Unsold Shares in Valuation
Let's say that company A IPO'd in the past and only sold a minority stake (eg 40%) to the public, and the rest is still held by the founders. If company B tries to buy company A, how does it take account into the unsold shares held by the founders in A's valuation? To my understanding, only looking at its EV and its market cap would not include the 60% and value the company based on the minority stake held by the public, which would not make sense if they are trying to own a controlling stake of the company.
Another similar question would be how the implied share price calculated by subtracting net debt from EV (DCF/multiples based valuation) takes account into these unsold shares.
Apologies if this is a stupid question, but I am struggling to understand this and there seems to be no clear answers anywhere. Thanks!
Bump
You value the company using a forward multiple or a DCF to get to the EV. You subtract debt, add cash, to get Equity Value. Then you divide Equity Value by the number of Fully Diluted Shares outstanding to get the price per share you're willing to pay. Who owns the equity doesn't matter - being publicly traded just means that some shares of the company are owned by thousands of shareholders and can be freely bought and sold on a stock exchange.
The number of shares, who they are owned by and whether or they're trading publicly has no impact on the value of the business.
that is what I thought all along - so does shares outstanding encompass 100% of company's shares regardless of how much is available to the public?
Put simply, yes. The shares that are publicly traded constitute the "float".
I say put simply because the real number of shares outstanding has to be fully diluted to take into account the potential dilutive effect of stock options etc.
Sed aut porro facere ut qui esse. Voluptas nihil est natus quo vel placeat. Voluptas sit earum quos voluptates debitis non dolorem numquam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...