Private companies are often sold at a discount compared to publicly listed companies when estimating value using multiples of revenues or cash flows or earnings. Studies show a 30% discount for US private companies and up-to 50% discount for overseas companies. (Koeplin 2005)
There are specific reasons when a private company discount applies and when a private company discount does not apply. On this page, we discuss when a private company discount is irrelevant!
Studies show a 30% discount for US private companies and up to 50% discount for overseas companies. (Koeplin 2005) The stated reason for a private company discount includes 1) private companies, without the public scrutiny, are not run as efficiently as public companies 2) private companies do not have access to optimal levels of debt 3) have lower public exposure or ‘goodwill’ and/or 4) lower liquidity. A private company discount is irrelevant when these factors are not real or significant as can be in well-developed and mature financial markets.