If company A has an enterprise value of $10B and I am purchasing 30% of it, would I do my valuations for DCF and comps on 100% of the company or only 30%? For pro forma statement modeling, would I also assume I’m only buying the 30% of the working capital of the company or would I assume 100%? I know if a company has >50% control you consolidate but what if this is not the case?
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?? if you are buying a single stock of a publicly traded company would you value it on a 100% comps basis or 1/1000th basis?
No, you value the company normally, without applying any discounts in the dcf, M&A, and public comps analysis. Once you have your selected enterprise value, you'd take a 10-20% discount for lack of control on the equity value, and then multiply that equity value by however much you're purchasing (30%)
Here's an example: $10B EV company with $2B in cash and $3B in debt, assuming a 15% discount for lack of control for a 30% purchase of the equity- $10 + $2 - $3 = $9 pre discount, $9 * 0.85 = $7.65, $7.65 * 0.3 = $2.295B
Control premiums are commonplace. Are non-control discounts? I have never heard of this.
You could probably back into the delta by just taking the mults from two different txn comp sets - one set where you're gaining operational control (which may or may not be over 50%) and what where you're just gaining the economics without operatorship / control
Yes, non-control discounts apply there and are used on minority transactions.
It's called (il)liquidity discount. High level - selling a non-controlling stake is illiquid because you get no rights with it so it's harder to find a buyer. This greatly depends on the ownership structure though. If the ownership is dispersed, then the illiquidity discount is lower, and vice versa.
@richard
01 Equity Method (uzh.ch)
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