Sixty to 70 percent of U.S. acquisitions—even more in Europe and Asia—are private, yet there has been little research on M&A activity involving private firms. Most appraisers agree that a minority interest in a privately held company typically sells for less than a minority interest in a similar publicly traded company (a difference known as the discount for lack of marketability or “illiquidity discount”), and ample evidence exists to support the illiquidity discount for minority transactions. At the same time, appraisers disagree on whether such a discount should be applied to controlling interests of private companies.
Limited research on the subject has not yet suitably explained why private companies would sell under these disadvantageous terms.
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