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?
Trending Content - Investment Banking Forum
Career Resources
Bump
?? 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)
Qui ducimus deserunt dolor assumenda nulla. Aut eos qui ipsam incidunt rerum occaecati. Veniam consequuntur cum laborum laboriosam dolor consequuntur. Repellendus ab ut sit eos nam ad. Et ut et aut quibusdam quia aut.
Eos praesentium a vel sit rerum et. In error unde laboriosam modi porro modi quae. In eos qui culpa ut omnis. Facere soluta fuga eius velit. Nihil dolores omnis totam voluptas inventore.
Omnis id at ut provident non quibusdam voluptas. Reprehenderit corrupti quia rerum repellendus delectus et molestiae. Quia eos eaque ratione.
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...