What are the different considerations when doing a model to value 100% vs. say 20%? the fundamental of the business would be the same so equity value should be the same. But some considerations are:
- LBO's: won't be able to load up debt to the company and use company cashflow to repay debt
- because of the non-controlling nature, premium/discount rate would be adjusted, but difficult to qualtify.
but if i were to just do a DCF and discount the cashflow attributable to equityholders, wouldn't the value have the same basis?
please comment.
Thanks
You are correct minority holders take a discount due to lack of control, marketability. There are various academic studies that attempt to quantify the discount. Just do some research on the Internet.
I have seen the Calc done both ways - DCF @ 100% then 20% of value * DLOC/DLOM, or DCF at 20% with a higher discount rate to account for lack of control. I recommend the 1st approach.
LBO's are on usually on 100% of EV - so minority holders get paid like any other equity holder, after debt has been paid.
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