The buyer's investment banker is using valuation multiples from massive, publicly traded competitors as their guideline company transactions method, but then applying an aggressive thirty percent size and marketability discount to our valuation. How do we use empirical cost of capital data and our operational efficiency to fight back against this arbitrary discount?

Question

Tyler Smith · Accepted Answer

Buyers love to use public market comparables to establish a baseline multiple, only to slash your valuation by applying a massive size and marketability discount. They argue that because your business is smaller and your shares are illiquid, your cash flows are inherently riskier. You must reject this simplistic approach. Fight back by highlighting your superior operational efficiency and structural advantages. Public giants are often bogged down by bureaucratic overhead and slow decision-making. If your operating model produces superior margins or higher revenue per employee, present this as a counter-weight to the size discount. Show the buyer how your EOS structure, specifically your V/TO and Accountability Chart, guarantees operational consistency that rivals public companies. You have institutionalized your processes, mitigated key-man risk, and built a self-sustaining management team. Furthermore, point out that your private structure shields you from public market volatility and compliance costs. If your customer retention is superior and your growth rate outpaces the public peers, demand that the buyer eliminate or significantly reduce the marketability discount. Do not let them use public market metrics as a weapon to devalue your highly optimized operational engine.