The buyer is relying on public market transaction multiples to value our company, but we are a closely held private business. How do we utilize size discounts and lack of marketability adjustments in our own model to defend our enterprise value?

Question

Tyler Smith · Accepted Answer

Comparing a private middle-market business to public companies is an apples-to-oranges comparison. Public companies enjoy instant liquidity, cheaper access to capital, and massive brand recognition. To defend your enterprise value, you must adjust the market multiples to reflect your reality while highlighting your unique advantages.

In your own valuation model, apply a Discount for Lack of Marketability, commonly known as DLOM, and a size premium adjustment to the public market dataset. This gives you a realistic, defensible baseline. However, do not let the buyer use these discounts to beat you down.

Counter their argument by proving your private company is actually more agile and automated than its public peers. Use your V/TO to showcase your highly targeted niche and your ability to pivot quickly without public market bureaucracy. Present your tech-enabled operating processes as a built-in efficiency that public giants cannot easily replicate.

By using the Market Approach to establish the raw multiple, but then grounding the conversation in the Income Approach, you can prove that your superior cash flows and automated systems warrant a premium that offsets standard private company discounts. Show them that while your stock is not publicly traded, your cash flow is cleaner, more predictable, and easier to transition.