How does valuing a private company differ from valuing a public one?

Use the same methods but adjust the inputs: normalize owner pay and one-time items, relever peer betas for the discount rate, apply a marketability discount only to minority stakes, and look for hidden debt-like items in the bridge.

The numbers, step by step

The two adjustments from the answer. The figures are made up to show the method.

Owner pay add-back$1,000,000 − $300,000

$700,000

Relevered beta1.0 × (1 + 0.5 × (1 − 25%))

1.38

What the interviewer listens for

• Do you say the core methods still apply?
• Do you normalize owner pay and one-time items?
• Do you borrow and relever peer betas?
• Do you keep the marketability discount to minority stakes?
• Do you look for hidden debt-like items?

Common mistakes

• Applying a marketability discount to the sale of a whole company.It fits minority, illiquid stakes.
• Taking reported EBITDA at face value without normalizing owner pay and one-time costs.
• Saying a DCF can't be done without a share price.Peer betas, unlevered and relevered, solve that.
• Missing debt-like items in the bridge, like owner loans or earnouts.

Likely follow-ups

• How do you relever a beta?Multiply the unlevered beta by one plus debt to equity times one minus the tax rate. At 1.0, 50% and 25%, that's 1.375.
• Is a private company worth a lower multiple than its public peers?In a minority valuation, often yes, because of illiquidity and higher risk. In a full sale, a well-run private company can get a full control multiple.
• What does a quality of earnings review check?Whether reported EBITDA is real and repeatable: revenue recognition, one-time items, owner costs, working capital and how cash tracks profit.

More finance technicals

• What is a control premium, and how big is it usually?
• How do you estimate a company's cost of debt?
• What is the mid-year convention in a DCF, and what does it do to the value?
• Terminal value makes up most of your enterprise value. Is that a problem?
• A company with no debt, worth $10 billion with 100 million shares at $100, borrows $1 billion at 6% to pay a special dividend. What happens to its WACC, enterprise value, equity value and share price?

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