When valuing a private company, what discount to public comps multiples is commonly applied due to illiquidity?

When valuing a private company, what discount to public comps multiples is commonly applied due to illiquidity?

• A. 0-5%
• B. 10-15% (or more)
• C. 25-30%
• D. 40-50%

Answer: (B)

When you value a private company using public comps, you must adjust for lack of liquidity. Public shares can be bought and sold easily, exit is straightforward, and information is readily available; private companies cannot be exited quickly at a quoted price and carry higher uncertainty. To reflect this illiquidity and marketability risk, you apply a discount to the public multiples. The typical adjustment is a low double-digit discount, around 10-15%, though in some cases it can be higher depending on size, industry, and deal specifics. Larger or more illiquid situations justify bigger discounts, but 0-5% would understate the liquidity gap, and discounts like 25-50% are less common unless there are extreme constraints.

When you value a private company using public comps, you must adjust for lack of liquidity. Public shares can be bought and sold easily, exit is straightforward, and information is readily available; private companies cannot be exited quickly at a quoted price and carry higher uncertainty. To reflect this illiquidity and marketability risk, you apply a discount to the public multiples. The typical adjustment is a low double-digit discount, around 10-15%, though in some cases it can be higher depending on size, industry, and deal specifics. Larger or more illiquid situations justify bigger discounts, but 0-5% would understate the liquidity gap, and discounts like 25-50% are less common unless there are extreme constraints.