The Private Company Discount from a European Perspective: An Analysis Based on the Acquisition Approach for Comparable Transactions of European Target Companies

Abstract

There is strong evidence from previous research that a discount for U.S. private companies exists relative to their publicly traded peers. Because such a discount has substantial influence on the valuation of private companies, which are the main legal corporate form in Europe, in this study the authors analyze how European private companies are valued in comparison to their European publicly traded peers and find that a discount of around 5% exists for eurozone private companies. This is lower than the potential costs for an IPO, and supports our theory that a listing gives the owner a valuable option of selling minority stakes into the stock market. We also find that, when using the acquisition approach, size and profitability have no significant influence on the private company discount.

TOPICS: Private equity, security analysis and valuation, developed, statistical methods