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The Journal of Private Equity

The Journal of Private Equity

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Primary Article

A New Examination of the Private Company Discount

The Acquisition Approach

Maher Kooli, Mohamed Kortas and Jean-François L'her
The Journal of Private Equity Summer 2003, 6 (3) 48-55; DOI: https://doi.org/10.3905/jpe.2003.320051
Maher Kooli
A senior research analyst
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Mohamed Kortas
A senior research analyst
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Jean-François L'her
Vice president of research at La Caisse de dépôt et placement du Québec, Depositor's Accounts Management,Research Department, in Montreal, Canada.
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  • For correspondence: mkooli@cdpcapital.com mkortas@cdpcapital.com jlher@cdpcapital.com
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Abstract

Determining the appropriate discount for lack of marketability (DLM) is one of the most challenging questions in valuing private firms, and one that has only recently begun to be deeply explored. In this study, using several multiples with a methodology robust to the criticisms addressed to the acquisition approach, we find that privately-acquired firms are indeed discounted. The median DLM observed, however, varies with the multiple considered. For example, we find that the estimated median private company discount is 34% with the earnings multiple, whereas it is 20% for the cash-flow multiple. Furthermore, we find that the estimated DLM varies across firms and some industries, and tends to be smaller for large and growth private companies, but is more sensitive to growth than to size.

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The Journal of Private Equity
Vol. 6, Issue 3
Summer 2003
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A New Examination of the Private Company Discount
Maher Kooli, Mohamed Kortas, Jean-François L'her
The Journal of Private Equity May 2003, 6 (3) 48-55; DOI: 10.3905/jpe.2003.320051

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A New Examination of the Private Company Discount
Maher Kooli, Mohamed Kortas, Jean-François L'her
The Journal of Private Equity May 2003, 6 (3) 48-55; DOI: 10.3905/jpe.2003.320051
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