The Formation of Peer Groups in the Pricing Process of Privately Held Businesses: Can Firm Size Serve as a Selection Criterion? Empirical Evidence from Europe
Stefan Grbenic, Bernd Markus Zunk

Abstract
Business valuation professionals consider transaction multiples as an accurate method to price privately held businesses. The formation of comparable peer groups is crucial for this method. A problem arises when it comes to identify adequate peer group selection criteria. For practicability reasons industry classification is widely used but recent literature indicates that the comparability of peer groups could be increased by adding firm size as selection criterion. This paper aims at analyzing the effect of firm size as additional peer group selection criterion. More specifically, it focuses on the effect of firm size on the reliability of transaction multiples which are used to estimate transaction prices for privately held businesses.Based on literature, real transaction price data from Europe is applied to verify the influence of firm size. The results indicate the highest reliability of transaction multiples when combining industry classification with firm size in the peer group formation process.

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