CFA Level II Exam · Private Company Valuation

Guideline Public Company and Transaction Methods in Private Company Valuation

Updated 7 October 2026 · Fact-checked

The market approach values a private company using pricing multiples from similar businesses. The guideline public company method (GPCM) uses trading multiples of listed peers. The guideline transaction method (GTM) uses multiples from acquisitions of similar companies. The prior transaction method (PTM) uses past deals in the subject company's own shares. You pick a multiple, adjust it for comparability, and apply it to the subject's metric.

Understand Market Approach: Guideline Public and Transaction Methods

The market approach rests on one idea: similar assets should sell at similar prices. For a private company there is no quoted price, so you borrow prices from comparable businesses and scale them to the subject company using a multiple such as EV/EBITDA, EV/Sales or P/E.

There are three methods. The guideline public company method (GPCM) uses multiples from listed companies in the same or similar business. These are minority, marketable prices, because ordinary trades involve small stakes that can be sold quickly. The guideline transaction method (GTM) uses multiples from the acquisition of whole companies or controlling stakes. These prices usually include a control premium, because the buyer pays for the right to direct the business and capture synergies. The prior transaction method (PTM) uses actual sales of the subject company's own shares, such as a recent funding round or a buyout of a shareholder.

The key exam skill is knowing what level of value each method gives. GPCM gives a marketable minority value before any adjustment. GTM gives a controlling value, usually marketable. PTM gives a value that depends on the size of the stake sold and how the deal was done. If the question asks for a different level of value, you adjust with a discount or premium, for example a discount for lack of marketability (DLOM) or a discount for lack of control (DLOC).

Comparability adjustments matter as much as the multiple. Guideline companies differ from the subject in size, growth, risk, margins, leverage, and accounting policies. You may adjust the multiple, choose a narrower peer set, or adjust the subject's metric, for example by normalizing earnings for owner perks or one-off items. You also need a consistent multiple: enterprise-value multiples pair with enterprise-level metrics, and equity multiples pair with equity-level metrics.

Each method has limits. GPCM needs enough truly comparable listed firms. GTM data is often thin, may be old, and may reflect synergies unique to one buyer or market conditions at that date. PTM is only reliable if the deal was recent, arm's length, and at a meaningful size. Deal terms are often incomplete or undisclosed.

Key formulas to remember

Value from a multiple (enterprise level): Enterprise value = Selected EV multiple × Subject company metric; Use EV/EBITDA, EV/EBIT or EV/Sales. Subtract net debt afterwards to get equity value.
Value from a multiple (equity level): Equity value = Selected P/E × Subject net income; Match the numerator and denominator: equity price with equity earnings.
Equity value from enterprise value: Equity value = Enterprise value − Debt + Cash (and other non-operating assets); Apply after using an EV multiple. Use the subject's own net debt.
Discount for lack of marketability applied to a value: Value after DLOM = Value × (1 − DLOM); Needed when GPCM gives a marketable value but the stake is not marketable.
Control premium and implied DLOC: Control value = Marketable minority value × (1 + Control premium); DLOC = 1 − 1 ÷ (1 + Control premium); Apply the control premium to the marketable minority equity value, not to enterprise value. Use these to move between minority and controlling values.
Level-of-value rule: GPCM: marketable minority; GTM: control; PTM: depends on the deal; State the level of value before adjusting.

How to solve Market Approach: Guideline Public and Transaction Methods questions

Use this order for any market-approach item set. It keeps you from mixing levels of value or multiple types.

1Identify the method named or implied: listed peers (GPCM), acquisition deals (GTM), or past sales of the subject's own shares (PTM).
2Note the level of value the vignette wants: control or minority, marketable or non-marketable.
3Find the multiple in the exhibit and check the matching metric: EV multiples go with EBITDA, EBIT or sales; P/E goes with net income.
4Check comparability and normalize the subject's metric if the vignette mentions one-offs, owner expenses or different accounting.
5Compute value = multiple × metric. If it is an EV multiple, subtract debt and add cash to reach equity value.
6Compare the level of value from the method with the level asked for. Apply a DLOM, DLOC or control premium only if they differ.
7Sense-check against the other methods: GTM should usually exceed GPCM for the same business, unless the deals are old or weak.

Quickest way: Level-of-value shortcut

When to use it: Use when a question asks which method or adjustment is appropriate, or why two values differ.

GPCM = minority, marketable. GTM = control. PTM = depends on stake and deal terms.
If the target is a minority stake in a non-listed firm, take GPCM then apply a DLOM.
If the target is control, GTM already includes control. A GPCM value needs a control premium applied to its marketable minority equity value: Control value = Minority value × (1 + control premium).
If GTM value is higher than GPCM, a control premium or synergies may explain it, but deal timing and comparability can also contribute.
Check the multiple matches the metric before you compute anything.

Common mistakes in Market Approach: Guideline Public and Transaction Methods

Treating GPCM values as controlling values.
Listed share prices feel like full company values.
Fix: Remember that trading prices reflect small, marketable minority stakes. Add a control premium if control is wanted.
Applying DLOM to a GTM value as if it were already non-marketable.
Students apply every discount they can recall.
Fix: Ask first what level of value the method gives. Only adjust for the difference between that level and the target level.
Using an EV multiple and reporting the result as equity value.
The calculation ends at multiple × metric.
Fix: Subtract debt and add cash after using an EV multiple, using the subject's own balance sheet.
Pairing P/E with EBITDA or EV/EBITDA with net income.
Exhibits list many metrics close together.
Fix: Write the pair before computing: price with earnings, enterprise value with operating metrics.
Using a prior transaction in the subject company without checking it was arm's length and recent.
A real price seems more reliable than any estimate.
Fix: Check the date, size of the stake, whether parties were related, and whether terms were distressed.
Ignoring differences in growth, size and risk between guideline companies and the subject.
The peer average looks neat.
Fix: Narrow the peer set or adjust the multiple for the differences, and normalize the subject's earnings.

Worked examples

Example 1

Vignette: Kiran Foods is a private packaged-food company with EBITDA of €18 million, debt of €30 million and cash of €6 million. An analyst uses four listed guideline companies with a median EV/EBITDA of 9.0×. The analyst wants a value for a minority stake that cannot be readily sold. The analyst judges a DLOM of 20% appropriate. Q1: What method and level of value does the multiple give? Q2: What is the enterprise and equity value on that basis? Q3: What is the value of the non-marketable minority equity?

Show the solution

Q1: The multiple comes from listed peers, so this is GPCM. It gives a marketable minority level of value.
Q2: Enterprise value = 9.0 × €18 million = €162 million.
Equity value = €162 million − €30 million + €6 million = €138 million.
Q3: The stake is minority, matching GPCM, but not marketable. Apply DLOM: €138 million × (1 − 0.20) = €110.4 million.
No control adjustment is needed because the target is minority.

Answer: Q1: GPCM, marketable minority. Q2: Enterprise value €162 million; equity value €138 million. Q3: €110.4 million.

Example 2

Vignette: An analyst values 100% of Delmar Logistics, a private firm with EBITDA of $40 million, net debt of $50 million. A guideline public company median EV/EBITDA is 7.5×. A guideline transaction median EV/EBITDA, from acquisitions of controlling stakes in similar firms, is 9.0×. The analyst wants a controlling, marketable value. Q1: Which method is more suitable? Q2: What is the equity value using it? Q3: What does the difference between the two multiples imply?

Show the solution

Q1: The target is control, so GTM is more suitable because its multiples come from control deals.
Q2: Enterprise value = 9.0 × $40 million = $360 million.
Equity value = $360 million − $50 million net debt = $310 million.
Q3: GPCM gives EV = 7.5 × $40 million = $300 million. The GTM EV is $60 million higher.
On enterprise value, the GTM value is 360 ÷ 300 − 1 = 20% higher than the GPCM value, which is the same as 9.0 ÷ 7.5 − 1.
On equity value, GPCM = $300 million − $50 million = $250 million and GTM = $310 million. The GTM equity value is 310 ÷ 250 − 1 = 24% higher. The gap is larger in percentage terms because the same $60 million falls on a smaller equity base.
These percentages are the observed difference between the GTM and GPCM values. They may reflect a control premium and buyer synergies, but also differences in deal timing and comparability, so you should not treat either figure as an implied control premium.

Answer: Q1: GTM. Q2: Equity value $310 million. Q3: The GTM value is 20% higher than the GPCM value on enterprise value ($360 million vs $300 million) and 24% higher on equity value ($310 million vs $250 million). This observed difference may reflect a control premium and synergies, but also deal timing and comparability, so it is not a measured control premium.

Exam tips

Always state the level of value each method gives before you do any arithmetic. Many wrong answers come from the wrong adjustment.
Read exhibits for the metric that matches the multiple, and check whether net debt is given before choosing EV or equity.
When the vignette mentions one-off gains, owner pay above market, or different accounting, expect a normalization step before applying the multiple.
For GTM and PTM questions, look for reasons the data may be unreliable: old deals, small stakes, related parties, synergies, or distress.
Do not apply a DLOM and DLOC mechanically. Use them only to bridge the gap between the method's level of value and the requested one.

Market Approach: Guideline Public and Transaction Methods: frequently asked questions

What is the difference between GPCM and GTM?

GPCM uses trading multiples of listed companies, which reflect marketable minority stakes. GTM uses multiples from acquisitions of whole companies or controlling stakes, so they include a control premium. GTM values are usually higher for the same business.

When should I use the prior transaction method?

Use it when there have been recent, arm's-length sales of the subject company's own shares. Check the size of the stake, the date, and whether the parties were related. A distressed or tiny sale is a poor guide to value.

Does GPCM need a DLOM for a private company?

If the stake being valued is not readily marketable, yes. GPCM gives a marketable value, so a discount for lack of marketability bridges the gap. If the question asks for a marketable value, no discount is needed.

Why must multiples be adjusted for comparability?

Guideline companies differ from the subject in size, growth, risk, margins and accounting. These differences affect what multiple is justified. You can narrow the peer set, adjust the multiple, or normalize the subject's metric.