Published on
October 26, 2025
Public vs. Private EBITDA Multiples: Key Differences
Explore the key differences in EBITDA multiples between public and private companies, and learn how growth-stage firms can enhance their valuations.
EBITDA multiples are a key metric for valuing companies, but public and private companies differ significantly in how these multiples are determined. Public companies generally have higher multiples due to liquidity, transparency, and broader market access. Private companies, on the other hand, face discounts driven by limited liquidity, higher perceived risks, and narrower investor pools.
Key Points:
- Public Company Multiples: Higher due to ease of trading, regulatory oversight, and lower risk.
- Private Company Multiples: Lower (on average 29% less) due to illiquidity and higher return expectations.
- Risk and Return: Private investors expect higher returns (around 20%) compared to public markets (around 6%).
- Influencing Factors: Company size, growth potential, industry trends, and debt levels all impact multiples.
Quick Comparison:
| Factor | Public Companies | Private Companies |
|---|---|---|
| Liquidity | High (actively traded) | Low (illiquid shares) |
| EBITDA Multiples | Higher (10x–25x+) | Lower (5x–15x) |
| Risk Perception | Lower (more transparent) | Higher (less oversight) |
| Return Expectations | ~6% | ~20% |
| Valuation Drivers | Market sentiment | Business performance |
For growth-stage companies, understanding these differences helps in setting realistic expectations and improving financial positioning for fundraising or exits. Focus on strengthening fundamentals, such as steady growth, scalable systems, and reduced risks, to narrow the valuation gap.
Main Differences Between Public and Private EBITDA Multiples
The difference between public and private company EBITDA multiples isn’t just a small detail - it’s a key distinction that reflects how these two markets function. For business owners, understanding these differences can lead to smarter decisions about timing, pricing, and strategy when planning an exit or making an investment.
Liquidity and Market Access
Public companies enjoy a huge advantage when it comes to liquidity. If you own shares in companies like Apple or Microsoft, you can sell them almost instantly during market hours. This ease of trading drives up demand, which naturally leads to higher EBITDA multiples. Investors are willing to pay a premium for assets they can trade quickly and easily.
Private companies don’t have the same luxury. Their shares aren’t easily tradable, which creates what’s known as an illiquidity discount. This discount lowers valuations, forcing private companies to accept lower multiples.
Market access also plays a big role. Public companies can attract a global mix of institutional investors, retail traders, and pension funds, giving them access to a massive pool of capital. On the other hand, private companies often have a much smaller audience - typically private equity firms, strategic buyers, or individual investors within a specific industry or region. This limited access further affects valuations, as private investors demand higher returns for taking on more risk.
Risk Factors and Return Requirements
Investors in private companies expect higher returns to offset the greater risks and lack of liquidity. For context, U.S. Treasury yields hover around 4%, but private deals often require returns closer to 20%. This sharp contrast highlights the risk premium investors associate with private companies.
Transparency is another factor. Public companies are required to file detailed quarterly reports, giving investors a clearer picture of their operations. Private companies, by comparison, offer less visibility, which makes it harder for investors to assess performance and predict future outcomes with confidence. Smaller size and limited operating history can also add to the perceived risk.
Interestingly, the regulatory oversight that public companies face - while sometimes burdensome - can be reassuring for investors. Strict reporting requirements and SEC filings make financial statements and disclosures more reliable, reducing perceived risk.
Market Conditions vs. Business Performance
Public and private company valuations are influenced by different forces. Public company multiples are heavily impacted by market sentiment and broader economic trends. For example, during the dot-com boom of the late 1990s, tech stocks traded at sky-high multiples, often disconnected from actual earnings. When the bubble burst in 2000-2001, those multiples collapsed almost overnight - even for companies with solid fundamentals.
Private company valuations, on the other hand, tend to be more stable and tied closely to business performance. A private software company with steady growth and strong cash flow isn’t likely to see its valuation drop dramatically just because of a stock market downturn. Private equity buyers focus on long-term value creation, rather than reacting to short-term market swings.
This creates interesting opportunities. When public market multiples soar, the gap between public and private valuations widens, making private companies attractive acquisition targets. Conversely, when public markets decline but private companies maintain strong performance, the valuation gap can narrow.
| Factor | Public Companies | Private Companies |
|---|---|---|
| Liquidity | High (actively traded shares) | Low (illiquid, hard to sell) |
| EBITDA Multiples | Higher | Lower (avg. 29% less) |
| Valuation Basis | Real-time market pricing | Estimated, often conservative |
| Market Sensitivity | High (responds to trends) | Lower (tied to performance) |
| Return Requirements | Lower | Higher (risk premium) |
These differences highlight how public and private markets operate on fundamentally different principles.
For growth-stage companies, the gap between public and private valuations can be both a challenge and an opportunity. While private companies often receive lower multiples, they have more control over how they position themselves. Partnering with advisors like Phoenix Strategy Group can help refine financial reporting, improve operations, and develop strategies to better align private market valuations with public market expectations.
What Affects EBITDA Multiples
Several factors influence the valuation differences between public and private EBITDA multiples. By understanding these elements, business owners can better align their strategies and set realistic expectations. Let’s take a closer look at how company size, growth potential, and capital structure play a role in determining these multiples.
Company Size and Perceived Risk
When it comes to EBITDA multiples, size isn’t just a number - it’s a signal of risk. Smaller companies are often seen as riskier investments compared to larger ones, especially in private markets where transparency and scale are more limited.
For instance, private companies with EBITDA in the range of $2–3 million typically see multiples of 4–6x. In contrast, larger public companies often command multiples between 8–12x. Why the gap? Smaller companies tend to have concentrated customer bases, less sophisticated financial systems, and fewer resources to invest in technology, talent, or market expansion. These factors amplify perceived risk and weigh down valuation.
On the other hand, public companies benefit from regulatory oversight, standardized reporting, and a broader pool of investors. These elements reduce perceived risk and help justify higher multiples.
Growth Rate and Industry Dynamics
A company’s growth prospects can have a huge impact on its EBITDA multiple, especially in industries where scalability and future earnings potential dominate valuations. Take the technology sector, for example. Over the past decade, EBITDA multiples for IT companies - both public and private - have skyrocketed. Back in 2010, EV/EBITDA multiples in tech hovered below 10x. By 2024, they surged past 25x, driven by strong growth expectations and investor enthusiasm for innovation.
Different industries, however, see different ranges. High-growth sectors like technology and healthcare often achieve multiples of 20–25x due to recurring revenue models and scalability. In contrast, capital-intensive industries such as manufacturing typically fall in the 6–8x range. For growth-stage businesses, focusing on scalability, margin improvement, and market leadership can help secure higher valuations.
But growth isn’t the only driver - capital structure also plays a critical role in shaping EBITDA multiples.
Debt Levels and Tax Considerations
A company’s capital structure significantly influences its valuation. Firms with high levels of debt generally receive lower EBITDA multiples due to increased financial risk. Conversely, companies with conservative debt profiles and ample cash reserves are seen as more stable, earning higher multiples.
Private companies often rely on less predictable financing options, such as bank loans or private credit, which can further discount their valuations. Meanwhile, public companies, with easier access to capital markets, tend to maintain more liquid balance sheets, reducing operational risk and boosting multiples.
Cash reserves also matter. A strong cash position not only lowers risk but also provides strategic flexibility, making a company more attractive to investors. Tax structures add another layer of complexity. While EBITDA itself isn’t affected by tax rates, a company’s overall appeal can be. Public companies often benefit from lower effective tax rates through international operations and advanced tax strategies. In contrast, private companies may face higher local tax burdens, which can make them less appealing to potential buyers.
How Growth-Stage Companies Can Use This Information
EBITDA multiples are more than just numbers - they’re practical tools for navigating fundraising, acquisitions, and exits. They help fine-tune valuations and guide decisions about market timing. To make the most of these insights, start by benchmarking your company against truly comparable peers.
Comparing Your Company to Public and Private Peers
Benchmarking works best when you compare your company to businesses of similar size within your industry. Comparing a smaller, growth-stage company to a much larger public corporation can lead to skewed conclusions.
It’s also important to account for risk. Smaller companies often face higher return expectations and lower private-market multiples. Industry dynamics add another layer of complexity. For instance, high-growth sectors like technology and healthcare often command higher multiples due to their recurring revenue models and scalability. On the other hand, capital-intensive industries generally see more cautious valuations. Understanding where your industry fits on this spectrum is key to setting realistic goals for fundraising or exit strategies.
Resources like PitchBook or the Lincoln Private Market Index can provide valuable data on private company valuations. These platforms rely on actual transaction data, offering a more accurate comparison than public market figures alone. Pairing this data with advanced analytics can further refine your approach to valuation.
Using Data Analysis for Better Valuations
Data analysis and financial modeling transform general valuation concepts into actionable insights. By diving deeper into risk and liquidity factors, you can uncover what drives efficiency and justifies premium valuations.
For example, proprietary data analysis might reveal that your customer acquisition cost is 30% lower than the industry average or that your gross margins are improving faster than your competitors’. These types of insights are invaluable during negotiations for fundraising or acquisitions.
Financial modeling also allows for adjustments based on your company’s unique financials, such as debt levels and tax structures. A growth-stage company with minimal debt and strong cash flow might command a higher multiple than a peer with a leveraged balance sheet. Similarly, businesses with tax advantages or international operations can often secure better valuations.
Phoenix Strategy Group leverages cutting-edge technology and proprietary data to deliver precise valuations. By blending traditional financial analysis with modern data tools, they help businesses benchmark effectively and defend their valuations with confidence.
When used strategically, these insights can guide critical decisions - like the best timing for fundraising or spotting undervalued acquisition opportunities. By turning EBITDA multiples into actionable tools, companies can better navigate the complexities of financial planning and position themselves for long-term success.
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Public vs. Private EBITDA Multiples Comparison
When comparing EBITDA multiples between public and private companies, the differences become striking. These distinctions are essential for growth-stage companies aiming to set realistic valuation expectations and identify ways to strengthen their financial standing.
Here’s a quick breakdown to highlight the key differences:
| Factor | Public Companies | Private Companies |
|---|---|---|
| Liquidity | High (actively traded on exchanges) | Low (illiquid) |
| Risk Factors | Lower (diversified, transparent, with regulatory oversight) | Higher (often reliant on key individuals with less oversight) |
| Valuation Drivers | Market sentiment, macroeconomic trends, real-time trading data | Operational performance, historical financials, negotiated terms |
| Growth Considerations | Easier access to capital and a perception of higher scalability | Capital constraints and limited visibility |
| Typical EBITDA Multiple Range | Higher (10x–25x+) | Lower (5x–15x) |
| Required Return Expectations | Lower (approximately 6%) | Higher (approximately 20%) |
The valuation gap stems from two primary factors: liquidity premium and risk perception. Public companies benefit from the ability to trade shares instantly and operate under strict regulatory oversight, which builds investor confidence. On the other hand, private companies face challenges like longer exit timelines and higher perceived risks, making their multiples lower.
Take technology companies as an example: public IT firms often achieve higher multiples than their private counterparts, even if they experience similar growth rates. Why? Public markets react to real-time trading data, market sentiment, and macroeconomic trends, causing daily fluctuations in valuation. In contrast, private company valuations are grounded in long-term performance metrics and thorough due diligence, offering more stability but less immediate market-driven growth.
For growth-stage companies, this comparison offers a roadmap. By improving transparency, reducing reliance on key individuals, and consistently delivering strong operational performance, private firms can work toward narrowing the valuation gap. In fact, the gap has started to shrink in high-growth sectors where competition for quality assets is heating up. Well-positioned private companies with solid fundamentals are increasingly achieving valuations closer to those of public firms.
Navigating these complexities can be challenging, but expert guidance can make a difference. Firms like Phoenix Strategy Group (https://phoenixstrategy.group) specialize in helping growth-stage companies refine their strategies and maximize value. Understanding these dynamics is crucial for companies looking to position themselves competitively in the market.
Key Takeaways for Business Owners
Private companies often face a valuation discount of about 29% compared to their public counterparts. This gap can significantly influence how you approach raising capital and planning for an eventual exit. Understanding these differences is crucial for making strategic moves that can boost your company’s valuation.
Let’s break it down: if public companies in your industry are trading at 10x EBITDA, your private business might realistically be valued closer to 7x EBITDA. Why? It comes down to risk and liquidity. Private investors generally expect higher returns - around 20% - compared to the 6% typically seen in public markets. This reflects the additional risks they take on, including the lack of liquidity. To navigate this, your financial strategy needs to align with these elevated return expectations, whether you’re structuring deals or planning growth investments.
Here’s another key point: operational performance plays a huge role in driving private equity returns - 70% since 2014, to be exact. That means your focus should be on strengthening your fundamentals, like consistent revenue growth, streamlined operations, and scalable systems. Instead of relying on market-driven valuation increases, building a solid foundation is what creates long-term value that investors are willing to pay a premium for.
For growth-stage companies, benchmarking against both public and private peers is essential. Adjust for factors like company size, growth rate, and industry trends. Take the technology sector as an example: public IT companies have seen their valuation multiples climb from less than 10x in 2010 to over 25x in 2024. Private companies in the same space have followed similar trends, though always at a discount.
To help bridge the gap in valuation knowledge, Phoenix Strategy Group (https://phoenixstrategy.group) offers fractional CFO services, FP&A systems, and M&A advisory support. Their integrated approach helps businesses optimize financial operations and build the kind of operational excellence that attracts higher valuations. By benchmarking your company against industry peers - both public and private - you can refine your strategy and position your business more effectively.
Ultimately, while private companies may face valuation discounts, focusing on strong financial fundamentals and leveraging expert guidance can help close that gap. This positions your business to achieve its maximum potential value, whether you’re scaling up or preparing for an exit.
FAQs
Why do public companies usually have higher EBITDA multiples than private companies?
Public companies often command higher EBITDA multiples than private companies, and it largely comes down to transparency, liquidity, and perceived risk. Public companies are required to share detailed financial information, giving investors a clearer picture of their performance and growth prospects. Plus, the shares of public companies are traded on stock exchanges, making them easy to buy or sell - a level of liquidity that investors value highly.
Private companies, on the other hand, are typically seen as riskier investments. They disclose far less financial information, and their shares aren’t as easily traded, which can drag down their valuation multiples. For private businesses aiming to boost their valuation, understanding these distinctions is key. Phoenix Strategy Group offers financial and strategic advisory services tailored to help growth-stage companies tackle these challenges effectively.
What are the key differences between public and private EBITDA multiples, and how can growth-stage companies use them to enhance their valuation?
Public and private EBITDA multiples vary mainly due to differences in market liquidity, investor sentiment, and risk appetite. Public companies generally enjoy higher multiples because they offer greater transparency, easier access to capital, and attract a wider range of investors. In contrast, private companies often face challenges like higher perceived risks and limited marketability, which can push their multiples lower.
For growth-stage companies, understanding these dynamics can be a game-changer. By enhancing financial transparency, showing steady revenue growth, and addressing potential risks, they can improve their valuation. Steps like producing detailed financial reports, implementing strong FP&A processes, and highlighting scalability can make a company more appealing - whether they’re courting private investors or aiming for a public market debut.
What strategies can private companies use to reduce the valuation gap with public companies?
Private companies looking to close the valuation gap with their public counterparts have several strategies at their disposal. First, they can enhance financial transparency by adopting solid reporting practices and adhering to Generally Accepted Accounting Principles (GAAP). This not only builds investor confidence but also ensures valuations are grounded in reliable and consistent data.
Another critical step is focusing on scaling operations while demonstrating steady revenue growth. Investors tend to place a higher value on companies that showcase their ability to expand market share and sustain profitability over time. Strengthening corporate governance and assembling a capable, experienced management team can also signal stability and long-term potential to potential buyers or investors.
Additionally, partnering with financial advisors - such as Phoenix Strategy Group - can help private companies fine-tune their financial strategies, streamline operations, and position themselves more favorably for achieving higher market valuations.
