Resumo

The National Bureau of Economic Research (NBER) indicates that only 1% of companies in the U.S. are publicly traded, yet literature often overlooks private company valuation (PETERSEN et al., 2006). This gap necessitates more studies on private company valuation techniques. Valuing unlisted firms involves complexities like finding a counterparty and transaction costs (DAMODARAN, 2012). The “private company discount” (PCD) encompasses liquidity and information asymmetry (BAJAJ et al., 2001; OFFICER, 2007).

Although previous studies have investigated the private company discount (PCD) outside the U.S. (KOEPLIN et al., 2000) and in Europe (KLEIN et al., 2012), they have not directly compared North American and European markets. This study seeks to answer: is there a significant difference in the PCD in M&A transactions between North American and Western European markets? We find higher discounts in Europe using multivariate regression and acquisition approaches. This study aims to provide insights for M&A professionals and enhance valuation models for private companies.

Koeplin et al. (2000), Kooli et al. (2003), Block (2007), and Officer (2007) used the acquisition approach to examine the PCD. They gathered data on transactions involving public and private targets, matching transactions to compare valuation multiples. Koeplin et al. (2000) and Block (2007) excluded financial and regulated utilities, while Kooli et al. (2003) and Officer (2007) matched portfolios of public firms to private ones. Results indicate significant discounts for private companies. Klein et al. (2012) found a 5% discount in Europe, lower than in the U.S.

First, we perform a Multiple Linear Regression, using the selected variables to analyze their relationship with valuation multiples. Another regression focuses on private transactions, with a dummy variable indicating if the target is in the US or Western Europe. Regressions use robust standard errors to account for heteroscedasticity, and variables were winsorized at the 2.5% extremes. Lastly, following Koeplin et al. (2000), we matched transactions, forming pairs by year, country, sector, and closest sales, obtaining the private company discount overall and by region.

All models showed significant F-statistics and R². Results indicate a consistent negative association between valuation multiples and the Private Target dummy. The EV/EBITDA model shows a 14.1% discount for private companies. EV/EBIT and EV/Sales models show discounts of 13.3% and 36.9%, respectively, supporting the first hypothesis (H1). The interaction between European and Private targets was not significant. Matched transactions supported H1 overall and the second hypothesis (H2) regionally, showing higher discounts in Europe for EV/EBITDA and EV/Sales multiples.

Previous studies used the acquisition approach to investigate the PCD but did not compare different regions. We used the acquisition approach and multiple linear regressions to compare private company discounts in the US and Western Europe. We found evidence of PCD in all three models, supporting H1. Private targets in Western Europe had lower valuation multiples than in the US. The acquisition approach confirmed H1 and H2, showing regional differences consistent with Koeplin et al. (2000) and Klein et al. (2012). The results varied with the two different approaches for matching transactions.

BAJAJ, M. et al. Firm Value and Marketability Discount. Journal of Corporate Law, v. 27, n. 1, p. 89–115, 2001 BLOCK, S. The Liquidity Discount in Valuing Privately Owned Companies. Journal of Applied Finance, v. 17, n. 2, p. 33–40, 2007 KLEIN, C. et al. The Private Company Discount from a European Perspective: An Analysis Based on the Acquisition Approach for Comparable Transactions of European Target Companies. Source: The Journal of Private Equity, v. 16, n. 1, p. 74–82, 2012 KOEPLIN, J. et al. The Private Company Discount. Journal of Applied Corporate Finance, v. 12, n. 4, p. 94–101, 2000.