The buyer's valuation report uses trading multiples from massive, publicly traded companies to argue that our smaller business deserves a massive small-cap discount. How do we challenge this public market comparison to defend our valuation?

Question

Tyler Smith · Accepted Answer

Comparing a closely held private business to multi-billion-dollar public enterprises is a common tactic buyers use to justify a low multiple. Public companies have access to cheap capital, immense liquidity, and global diversification, which is why they command higher multiples. However, you can challenge this comparison by shifting the focus to your superior operational efficiency and niche dominance. First, point out the growth rate and margin differences. Public companies in your sector are often sluggish, growing at single digits, whereas your business might be growing at double digits with far superior EBITDA margins. Highlight this premium performance to show that your capital efficiency is actually higher. Second, direct the buyer toward guideline public transactions rather than just trading multiples, focusing on smaller-scale acquisitions within your niche. Third, use your operational data to prove your business is insulated from the typical risks associated with small companies. Show them your V/TO® and how your leadership team uses the EOS® framework to manage risk, track KPIs on a weekly scorecard, and run predictable operations. When you prove that your private business has the operational controls, strategic focus, and management depth of a much larger enterprise, you dismantle their argument for a steep small-cap discount.