Private Company M&A

Although in some cases, a private company may use its stock as currency for an M&A transaction, an illiquidity discount applies. A valuation method that consists primarily of discounted cash flow and asset valuation is most likely to apply and the private firm will most often use cash to acquire a given target.

Cannot raise money from the public market and must resort to debt financing, venture capital, or other private forms of funding.

Private firms suffer an illiquidity discount that may revolve around 20-30%.

Sarbanes-Oxley compliance is only relevant to private companies that have plans to go public or to be acquired by a public firm.