Exploration of the Size Effect on Transaction Data of Non-publicly Traded EU Companies

This paper examines the effect of company size on transaction multiples. The existence of the size effect has been investigated by a number of authors who have primarily used data for publicly traded companies for their research. Our research works with data from private transactions with non-traded companies (shares) from the EU. The transaction price concluded in these deals is decomposed into the product of profit and transaction multiple as when using market comparison valuation methods. Transaction multiples are relative types of financial metrics that typically compare various levels of profit such as EBITDA, EBIT or EAT to a value that an investor is willing to pay to acquire a given company. The objective of this paper is to confirm the hypothesis that larger companies are purchased for higher profit multiples than smaller companies. Accordingly, in the context of DCF valuation methods, higher profit multiples correspond to a lower discount rate and vice versa. However, it should be noted that despite the large amount of research conducted, the existence of the size effect is still not confirmed or refuted at present.