When getting another value for private companies, my firm takes the EV/EBITDA multiple for listed companies and discounts it by 20-30%. When asked why 20-30%, it is simply what has always been done.
Is there a more scientific way to come to a discount figure for listed EV/EBITDA multiples?
Valuation does not equal purchase offer.
Okay… But how about any advice on the actual question as oppossed to picking holes in my English/phrasing?
His response is actually an insightful answer, albeit brief.
There is no scientific method to valuation to my knowledge. There is SOME structure with arriving at a valuation, but that structure can easily become GIGO. A asset is only worth what someone will PAY for it. Therefore, when you are targeting acquisitions, you are not going to pay some multiple based on EBITDA. You are going to use EV/EBITDA as a baseline in order to arrive at a figure to throw out first.
As with any deal, there is a good amount of haggling and negotiating before final terms can be agreed to.
So long story, is I don’t know a scientific method to arriving at a discount to full valuation. If you find one, please share it with us.
Valuations for private companies often include discounts for lack of marketability and lack of control. For example, lasy week Berkshire Hathaway announced that it is acquiring Precision Castparts for $235 per share. This was 15-20% above the trading price before the deal was announced so this implied a 15-20% control premium. Similar discounts apply for lack of marketability.