How Would You Value a Private Company?

"I'd use the same three core methods I'd use for a public company — a DCF, comparable companies analysis, and precedent transactions — but I'd make a few adjustments for the fact that it's private." Leading with the framework and then flagging the adjustments shows you know the standard answer isn't enough. The adjustments are what separates a good answer from a recited one.

DCF: largely unchanged conceptually — project unlevered free cash flow, discount at WACC, add a terminal value. The twist is the discount rate. A private company has no traded stock, so you can't observe its beta. You derive beta from public comparable companies: take their levered betas, unlever each, take the median, then relever at the target's capital structure. The DCF is often the most relied-upon method precisely because it doesn't need a stock price.

Comparable companies: still works — you apply public-company EV/EBITDA or EV/Revenue multiples to the private company's metrics. But private companies are usually smaller, so trim for size, and you typically apply a discount to the implied value (see illiquidity discount below).

Precedent transactions: often the BEST method for a private company because past M&A deals include a control premium and reflect what a buyer actually paid — and private companies are usually valued in the context of a sale. No public-market-price assumption is needed at all.

1. No market cap / equity value: you can't read enterprise value off a screen — you build to it. 2. Beta: borrow it from public comps (unlever/relever). 3. Normalize the financials: private owners run personal expenses, above-market salaries, or one-time items through the P&L. You add these back to get a clean, normalized adjusted EBITDA. 4. Illiquidity (or 'private company' / DLOM) discount: because there's no liquid market to sell the shares, apply roughly a 10-30% discount to the value implied by public comps. 5. Smaller and riskier: private firms often warrant a higher discount rate (size premium) in the DCF.

"Why is a private company worth less than an otherwise-identical public one?" — Illiquidity. You can't easily sell the shares, so a buyer demands a discount. "Where does the discount rate come from if there's no beta?" — Unlever public comps' betas and relever at the target's structure; add a size premium. "Which method do you trust most?" — Precedent transactions, because real deals reflect what acquirers pay for control of similar private assets; DCF second because it's price-independent. "What if there are no good public comps?" — Lean harder on the DCF and on M&A precedents, and widen your comp universe by business model rather than exact industry.