A common interview question is "If you had a private and public company that were identical in all other ways, which one would you expect to sell for more?". Couldn't find the answer for this.
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the public company would sell for more. private companies are discounted compared to public ones because they're more illiquid
Agree with Martha, and also consider that when acquiring public companies, one typically pays a control premium above market price, which would make valuations higher than if it were a private company.
Company Multiples? PRIVATE vs PUBLIC (Originally Posted: 03/18/2012)
Hello,
How would I solve this problem?
If I was doing an valuation exercise and I came across a firm with a EBITDA of $4.0 million and revenue of $30 million, a private firm. How should I find three public companies that would be suitable for an industry comparable when public companies haven revenue in the excess of $100 million. Would the public firm's revenues not matter? Also, how would I go about in my search for these industry comparable firms?
Any help would be appreciated!
What does the firm do? Find companies that do similar things and find small-(or in this case micro-)cap stocks that fit the bill. If all you have are large companies, you're not looking hard enough. Public firm's revenues matter, but mainly to serve as comparison for margin calculations (% of Rev). EBITDA is what you want (assuming it's a "vanilla" company that doesn't have specific cash-flow calcs like EBITDAX, EBITDAR, etc.)
Or, you can try to take a conglomerate that publishes divisional annual reports, and try to use their division's information as one potential comparable company. It's a bit tricky but good practice.
Begin with a trek through Google Finance, Yahoo! Finance. The list of companies below a stock page on GOOG finance has led me to companies I'm sure I would have never heard of otherwise.
Good luck. Hope this helps.
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