Pitchbook, the private equity data provider, recently released their second quarter Playbook report. In the report is a fascinating discussion on the gain in valuations by companies that are public versus private.
What Did Pitchbook Do?
What exactly did Pitchbook do? The data collection company took a group of private technology companies, so-called unicorns ($1 billion or more in value) and divided their most recent funding valuation by the number of years in existence. This gave them an idea of the average yearly gain in value since inception.
Pitchbook then selected a group of publicly traded technology companies and compared their market capitalization at the day of initial public offering to where the market caps had grown to. This gain (or possible loss in value) was then divided by the number of years to get an idea of the average valuation gain per year.
The Results
What did the results show? Reported in the following graphic are the results. The figure is color-coded by whether a company is private or public. Public companies are blue; private companies are red.
Interestingly, although not surprisingly, the company with the highest average annual appreciation in value was Facebook, adding almost $10 billion in value each year.
In second place is a private company, Uber – the ride-sharing service provider, having added about $8 billion in value each year.
In third place is Alphabet – the Google parent company – with an average annual value appreciation of almost $4 billion.
In fourth place was Airbnb, the home rental company, with an average annual value gain of about $3.6 billion.
Rounding out the top five was Groupon at $3.4 billion annual value appreciation.
The bottom five members of the top 10 included three privately valued companies (WeWork, Palantire Technologies, and SpaceX) and two publicly traded companies (Snap and Twitter).
Source: Pitchbook
So, Does It Matter If You’re a Private Company When Created Enormous Value?
A close look at the figures produced by Pitchbook suggests at least one important question – do owners of a privately valued company need to go public to create enormous amounts of wealth?
The question is very relevant to the private equity and investment banking community.
Of the 39 companies researched by Pitchbook, 21 were privately valued and 18 were publicly traded. The checkered nature of the figure suggests that staying private may be a good option for many companies, rather than turning to the public equity markets.
Whether to go public or stay private, of course, is a multi-billion dollar decision for many of these companies, and no doubt will include advice from more than just a few financial professionals.
Conclusion
Overall, in an interesting review of private company valuation gains compared to public company valuation gains, the difference in value appreciation between the two legal structures seems less stark as a casual observer might expect. It appears owners of successful privately valued companies can generate enormous amounts of wealth without having to go public, something the investment banking world would rather not have known.
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