I recalled this bon mot from Mark Twain as I reviewed a recent article from Business Valuation Resources that focused on some data derived from the Pratt's Stats database. This source includes detailed information on over 21,000 transactions in which private companies were sold. The data indicated that the median multiple of selling price to revenues was 0.47 when the acquiring company was a private company and 1.29 when it was a public company. The conclusion was clear - if you sell to a public company you can increase your sales price almost threefold.
But not so fast - this is a classic case where correlation is not evidence of causation.
There could be many reasons why public companies pay higher multiples than private companies - not least the differences in the characteristics of the companies targeted by each group. One of the axioms of valuation is that the lower the risk of a company, the greater its value (all other things being equal) and one of the indicators of risk is size, often measured by its revenues. The median revenue of the companies bought by pubic companies was $12.4 million, whereas the median revenue of the companies acquired by private companies was around $450,000. So public companies purchased larger, less risky, more valuable companies. Ultimately not much of a takeaway for potential sellers other than make every effort to grow your business - hardly a revelation!
I realize this is what you get from bloggers trying to fill column inches with material in the dog days of summer - a bit like this author!