Why are private companies valued at 3-6 times earnings while public companies operating in the same sector valued as high as 10-15 times?
THE MOST COMMON REASONS FOR PRIVATE VERSES PUBLIC COMPANY VALUATIONS ARE :
1. Risk Profile. Public companies usually provide an assurance of continuing operations above that of smaller, privately held firms. Downturns in the economy or a change in the environment often have a greater impact on private firms than public firms in terms of performance and market positioning..
2. Operational Differences. It is often difficult to find a public company operating in the same niches as private firms. Public companies typically have operations spanning a broader range of products and services than do private companies. In addition, even if the products and services are the same, the revenue mix is often different.
3. Size and Infrastructure: Public companies typically have greater infrastructures comprised of broader management teams with more diversity and greater input into the decision making process. This size advantage allows public companies to have stronger brand equity and to operate at greater economies of scale.
4. Liquidity. With public companies, you can, if you choose, switch your investment to the stock of a different public company on a daily basis. The stock of privately held firms, however, is more difficult to sell quickly, making the value drop accordingly.
5. Capital Structure: Public companies often have better access to funding at more competitive rates compared to private companies.
What if you could attain the benefits and valuation of a public company while still retaining control of your business?
Our unique and innovative Equity Switch Fund model enables:
Does your business meet the basic criteria for the switch fund model
We generally require:
- Turnover: Minimum of £10 million per annum.
- EBITDA: Minimum of £1 million per annum.
- Growth: At least 5% per annum compound growth for the last 3 years.
- Management : Does the business have a solid and experienced management team.
If you would like more details on how the equity switch fund could help accelerate the growth and exit value of your business, kindly register your business for more information.