WE’VE GOT A BIT OF A PROBLEM HERE. IN THE VALUATION OF SHARES IN THE COMPANY.

WE’VE GOT A BIT OF A PROBLEM HERE. IN THE VALUATION OF SHARES IN THE COMPANY. Recently, another case has come to us, which in practice comes back like a boomerang. There are disagreements between the partners in a company and the majority partner wants to buy the share of the minority partner who agrees to the sale. So far so good. Then the minority shareholder comes in with an offer of the purchase price for his share. And already badly. 🙉 When asked how he arrived at his desired purchase price for his share, the same answer often comes – the purchase price is the amount of his statutory equitable interest in the company. What is a statutory share? Simply put, it is the share of the shareholder in the net assets of the company (i.e. assets – liabilities). Why is this valuation method not correct in most cases? 🚫 Valuation of a share of a company through a compensatory interest draws primarily from the company’s balance sheet, which is more likely to be used in liquidation valuation methods (i.e. where the company is unable to continue in business and generate cash); 🚫 the book (balance sheet) value of the company’s assets used in this method does not, in most cases, reflect the true (market) value of the company and its assets; and 🚫 the method does not use any discount factor (for example, in this case, a discount due to the sale of a minority interest in the company that did not have control rights in the company attached to it). We always advise clients, both from a buy side and sell side position, to follow standard and generally accepted valuation methods in the market when valuing “going concern” companies (i.e., companies that are active and generating cash 💶 ). For example, income (DCF – discounting the future cash flow generated by the company) or comparative (a multiple ❎ of the company’s EBITDA typical for the sector in which the company operates). We will also be talking about company valuation (not only for the purpose of share sales and investor entry) at our next M&A and Investment Conference on March 13, 2025 📆 (https://lnkd.in/ejB9PKBk).