Public Comps vs. Private Comps: When to Use Each

When valuing a business, choosing between public comparables (public comps) and private comparables (private comps) is critical. Public comps use data from publicly traded companies, while private comps rely on transaction data from private businesses. Both offer distinct advantages and challenges, depending on the context.

Key Points:

• Public comps: Transparent, market-driven, and based on real-time data from public companies. Best for established industries with similar-sized public peers.
• Private comps: Focus on private transaction data, reflecting real deal prices. Ideal for niche markets, early-stage companies, or when public data is not relevant.

Quick Comparison:

Factor	Public Comparables	Private Comparables
Data Transparency	High (SEC filings, audited reports)	Low (limited, harder to access)
Liquidity	High (actively traded shares)	Low (restricted ownership, less trading)
Valuation Metrics	P/E, EV/Revenue, EV/EBITDA	EBITDA multiples, cash flow, transactions
Company Size	Larger, established companies	Smaller, niche-focused businesses
Adjustments Needed	Minimal	Significant (liquidity, size, control)

Use public comps for mature industries and larger companies. Use private comps for smaller businesses, niche markets, or unique business models. Adjust public comps for factors like illiquidity (20%-30%) and size when applying them to private companies. Combining both methods with a Discounted Cash Flow (DCF) analysis often provides the most accurate valuation.

Private Company Valuation

What Are Public Comparables?

Public comparables, often called "public comps", are publicly traded companies in the same industry or sector that serve as benchmarks for valuing other companies. The idea is simple: if similar companies are trading at specific valuation multiples in the market, your company’s value should fall within a similar range.

What makes public comps so useful is that they’re based on actual market activity. When you look at a public company’s valuation, you’re seeing what investors are willing to pay right now, based on current trading data. This isn’t just theoretical - it reflects thousands of daily transactions where buyers and sellers agree on prices, creating a solid reference point for market valuations. This active trading ensures a transparent framework for determining value.

Public companies are also held to strict regulatory standards. They must file detailed financial reports with the Securities and Exchange Commission (SEC), adhere to Generally Accepted Accounting Principles (GAAP), and regularly disclose material information. This makes their financials accessible to anyone who wants to review them.

Beyond the numbers, public markets offer more than just share price data. They provide detailed insights into the financial performance driving a company’s valuation. This transparency is a key reason public comps are a cornerstone of valuation analysis.

Public comps play a central role in comparable company analysis, one of the primary valuation methods alongside discounted cash flow (DCF) and precedent transactions. Analysts rely on public comps for real-time insights. For instance, when valuing a mid-sized software company, an analyst might identify publicly traded software firms with similar revenue, growth rates, and business models, then apply those valuation multiples to the target company. This works because public markets constantly adjust valuations based on investor sentiment, economic shifts, and company performance.

Common Metrics for Public Comparables

Key metrics for evaluating public comps include EV/Revenue, EV/EBITDA, and P/E ratios. Each provides a unique perspective on a company’s value.

• Enterprise Value (EV): EV is the foundation of many valuation metrics. It represents the total value of a business, combining market capitalization and net debt. Metrics like EV/Revenue and EV/EBITDA help assess how the market values a company relative to its financial performance.
• EV/Revenue: This metric is especially relevant for high-growth industries, such as software-as-a-service (SaaS), where profitability may still be developing. It shows how much investors are willing to pay for each dollar of revenue generated.
• EV/EBITDA: This is often used for mature companies with stable profitability. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) focuses on operating performance, excluding factors like capital structure and non-cash expenses. It’s particularly helpful for comparing businesses across different tax jurisdictions or depreciation policies.
• P/E Ratio: The price-to-earnings ratio remains popular for evaluating stable, profitable companies in mature industries. It highlights performance through profit margins and net income, offering a straightforward snapshot of value.

The choice of metric depends on the company’s stage, industry, and financial profile. High-growth startups might lean on revenue multiples, while mature businesses are often evaluated using EBITDA or earnings-based metrics.

Benefits of Public Comparables

Public comps offer several advantages, thanks to their transparency and accessibility.

• Standardized Data: Public companies follow strict SEC and GAAP requirements, ensuring consistent financial reporting. Analysts don’t need to negotiate access to audited statements - the information is readily available.
• Quick Access: Databases like Bloomberg, FactSet, or even free resources like SEC EDGAR filings make it easy to retrieve financial data.
• Market-Based Credibility: Valuations based on public comps carry weight because they’re rooted in observable market activity. For example, if comparable companies trade at 10x-12x EBITDA, that range reflects real investor sentiment rather than theoretical models.
• Real-Time Updates: Public comps adjust immediately to shifts in economic conditions, interest rates, or investor sentiment. This makes them more dynamic compared to private company valuations, which often rely on longer-term averages.
• Liquidity: The high trading volume in public markets ensures that observed prices reflect actual market-clearing values, avoiding distortions from low activity or forced sales.

These benefits make public comps invaluable across various scenarios. In IPO pricing, underwriters use public comps to set reasonable valuations. For mergers and acquisitions (M&A), buyers analyze public comps to determine fair offer prices. Venture capital and private equity firms also rely on public comps, particularly for late-stage investments. For instance, if a software company is acquired at 20x revenue, it might need to grow its revenue significantly to align with an 8x revenue multiple at IPO. In mid-market acquisitions, private software firms are often valued at 8x-12x revenue multiples based on public comp analysis, while public companies in similar sectors might trade at 20x EBITDA.

Public comps are an essential tool for accurate valuation. In today’s market, where private companies often trade at lower multiples than their public counterparts, they can reveal attractive opportunities as the M&A landscape evolves. However, public comps work best when there’s a robust pool of similar companies with transparent financial data. While valuing a large, established software company is relatively straightforward, niche industries or emerging sectors with fewer public comps may require additional valuation approaches.

What Are Private Comparables?

Private comparables are a way to evaluate a company's value by looking at transaction data from similar private companies. Instead of relying on stock prices like you would with public companies, this method focuses on what buyers have actually paid for comparable private businesses in real-world transactions.

The key difference here is transparency. Public companies are required to share detailed financial data, but private companies operate under no such obligation. When private businesses are sold, crucial details like the purchase price, revenue multiples, or EBITDA figures are usually kept confidential.

This lack of transparency makes things tricky for analysts. For example, while it's easy to pull up a public software company's revenue from SEC filings, getting similar data for a private company often requires access to exclusive deal records, broker databases, or proprietary transaction histories - not exactly easy to come by.

Another challenge is accounting inconsistencies. Private companies often use different accounting methods, which can make comparing their performance a bit of a headache. For instance, one company might use FIFO (First In, First Out) to value inventory, while another uses LIFO (Last In, First Out). This can lead to wildly different profitability figures, even if their operations are nearly identical. On top of that, private financial statements often include quirks like non-market-rate owner compensation, related-party transactions, or one-off expenses - all of which need adjustments before you can make accurate comparisons.

Difficulties with Private Comparables

Finding reliable data on private transactions can feel like searching for a needle in a haystack. While there are over 100,000 private business deals listed online at any moment, the information is scattered across countless brokers and websites. And even when you do find listings, the data is often messy - unstructured, full of jargon, or incomplete. Duplicate entries and shifting metrics only add to the confusion.

Accounting practices in private companies further complicate things. Unlike public companies, which follow strict reporting standards, private firms often use inconsistent methods for inventory valuation, asset reporting, and revaluation. They also tend to skip the detailed disclosures you’d find in public filings. Add in regional differences in regulations, and analysts are often left piecing together incomplete data, relying on educated guesses and normalization adjustments that introduce even more uncertainty.

Platforms like Kumo aim to simplify this process. By aggregating data from thousands of brokers and hundreds of websites, Kumo brings over 815,000 private business listings into one place. It tracks more than 101,000 active deals, representing over $538 billion in annual revenue. Using AI, the platform cleans up messy data, removes duplicates, and condenses vague descriptions into clear summaries. While challenges remain, tools like these make private comparables more accessible.

When Private Comparables Work Best

Private comparables shine in situations where public data falls short. For instance, in niche or specialized markets, where few or no public companies operate with similar business models, private transaction data can be the only reliable benchmark. Take a specialized manufacturing company with a narrow customer base - there might not be a public equivalent, making private comparables essential.

They’re also incredibly useful for early-stage companies and startups. Unlike public companies, which are generally well-established, startups are still finding their footing - building a customer base and refining their business model. Private transaction data reflects valuations of companies at similar stages, offering more realistic comparisons.

Size matters too. Comparing a private company with $50 million in revenue to a public giant pulling in $5 billion doesn’t make much sense. Private comparables provide benchmarks from transactions involving businesses of similar scale, offering a more accurate perspective.

In emerging markets, where public data might be sparse or unreliable, private transaction data becomes critical for setting fair valuation ranges. Mid-market transactions also benefit greatly from private comparables, as the operational and financial characteristics of these companies often align more closely with other private firms. Many private equity firms and institutional investors maintain detailed records of transaction multiples and portfolio valuations, offering valuable insights into this space.

Kumo's platform is built to support these scenarios, offering custom search filters for metrics like asking price, EBITDA, industry, business type, and geography. Its AI tools make it easier to access and analyze private comparable data, streamlining the process.

Whether you’re dealing with niche markets, early-stage businesses, or companies that don’t match the scale of public firms, private comparables offer the most relevant benchmarks for valuation.

Main Differences Between Public and Private Comparables

Public and private comparables offer two distinct methods for valuation, each with its own set of advantages and challenges.

One major difference lies in data availability. Public companies are required to comply with strict SEC regulations, which means they regularly provide detailed and transparent financial reports, such as quarterly and annual filings. This makes information about them easily accessible. On the other hand, private companies only disclose financial data when absolutely necessary, such as during a transaction. Their data is often harder to obtain and usually requires access to specialized databases or direct negotiations.

Liquidity is another critical factor. Shares of public companies are actively traded on stock exchanges, allowing investors to buy and sell with ease during market hours. In contrast, private company shares are typically held by a limited group of owners, with minimal trading opportunities. This lack of liquidity often results in a discount of 20% to 30% when valuing private companies. That said, there are instances where private companies achieve higher valuations in private markets, so applying a blanket discount isn’t always appropriate.

Company size also influences these valuation approaches. Public companies tend to be larger and more established, while private companies are usually smaller and cater to niche markets. These differences impact everything from operational costs to customer acquisition strategies, requiring careful adjustments when using public comparables to value private entities.

When it comes to valuation metrics, public comparables typically rely on market-driven multiples like price-to-earnings (P/E), enterprise value-to-revenue (EV/Revenue), and enterprise value-to-EBITDA (EV/EBITDA). Private comparables, however, often focus on cash flow analysis, EBITDA multiples, and precedent transactions, as their shares aren’t publicly traded.

Another key distinction is in regulatory and accounting standards. Public companies must adhere to rigorous SEC requirements and follow consistent accounting practices, such as U.S. GAAP. In contrast, private companies operate under fewer regulations, and their accounting standards can vary widely, sometimes following U.S. GAAP, IFRS, or other frameworks. This variability calls for adjustments when transitioning from public to private valuations.

Adjustments are generally more extensive when valuing private companies. Using public comparables to assess a private company often requires factoring in differences in liquidity, size, and control. It may also involve normalizing financial data to exclude one-time expenses or owner-specific costs.

Comparison Table: Public vs. Private Comparables

Factor	Public Comparables	Private Comparables
Financial Transparency	High – Regular SEC-regulated filings	Low – Limited, voluntary disclosures
Liquidity	High – Actively traded shares	Low – Restricted ownership, limited trading
Data Availability	Abundant, real-time public filings	Limited, requires specialized sources
Valuation Metrics	Market-driven multiples (e.g., P/E, EV/Revenue)	Cash flow analysis, EBITDA multiples, transactions
Market Influence	Reflects market sentiment	Focused on internal performance
Regulatory Requirements	Strict SEC compliance and audits	Minimal, inconsistent reporting
Accounting Standards	Consistent (e.g., U.S. GAAP)	Varies (e.g., U.S. GAAP, IFRS)
Company Size	Larger, established companies	Smaller, often niche-focused businesses
Required Adjustments	Minimal adjustments	Significant adjustments for liquidity, size, etc.
Comparable Availability	Many options across industries	Fewer comparable companies

These differences highlight the importance of tailoring the valuation approach to the specific characteristics of the company being assessed. Public comparables work well for companies that resemble publicly traded firms in size and industry, offering transparency and ease of access. However, for smaller companies operating in niche markets - or when actual transaction data is crucial - private comparables become indispensable, despite the additional complexities involved.

When to Use Public Comparables

Public comparables work best for valuing companies in well-established industries with numerous publicly traded peers. This method relies on transparent market data and standardized financial reporting to provide reliable benchmarks for valuation.

The approach shines in mature, stable industries where many public companies actively trade on major exchanges. Examples include software, consumer staples, financial services, healthcare, telecommunications, and industrial manufacturing. These sectors typically have a broad range of public companies, standardized business models, and established trading multiples, making comparisons straightforward.

Take the software-as-a-service (SaaS) industry, for instance. With numerous public companies trading on major exchanges, analysts have access to clear EV/Revenue and EV/EBITDA multiples that can be applied to private SaaS companies. The abundance of transaction data provides strong indicators of market sentiment and valuation trends. This method works particularly well when market conditions are stable and benchmarks are consistent.

That said, public comparables are less effective in niche industries, emerging markets, or for companies with highly specialized business models. In these cases, the lack of comparable public companies makes the method difficult to apply.

Guideline Public Company Method (GPCM)

The Guideline Public Company Method (GPCM) provides a structured way to use public comparables effectively.

This method involves identifying publicly traded companies with similar industry characteristics, size, and business models to estimate the value of a target company. Analysts calculate valuation multiples - like EV/Revenue or EV/EBITDA - from these public peers and apply them to the target company's financial metrics.

GPCM is especially useful when the target company closely resembles its public peers in terms of market position, business model, and operational characteristics. The method leverages the abundance of transparent market data available for public companies. Real-time trading activity offers valuable insights into market valuations.

Here’s how it works: If three publicly traded software companies in the same market segment trade at an average of 8x EBITDA, this multiple can be applied to a private software company with similar characteristics to estimate its value. The method is most effective when there are multiple comparable public companies, as this reduces reliance on any single data point and strengthens the valuation analysis.

Late-stage venture capital firms often use GPCM to model returns and validate Series C/D pricing, especially as companies near an IPO. These firms aim for significant returns - often 10x to 100x - and analyze public comparables to predict exit scenarios for their portfolio companies. For example, if a private software company is valued at 15x revenue during a Series D round, VCs will compare this multiple to public software companies to ensure the investment aligns with market expectations.

Careful selection of comparables is crucial. Analysts typically choose 3 to 5 public companies with similar industry classifications, business models, geographic focus, and revenue scales. It's important to avoid comparing companies with vastly different operational scales. For instance, a private company with $50 million in revenue should not be directly compared to a public company generating $5 billion annually, as their market dynamics and challenges differ significantly. These considerations ensure that adjustments for differences between public and private valuations are precise and meaningful.

Public Comps in Established Markets

In mature industries, public comparables often serve as the primary valuation benchmark due to the reliability of trading multiples developed through consistent market activity. These markets benefit from historical data, expert analyst coverage, and active institutional trading, which collectively establish dependable valuation metrics.

Key trading multiples - like P/E ratios, EV/EBITDA, and EV/Revenue - are particularly useful because they reflect the market's consensus on what similar businesses are worth. For example, if mid-market software companies trade at an average EV/EBITDA multiple of 12x, this figure is supported by thousands of transactions and represents the market's collective view on growth, profitability, and risk factors.

These established multiples help reduce valuation uncertainty and provide a solid foundation for M&A negotiations. When negotiating, having market-validated multiples strengthens your position and supports due diligence efforts.

Public companies, regulated by the SEC, are required to provide standardized, audited financial data. This includes detailed quarterly and annual reports (10-Q and 10-K filings) that offer comprehensive financial statements, management discussions, and risk disclosures. Such transparency ensures that financial data is reliable and comparable across companies, a level of detail often unavailable with private firms.

Real-time trading data also plays a critical role by offering up-to-date benchmarks for valuation.

Even in established markets, adjustments are necessary when applying public comparables to private companies. Differences in size, liquidity, and control factors should be carefully considered. Instead of applying blanket discounts, focus on specific adjustments that account for these variations. Choosing the right valuation approach based on market conditions is key to achieving accurate results.

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When to Use Private Comparables

Private comparables become particularly useful when public data doesn't adequately reflect a company's unique traits. This method works best for specialized markets, distinct business models, or companies that don't fit neatly into public benchmarks.

One major advantage of private comparables is their reliance on actual transaction prices for similar private businesses. Unlike public companies, where valuations can be swayed by market trends and investor sentiment, private comparables focus on internal fundamentals and real transaction values. This makes them especially helpful for businesses whose size, growth stage, or structure doesn't align with the available public data.

Private transactions also naturally account for factors like illiquidity and control premiums. When private companies are bought or sold, the prices already reflect the lack of marketability and the control changes involved in the deal.

Valuation in Niche or Emerging Markets

Private comparables shine in markets where public data falls short. For fragmented industries - such as specialized manufacturing, boutique professional services, regional healthcare providers, or emerging tech sectors - public company data often fails to provide a reliable benchmark.

Take local real estate firms, small retail businesses, or niche consulting companies as examples. These operations often work on a completely different scale compared to their larger, publicly traded counterparts. Using public comps in these cases can lead to misleading conclusions, as the challenges faced by a $20 million business differ significantly from those of a billion-dollar corporation.

Geographic factors also matter. A private company operating in a specific region may have unique cost structures, competitive pressures, and regulatory requirements that differ from those of a national or global public company. For instance, a regional healthcare provider or a local financial services firm operates in a very different environment compared to a large, publicly traded competitor. Private comparables from similar regional markets are better equipped to capture these localized nuances.

In emerging markets or developing economies, where public companies are scarce, private comparables from local transactions offer more relevant valuation benchmarks. This is particularly true for international valuations, where differences in accounting standards, regulations, and market structures make public data less applicable.

Accessing reliable private comparable data has historically been difficult due to limited disclosure requirements. However, platforms that aggregate private business listings are changing this. For example, Kumo centralizes data from over 100,000 active deals, representing more than $538 billion in annual revenue. By leveraging AI to analyze over 100 million data points, the platform helps identify comparable private businesses - even in niche sectors.

Private Comps for Early-Stage Companies

For early-stage companies, private comparables offer a more practical solution to valuation challenges than public comps. These businesses often have short operating histories, limited financial data, and unconventional funding structures - like venture capital rounds - that don't align with public company metrics.

Private comps from recent funding rounds or acquisitions provide benchmarks that reflect actual market valuations for early-stage businesses. Public companies, on the other hand, are typically mature, with stable revenues and predictable cash flows - characteristics that early-stage companies lack. Relying on public comps for early-stage valuations often requires too many adjustments, making private comparables a simpler and more reliable choice.

Private equity firms frequently turn to private transaction data for valuing mid-market companies. Public comps can mislead due to the wide operational differences between smaller private businesses and large public corporations. While late-stage venture capital investors might use public comps to model potential IPO outcomes, early and mid-stage investors typically prioritize private comparables from recent deals and funding rounds.

Businesses with unique financing structures or operational models also benefit from private comparables. This includes companies with significant owner compensation adjustments, related-party transactions, or non-recurring revenue streams. Family-owned businesses, partnerships, and firms with complex ownership structures often fall into this category - features common in private transactions but rarely seen in public ones.

Additionally, companies with non-standard revenue models - such as project-based income, early-stage subscription businesses, or those with fluctuating capital expenditures - are better suited for private comparables. Public companies, with their standardized financial presentations and predictable operations, can't account for these nuances as effectively.

The quality and availability of data remain challenges. Private companies don't have to disclose financial information publicly, and their statements often lack the detail needed for precise comparisons. To address this, analysts usually normalize financial data by adjusting owner compensation, removing non-recurring items, and evaluating related-party transactions at fair market rates. Combining private comparables with other methods, like Discounted Cash Flow (DCF) analysis, can provide a more comprehensive view and help validate results.

Adjusting Public Comparables for Private Company Valuation

When valuing private companies using public comparables, it's essential to adjust for differences in liquidity, size, and control. Public company share prices reflect highly liquid securities that trade on established exchanges, while private company shares often face restrictions on selling and limited market access. To bridge this gap, analysts combine market data with specific adjustments, ensuring a more accurate valuation.

Let’s break down the key adjustments required.

DLOM and Size Premiums

These adjustments address the challenges of comparing public market data to private company realities.

The Discount for Lack of Marketability (DLOM) reflects the reduced liquidity of private shares. Unlike public shares, which can be sold quickly on open markets, private shares are harder to trade, requiring a discount to account for this limitation. DLOM typically ranges from 20% to 30%, but the specifics depend on the company's stage and circumstances. For instance, mature private companies with steady cash flows and clear exit strategies might warrant a lower DLOM of 15-20%, while early-stage companies with uncertain futures may require higher discounts of 30-40% or more. Factors like industry stability and company size also influence DLOM, with larger, more established private companies often justifying smaller discounts.

Size premiums address the operational and market advantages that larger public companies enjoy - such as greater market reach, established infrastructure, and economies of scale - that smaller private companies may lack. For example, directly applying a public company’s revenue multiple (e.g., 12x revenue) to a private company generating significantly less revenue could result in an overvaluation. Adjusting for size might lower the multiple to 8-10x revenue for a smaller private company. The exact adjustment depends on metrics like revenue, assets, or employee count, as well as the operational differences between the companies.

Control Premiums and Minority Discounts

Ownership structure also plays a critical role in valuation adjustments. Public company share prices typically reflect minority, non-controlling interests. However, private company transactions often involve acquiring a controlling stake, which provides decision-making authority over operations, strategy, and resource allocation. To account for this added value, analysts apply a control premium, typically ranging from 20% to 40%. On the other hand, when valuing a non-controlling interest in a private company, a minority discount is applied to reflect the limited influence of a small stake. These adjustments depend on factors like potential synergies, growth opportunities, management quality, and industry trends.

Before applying these adjustments, it’s crucial to normalize the private company’s financials. This involves aligning owner compensation with market standards, excluding nonrecurring items like one-time restructuring costs or unusual losses, and adjusting related-party transactions to reflect sustainable operations. Analysts must also account for differences in accounting standards, such as U.S. GAAP versus IFRS, especially in areas like inventory valuation and asset presentation, to ensure fair comparisons with public companies.

Given the challenges of limited data and market volatility, professional judgment and reliable market information are essential for achieving accurate valuations.

How to Select and Validate Comparables

Choosing the right comparables is crucial for an accurate valuation. Picking the wrong ones can lead to skewed multiples and flawed conclusions. The goal is to match companies across key dimensions while ensuring the financial data is both reliable and consistent.

Selection Criteria for Comparables

When identifying comparable companies, focus on several important factors:

• Industry Classification: Ensure the companies operate in the same industry and serve similar customer segments. For instance, comparing a cybersecurity company to a CRM provider would not yield meaningful insights.
• Revenue Size: Stick to companies of similar scale. Comparing a private company with $50 million in revenue to a public company generating $5 billion annually introduces significant disparities in market presence and operational challenges. If you're working with a mid-sized private company, look for public firms on the smaller end of the spectrum or adjust for the size difference.
• Growth Rate: Companies with higher growth rates often command higher valuations. To avoid distorted multiples, match companies with similar growth trajectories.
• Business Model Alignment: Align companies with similar revenue models. For example, a subscription-based software company has different revenue predictability and customer acquisition costs compared to a company selling one-time licenses. Similarly, comparing asset-light service businesses to capital-intensive manufacturers requires careful adjustments.
• Geographic Focus: Regional factors, such as market dynamics and regulations, can heavily influence valuations. Prioritize companies operating in similar geographic areas.

In niche or emerging markets where data is scarce, you may need to broaden your criteria. Expanding the geographic scope or finding companies with similar customer bases or business models can help. In such cases, complement your analysis with other valuation techniques, like Discounted Cash Flow (DCF), to strengthen your conclusions.

For private comparables, tools like Kumo can simplify the process. Kumo aggregates business listings from various sources and allows you to filter by key financial metrics (e.g., EBITDA, asking price), industry, and geography, making it easier to identify relevant matches.

Once you've narrowed down your list, the next step is to validate the financial data of the selected comparables.

Validating Financial Data

The reliability of financial data varies significantly between public and private companies, requiring different approaches to validation.

• Public Companies: Public firms are required to follow strict SEC regulations, providing detailed and audited financial disclosures in quarterly and annual filings. This makes it easier to validate financial data using income statements, balance sheets, and cash flow statements.
• Private Companies: Private firms, on the other hand, are not bound by the same disclosure standards. Their financial statements may lack detail, requiring additional due diligence. This includes verifying data sources, checking for consistency, and ensuring the information is accurate.

To normalize financial data, adjust for factors like owner compensation (bringing it in line with market standards), remove nonrecurring items, and standardize related-party transactions. Review capital expenditures to determine whether they represent one-off events or ongoing maintenance, and normalize these to reflect sustainable cash flows.

When working with international comparables, account for differences in accounting standards (e.g., U.S. GAAP vs. IFRS) by aligning financial statements to a common framework. This ensures valuation multiples remain comparable across the board.

For data validation, rely on SEC filings, investor presentations, and earnings call transcripts for public companies. For private firms, request audited or reviewed financials whenever possible. Supplement these with management interviews or expert consultations to fill in any gaps.

Finally, stress-test your comparables by calculating valuation multiples and comparing them to industry benchmarks. If one company's revenue multiple stands out - for example, 15x when most fall between 8x and 10x - dig deeper. This could signal a poor match, inaccurate data, or a unique situation that warrants exclusion.

Ultimately, selecting and validating comparables with care is the foundation of a reliable valuation process.

Conclusion

Choosing between public and private comparables ultimately depends on the specific context of your valuation. Public comparables are ideal when you're working with companies in established markets that have plenty of publicly traded peers and consistent financial data. On the other hand, private comparables are more relevant for niche markets, early-stage ventures, or businesses with unique models that don't align well with public peers.

In most cases, a balanced approach works best. Start by using public comparables to establish a market-based valuation range, then adjust for factors like illiquidity (often a 20% to 30% DLOM), size, and control. Cross-check these results with private comparables from recent transactions to ensure your adjusted valuation aligns with actual private market activity. If you notice significant discrepancies, it’s a signal to dig deeper into market-specific factors. This integrated strategy combines market data with transaction insights, leading to a more thorough valuation.

Don't stop at comparables. Complement your analysis with a Discounted Cash Flow (DCF) model. While comparables show what the market is paying for similar companies, DCF offers a deeper look at intrinsic value based on future cash flows and risk. Together, public comps, private comps, and DCF provide a stronger, well-rounded valuation - especially valuable for funding rounds or acquisitions.

Even the best comparable analysis requires careful adjustments. Factors like geographic location, growth rates, and business model alignment are critical to determining whether a comparable is genuinely relevant. If data is scarce, expand your search to include regional transactions or companies with similar customer bases. In such cases, relying more heavily on DCF can help fill in the gaps. Tools like Kumo can also simplify private comparables analysis by aggregating business listings and offering filters for financial metrics, industry, and geography.

Valuation is both an art and a science, blending quantitative analysis with market realities and deal-specific factors. Whether you're preparing for fundraising, assessing an acquisition target, or planning an exit, combining well-chosen comparables with additional valuation methods provides the clearest and most defensible estimate of a company's worth.

FAQs

When should you use public vs. private company comparables for business valuation?

Choosing between public and private company comparables largely depends on the nature of the business you're valuing and the availability of dependable data.

Public comparables work best for businesses in well-established industries with publicly traded competitors. They offer transparent financial information and valuation multiples influenced by market activity, making them a reliable choice for such scenarios. However, private comparables are often a better fit for smaller, privately owned companies. Public data may not capture the unique aspects of these businesses or their specific markets, making private data more relevant.

When deciding, consider factors like the business's size, industry, growth stage, and how much comparable data is accessible. For instance, public comparables might not represent the valuation of a niche private business accurately. Tools like Kumo simplify this process by aggregating business listings and providing relevant data for both public and private comparables, allowing you to make well-informed decisions with ease.

How do factors like DLOM and size premiums affect private company valuations when using public comparables?

When assessing the value of private companies using public comparables, two key adjustments - Discount for Lack of Marketability (DLOM) and size premiums - play a critical role in refining the results.

The DLOM addresses the fact that private company shares are far less liquid than those of publicly traded firms. Selling private equity often involves more time and effort, which introduces additional risks. This discount reflects the challenges of converting private shares into cash.

Meanwhile, size premiums account for the higher risks smaller companies tend to face. These risks might include limited resources, reduced market presence, or greater vulnerability to economic fluctuations. Smaller firms typically require this adjustment to align their valuation with the realities of their scale.

By incorporating these adjustments, valuations more accurately capture the distinct hurdles and risks tied to private ownership, making comparisons to public companies more reliable.

When should you use private company comparables instead of public ones for valuation?

Private company comparables are often a better fit when valuing businesses that share similarities with private entities in size, industry, or how they operate. Unlike public companies, private firms typically follow different financial patterns, making their data a more reliable indicator of market conditions for comparable private businesses.

For instance, if you're assessing a small or medium-sized business, public company data might not capture critical aspects like revenue levels, profit margins, or growth potential. Private comps become particularly valuable in industries with few public companies or when dealing with a business in a specialized niche. Using private comps allows you to base your valuation on real-world transactions involving businesses that closely mirror the one you're analyzing.

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