Exploration of the Size Effect on Transaction Data of Non-publicly Traded EU Companies
Exploration of the Size Effect on Transaction Data of Non-publicly Traded EU Companies

Summary/Abstract: This paper examines the effect of company size on transaction multiples. The existence of thesize effect has been investigated by a number of authors who have primarily used data for publiclytraded companies for their research. Our research works with data from private transactionswith non-traded companies (shares) from the EU. The transaction price concluded in thesedeals is decomposed into the product of profit and transaction multiple as when using marketcomparison valuation methods. Transaction multiples are relative types of financial metricsthat typically compare various levels of profit such as EBITDA, EBIT or EAT to a value thatan investor is willing to pay to acquire a given company. The objective of this paper is to confirmthe hypothesis that larger companies are purchased for higher profit multiples than smallercompanies. Accordingly, in the context of DCF valuation methods, higher profit multiplescorrespond to a lower discount rate and vice versa. However, it should be noted that despitethe large amount of research conducted, the existence of the size effect is still not confirmedor refuted at present.

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