The discount is understated because it excludes bid premiums for quoted companies. The discount arises from size and the perception that a quoted company is "cleaner".
Average P/E ratio by size
Acquistion value £m
P/E
<1
7.7
1-3
8.6
3-5
8.6
5-25
9.1
25+
11.2
Companies under £1 million consideration typically 16% less than the average.
Companies sold for over £25 million, typically 35% over the average.
Other factors:
Rescue purchases are at low p/e ratios;
Strategic purchases are typically at higher p/e ratios;
The discount reflects "current" investor sentiment;
A two tier market has existed for many years with high quality high growth businesses attracting strong multiples.
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