Consideration for Closely Held Securities, Part I of II Valuation analysts may be asked to value closely held company securities for various reasons. These reasons include transaction pricing, financial accounting, taxation planning and compliance, and litigation (related to both breach of contract and tort claims). Depending on: 1) the business valuation approaches and methods applied; and 2) the benchmark empirical data used, these analyses may initially conclude the security value on a marketable basis. This initial conclusion may result if the analyst relied on capital market data to extract pricing multiples, present value discount rates, or direct capitalization rates. In…
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Studies in the Closely Held Company Valuation (Part II of II) In the first part of this two-part discussion, the author identified six transaction risk factors attempting to sell a controlling (including 100 percent) interest in a closely held company. Those included: 1) an uncertain time horizon to complete the offering or sale; 2) “Make ready” accounting, legal, and other costs to prepare for and execute the offering or sale; 3) risk as to the eventual sale price; 4) uncertainty as to the form (e.g., stock or cash) of transaction sale proceeds; 5) inability to hypothecate the subject equity interest;…
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Six Transaction Risks Owners Face Selling a Company that May Explain DLOM (Part I of II) In this first of a two-part article, Robert Reilly reviews the various models analysts use to estimate the DLOM and factors analysts consider in the DLOM selection. Valuation analysts often value closely held companies for transaction, taxation, financing, accounting, litigation, and other purposes. Depending on: 1) the business valuation approaches and methods applied, and 2) the benchmark valuation data used, the analyst may initially conclude the value of the closely held company on a marketable (as if traded on a stock exchange) basis. In…