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Public versus Private Market Participants and the Prices Paid for Private Companies

Author

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  • Covrig Vicentiu

    (David Nazarian College of Business and Economics, California State University Northridge, 18111 Nordhoff Street, Northridge, CA 91330, USA)

  • McConaughy Daniel L.

    (David Nazarian College of Business and Economics, California State University Northridge, 18111 Nordhoff Street, Northridge, CA 91330, USA)

Abstract

This study examines the impact of the market participant on prices paid for private companies in the Pratt’s Stats database. We examine approximately 4,200 transactions over the period of 2000–2011 for companies with sales of $1 million or more. We find that public buyers pay more after controlling for the target’s size, industry, age, estimated growth rate, and profitability, as well as the time of the transaction. We also find that smaller companies and C-corporations sell at higher multiples. Our results are consistent with the hypothesis that the price paid for a company is related to whether the market participant is private or public. Further, our results provide additional insights to users of the Pratt’s Stats database regarding the characteristics of the transactions in this well-known and often-used database.

Suggested Citation

  • Covrig Vicentiu & McConaughy Daniel L., 2015. "Public versus Private Market Participants and the Prices Paid for Private Companies," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 10(1), pages 77-97, January.
    • Handle: RePEc:bpj:jbvela:v:10:y:2015:i:1:p:77-97:n:3
    DOI: 10.1515/jbvela-2014-0005
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    References listed on IDEAS

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    1. Paglia John K & Harjoto Maretno, 2010. "The Discount for Lack of Marketability in Privately Owned Companies: A Multiples Approach," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 5(1), pages 1-26, August.
    2. Longstaff, Francis A, 1995. "How Much Can Marketability Affect Security Values?," Journal of Finance, American Finance Association, vol. 50(5), pages 1767-1774, December.
    3. John D. Finnerty, 2013. "The Impact of Stock Transfer Restrictions on the Private Placement Discount," Financial Management, Financial Management Association International, vol. 42(3), pages 575-609, September.
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