View on buildup method and illiquidity discount.

Closely held company (private) turnover is 70 MUSD. EBIT is 3 MUSD.

CAPM method based on beta 1 plus build up method: 8,5% WACC + 6% small cap premium (Ibbotson) + 2% company-specific premium (subjective) = 16,5%

This gives an EV = 20 MUSD (Implicit multiple EV/EBIT = 6,6)

Since the Ibbotson study is based on listed stock. I have been advised to apply an illiquidity discount on EV to adjust for illiquidity. Say 40%.

Final Equity Value = 12 MUSD.

Now, here is my question. Am I "double counting" the discounts and premiums?

Question

View on buildup method and illiquidity discount.

Closely held company (private) turnover is 70 MUSD. EBIT is 3 MUSD.

CAPM method based on beta 1 plus  build up method: 8,5% WACC + 6% small cap premium (Ibbotson) + 2% company-specific premium (subjective) = 16,5%

This gives an EV = 20 MUSD (Implicit multiple EV/EBIT = 6,6) 


Since the Ibbotson study is based on listed stock. I have been advised to apply an illiquidity discount on EV to adjust for illiquidity. Say 40%.

Final Equity Value = 12 MUSD.

Now, here is my question. Am I "double counting" the discounts and premiums?