The buyer is using a complex regression-based valuation model based on publicly listed companies in our sector, claiming their low multiple reflects our smaller scale. How do we challenge this size-discount assumption and prove our mid-market agility deserves a premium?

Question

Tyler Smith · Accepted Answer

Private equity buyers love to use public company regression models because they look highly scientific, but these models are often weaponized to justify an aggressive size discount on mid-market firms. They will point to a multi-billion dollar public competitor, show its trading multiple, and then apply a massive discount because your revenue is under fifty million. You must challenge this logic by focusing on the fundamental principles of company valuation, specifically your capital efficiency and growth velocity. Public companies are often slow, bureaucratic, and capital-intensive. If your mid-market business has a higher return on equity, superior operating margins, and a faster growth rate than the public peers in their database, their regression assumptions are flawed. Highlight your lean operating structure. Using your EOS® Accountability Chart, show how your leadership team is structured for speed and decision-making agility, allowing you to capture market opportunities far faster than a bloated public firm. Use historical performance data to prove your customer acquisition cost is lower and your customer lifetime value is higher. If your business has stable, predictable cash flows and a high reinvestment rate, you are actually a lower-risk investment than many volatile, public-market entities. Force the buyer to adjust their risk-adjusted capitalization rate to reflect your superior operational health. Do not let them hide behind a generic regression model. Make them defend their inputs and prove that your streamlined, high-growth operation is worth every bit of a premium multiple.