THE MARKETABILITY DISCOUNT IN SPANISH VALUATION MULTIPLES: INVESTORS’ PERCEPTION IN LISTED COMPANIES VERSUS PRIVATE TRANSACTIONS

Ángel Rodríguez López,Gracia Rubio Martín

doi:10.3846/jbem.2019.8101

Ángel Rodríguez López, Gracia Rubio Martín

Open Access

https://doi.org/10.3846/jbem.2019.8101

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Abstract

The aim of this paper is to assess the fair marketability discount (MD) in the Spanish market for valuation multiples comparing public versus private transactions. The study finds that to obtain MD it is necessary previously to control by a battery of factors that affects ratios’ prices such as industry, firm size, profitability, risk, year and also other characteristics about the buyer. The interactions of MD with each variable showed different investors’ perceptions about non marketability enterprises explaining MD. The valuation methodology applied in the research was a cross section of 824 public and private acquisitions in the Spanish market from the period 2006−2017. This work represents important evidence, in a more integrated vision than previous literature, for analysts and regulators stressing the necessity to apply MD in Spanish valuation processes based in listed multiples.

Highlights

The use of market valuation multiples has become very important (Covrig & McConaughy, 2015; Dong, Jiao, & Sun, 2017; Ferraro, 2017; Serra & Fávero, 2017; Gupta, 2018)
This article presents a more integrated explanation about the illiquidity discount for comparable acquisitions approach methodology based on a recompilation of different theories from previous authors
The model applies a broader variety of control factors in ratios, especially the profitability and risk variables, as well as the traditional Industry, Size, Year and Country, alongside other personal motivations such as Control and the Type of Buyer

Summary

Introduction

The use of market valuation multiples has become very important (Covrig & McConaughy, 2015; Dong, Jiao, & Sun, 2017; Ferraro, 2017; Serra & Fávero, 2017; Gupta, 2018). A valuation multiple is a ratio, normally the market value of a firm’s assets divided by an economic magnitude of it. Academic literature has evaluated in listed companies the accuracy of the valuation multiples depending on the economic characteristics in the peer group selection. They concluded that a specific industry could not provide enough criteria, and other control factors like size, profitability and risk have to be added

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