Module II· Valuation — Regional NotesIntermediate
Question
How do you apply a middle-market (private-company) discount in a valuation?
Answer
Middle-market discount
a valuation reduction for non-listed private mid-cap companies vs. publicly traded comps. Reasons:
- Illiquidity: no public trading, harder exit routes.
- Concentration: often family control, single-customer risk, regionally focused.
- Reporting transparency: local-GAAP only, no segment reporting.
- Management depth: often owner-manager-centric structures, key-man risk.
- Scale: smaller size limits the institutional investor base. Discount magnitude: 15–30% typical, depending on size and quality. Application: Method 1: public-comps multiple × (1 − discount) → private multiple. Method 2: a higher WACC in the DCF (+1.5–2.5% illiquidity/size premium). Empirically, studies show a 20–25% median discount.
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Pitch tip
"In a middle-market sell-side pitch, never say 'middle-market discount' explicitly — as a buyer in M&A, yes. Sell-side pitch: 'we recommend a private-to-public multiplier of 0.75–0.85x'."