If a public company wants to acquire a private company, can you use other public comps as part of your valuation? I know a public firm will higher valued because of liquidity and transparency, but is there some discount you apply to public comparables so you can use them to see what a private firm should be valued at? Or can you just use the public comps without discounting price?

Comments (5)

Best Response

To your original question, the answer is yes, you can (and are expected) to use public comps as a valuation methodology for the private company. This valuation exercise is independent of who the buyer is -- be it a public, private, PE shop, or Mel Gibson (yes, I've had a buyers list with Mel Gibson as a buyer...).

As for the liquidity discount, different banks will have different approaches. Bankers have a habit of backsolving for the answer that they are looking for, and the liquidity discount gives them the ability to do this. If your comps multiple is coming out too high, they may apply a 35% liquidity discount. If it's too low, the liquidity discount may be only 10%. Totally depends.

Another tool I've seen used for M&A valuation is an Ownership or Control Premium, which has the opposite effect as the liquidity discount. The logic is, the public markets do not have a majority stake and therefore control of their investment. A buyer would be willing to pay a premium for a majority voting interest, hence the premium. This premium can be anything (10%, 50%), whatever the senior bankers need to get the multiple where they feel comfortable.


The WSO Advantage - Investment Banking

Financial Modeling Training

IB Templates, M&A, LBO, Valuation +

IB Interview Prep Pack

30,000+ sold & REAL questions.

Resume Help from Actual IB Pros

Land More IB Interviews.

Find Your Perfect IB Mentor

Realistic IB Mock Interviews.


20% liquidity discount is standard


Wow - 20% isn't that a lot? Not questioning FTP, I'm just curious.


Thanks for the great answer, CompBanker. Definitely deserving of a silver banana.

In reply to CompBanker

To unlock this content for free, please login / register below.

Connecting helps us build a vibrant community. We'll never share your info without your permission. Sign up with email or if you are already a member, login here Bonus: Also get 6 free financial modeling lessons for free ($200+ value) when you register!

What's Your Opinion? Comment below:

Login or register to get credit (collect bananas).
All anonymous comments are unpublished until reviewed. No links or promotional material will be allowed. Most comments are published within 24 hours.
WallStreet Prep Master Financial Modeling