition multiples of comparable listed companies and apply a discount for the lack of marketability. In our study, we adopt the acquisition approach and attempt to estimate private company discount by comparing the transaction multiples of private and public companies. We find that, on average, private companies sell at a discount of 28% for revenue multiples and 29% for earnings multiples to listed firms. We also demonstrate that applying the same acquisition discount across all private targets is not appropriate. Company and transaction characteristics, as well as industry membership and market conditions influence the size of the discount. This study is unique in that it examines the impact of institutional factors in a cross-sectional analysis. Companies operating in more efficient financial markets experience lower than average acquisition discounts.