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Calculating Minority Share Value
Input & Suggestion please...
This is a model that I developed, which has helped me put a value on a minority share in privately held businesses, when one of the minority shareholders are exiting. It can also be useful if someone wants to buy into a privately held business.
I have included 5 examples of companies that I have recently valued. I have only changed the Business value of each business and made them constant, which helps present a uniform picture of the model. All the majority & minority interest are the original values.
Outcome of each business;
Company A - Shareholders are still negotiating a value, but it seems that they will settle around the median.
Company B - Majority shareholder wants to pay the lowest possible value - a lot of animosity between the shareholders
Company C - One partner passed away and the remaining two paid out the maximum value to the spouse
Company D - A divorce settlement, wife wanted 50% of husbands share so I valued only what was to be sold -settled between the median & low
Company E - Partners that wanted to go their own way. They settled on the maximum value.
Any input or suggestion on how to improve the model would be appreciated.
PS The original idea for this model came from Prof Damodaran's minority discount model.
This is a model that I developed, which has helped me put a value on a minority share in privately held businesses, when one of the minority shareholders are exiting. It can also be useful if someone wants to buy into a privately held business.
I have included 5 examples of companies that I have recently valued. I have only changed the Business value of each business and made them constant, which helps present a uniform picture of the model. All the majority & minority interest are the original values.
Outcome of each business;
Company A - Shareholders are still negotiating a value, but it seems that they will settle around the median.
Company B - Majority shareholder wants to pay the lowest possible value - a lot of animosity between the shareholders
Company C - One partner passed away and the remaining two paid out the maximum value to the spouse
Company D - A divorce settlement, wife wanted 50% of husbands share so I valued only what was to be sold -settled between the median & low
Company E - Partners that wanted to go their own way. They settled on the maximum value.
Any input or suggestion on how to improve the model would be appreciated.
PS The original idea for this model came from Prof Damodaran's minority discount model.
Views: 79
- Attachments:
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Minority Share Value.xls, 13 KB
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Replies to This Discussion
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Permalink Reply by Kamesh Subramanian on -
Hi,
Could you please clarify on the methodological for the calculation of the low value. Shouldn't the discount % be based on the liquidity risk, rather than on the total non-majority shareholding.
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Permalink Reply by Tony on -
Hello,
I would use the equity value, in lieu of the enterprise value (business value), as it takes into consideration the value of the debt.
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Permalink Reply by Gavin Smart on
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I would be interested to understand the rationale for the calculations being based on the total size of the non-majority stake. When valuing a minority stake, the minority discount to be applied must be specific to the stake being valued. Practical factors such as the potential to sell on a small stake in the future and the ability to influence board decisions would be relevant here. In practice, the minority discount can be used to factor in other risks not necessarily accounted for in the "main" part of the valuation.
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