Discounts for non-controlling shares. Valuation of controlling and non-controlling stakes. The non-controlling discount is determined and then deducted from the pro rata share. At the same stage it should be established how necessary and to

In the process of assessing a business, it is often necessary to determine the market value of not the entire enterprise, not all 100% of the shares of the enterprise, but only a specific package (share). It is only important to determine whether it is controlled or uncontrolled. The degree of control affects the value of the share being valued.

A controlling (majority) stake means ownership of more than 50% of the shares of an enterprise, giving the owner the right to complete control over the company. But in practice, if the company's shares are dispersed, this percentage can be significantly smaller.

A non-controlling (minority) stake defines ownership of less than 50% of the company's shares.

When finding the value of a controlling stake, the following methods are used:

– income approach: discounted cash flow method and income capitalization method;

– comparative approach: transaction method;

– cost approach: net asset value method and liquidation value method.

Using the income approach methods, the value of a controlling stake is calculated. As a result of the application of these methods, the price that an investor would pay to own the enterprise is obtained, and the calculation of cash flows is based on monitoring the decisions of the administration regarding the economic activities of the enterprise.

When using cost approach methods, the value of a controlling stake is obtained, since only the owner of a controlling stake can determine the policy in the field of assets: acquire, use or sell (liquidate) them.

When calculating using the transaction method, the estimated value is obtained at the level of ownership of a controlling stake, since this method is based on an analysis of the prices of controlling stakes in similar enterprises or entire enterprises (100% of the stake).

The value of non-controlling interest is calculated using the capital market method. The value of the freely traded smaller share is determined because this method uses information on stock quotes on stock markets. If the appraiser needs to obtain value at the level of a controlling stake, then a control premium must be added to the value obtained by the capital market method. To obtain the value of a non-controlling interest, you need to subtract the discount for the non-controlling nature from the value of the controlling interest.

The control premium is a monetary expression of the advantage associated with owning a controlling stake, reflecting additional opportunities to control the enterprise compared to owning a minority stake.

Discount for non-controlling nature is the amount by which the value of the assessed share of the block, calculated from the total value of the company's block of shares, is reduced by taking into account its non-controlling nature.

The cost of owning (disposing of) a controlling stake is always higher than the cost of owning a non-controlling stake, since ownership of a controlling stake is determined by the following main elements of control:

election of the Board of Directors and appointment of managers;

determining the remuneration of managers and their privileges;

determining the company's policy, changing the business development strategy;

making decisions on acquisitions or mergers with other companies;

making decisions on liquidation and sale of company property;

making decisions on issuance;

changes in statutory documents;

distribution of profit based on the results of the enterprise’s activities, including establishing the amount of dividends;

making a decision to sell or purchase the company's own shares.

The type of joint stock company plays a role in determining the noncontrol discount or control premium. Traditionally, in countries with market economies, there are two types of joint stock companies: closed and open. These companies issue shares, thereby forming their own capital. The main difference between closed and open joint-stock companies: closed ones have the right to distribute shares only among the founders and shares can be sold to third parties only with the consent of the majority of shareholders, while shares of open joint-stock companies can be in free circulation.

If the value of a smaller share of a closed company is determined using methods for calculating the value of a controlling interest, then discounts must be subtracted:

– for uncontrollable character;

– for insufficient liquidity.

Valuation of shares

To obtain the value of a non-controlling interest, it is necessary to consider the share capital of the enterprise as a collection of shares and determine the value of one share. Let's call this value the basic value of the stock.

First, the value of the enterprise as a whole is determined. Then the resulting value must be divided by the total number of issued and outstanding shares. As a result, we get the basic price of the stock.

For example, the total number of ordinary shares issued by the company is 10 thousand. The cost of the enterprise is 10 million rubles. Consequently, the base cost of one share will be 1 thousand rubles.

Then you need to choose the appropriate method for determining the discount amount. To do this, a “horizontal” approach can be used, when the results of assessing the entire enterprise are compared using methods that take into account control and the transaction method, based on the assessment of a single share that does not provide elements of control.

For example, the value of the freely marketable smaller share, obtained using the capital market method, amounted to 7 million rubles. Given a sufficient level of information, this result can be considered as the cost of a non-controlling interest. This means that the discount for uncontrollable nature will be

30\% (difference between 10 million rubles and 7 million rubles).

The value of a controlling interest in a closely held company is generally assumed to be proportional to the total value of the enterprise. Consequently, a 55% block of shares (5.5 thousand pieces) will cost 5.5 million rubles:

1000 rub. × 5500 pcs. = 5.5 million rubles.

When evaluating closed companies, a number of adjustments are made to the calculated value, taking into account various risk factors inherent in a particular enterprise.

The cost of one share of a non-controlling interest is 700 rubles:

7 million rub. /10 thousand pcs. = 700 rub.

Then the cost of a 20% package is 1.4 million rubles:

700 rub. × 2000 pcs. = 1.4 million rubles.

Consideration should be given to specific factors that may affect the value of shareholdings in a particular situation. For example, in a firm no one has a majority interest, but one of the shareholders, seeking to obtain a controlling stake, is willing to pay a premium for the opportunity to acquire one or more small stakes, then non-controlling stakes acquired to obtain a controlling stake deserve a control premium.

In general, to obtain the final value in the process of valuing an enterprise, depending on the size of the acquired block of shares and its liquidity, the following are taken into account: a premium for the acquisition of a controlling stake, a discount for non-controlling nature, a discount for insufficient liquidity and factors affecting the cost of blocks in a particular situations.

When finding the cost of owning a controlling stake, the following methods are used: discounted cash flows, capitalization of income, transactions, net asset value and liquidation value.

Express the price that an investor would pay to own the enterprise;

The calculation of cash flows is based on control over the decisions of the administration regarding the economic activities of the enterprise.

When using property approach methods, the value of a controlling stake is obtained, since only the owner of a controlling stake can determine the policy in the field of assets: acquire, use or sell (liquidate) them.

When calculating using the transaction method, the estimated value is obtained at the level of ownership of a controlling stake, since this method is based on an analysis of the prices of controlling stakes in similar companies.

Using the capital market method, the cost of ownership of a non-controlling (minority) stake is determined. If the appraiser needs to obtain value at the level of a controlling stake, then a control premium must be added to the value obtained by the capital market method. To obtain the value of a minority stake from the value of a controlling stake, calculated using the income and property approaches, and the transaction method, it is necessary to subtract a discount for the non-controlling nature.

The type of joint stock company plays a role in determining a discount or premium. If the value of a smaller share of a closely held company is determined using the discounted cash flow, capitalization of income, net asset value, liquidation value and transaction method methods, then it is necessary to deduct a discount for non-controlling nature and a mandatory discount for insufficient liquidity. If the cost is calculated using the capital market method, then only the discount for insufficient liquidity is deducted.

The control premium is a monetary expression of the advantage associated with owning a controlling stake. It reflects additional possibilities of control over the enterprise (compared to a smaller share, i.e. ownership of a minority stake).

Discount for non-controlling nature - the amount by which the value of the assessed share of the package (in the total value of the company's share package) is reduced, taking into account its non-controlling nature.

The cost of owning (disposing) a controlling stake is always higher than the cost of owning (disposing) a minority stake.

At the same time, it must be borne in mind that in practice factors often come into play that limit the rights of owners of controlling shares and reduce the cost of control. These factors include: the effect of distribution of property, voting regime, contact restrictions, financial conditions of the business.

There are three main approaches to valuing non-controlling (minority) stakes.

The first approach is top-down. It includes three stages:

1. The value of the entire enterprise is estimated using the methods of discounted cash flows, capitalization of income, net asset value, liquidation value, as well as the transaction method.

2. The portion of the total value of the enterprise proportional to the non-controlling interest is calculated. The base value from which the discount for the non-controlling nature of the stake is deducted is the proportional share of the stake in the total value of the enterprise, including all control rights.

3. The non-controlling discount is determined and then deducted from the pro rata share. At the same stage, it should be established how much additional discount for insufficient liquidity is necessary and what the amount is.

The second approach is “horizontal”. With this approach, it is not necessary to determine the cost of the entire enterprise. Data for estimating the value of a non-controlling interest can be taken from data on the sale of comparable non-controlling interests in public companies and calculated using the capital market method. Because these transactions relate to public companies, when dealing with closely held companies, the liquidity discount must be deducted to determine the value of the non-controlling interest.

The third approach is bottom-up. In the two previous approaches, the appraiser starts the calculation with some value (the value of the entire enterprise or the value of comparable non-controlling interests), and then subtracts the required discounts from it, as if going down. In the third approach, on the contrary, the appraiser starts from the bottom, summing up all the elements of the value of the non-controlling interest.

The owner of a non-controlling interest has two sources of financing the cost:

Profit distributed in the form of dividends;

Proceeds from the sale of a non-controlling interest.

These expected future payments are considered by the appraiser as discounted future income.

The control premium is considered to be the percentage of the redemption price exceeding the market price of the seller's shares five (business) days before the formal announcement of the merger. In other words, this is the difference between the price, expressed as a percentage, and the price of a minority freely traded stake.

Discount for the non-controllable nature of the package. It is a derivative of the control premium. This trend is based on empirical data. Discount (in %) for non-controlling nature (minority interest)

Ps = 1 -

The discount for insufficient liquidity is defined as the amount or percentage (in %) by which the value of the package being evaluated is reduced to reflect insufficient liquidity.

Factors that increase and decrease the size of the discount. There are two groups of factors. The first group of factors includes:

Low dividends or impossibility of paying them;

Unfavorable prospects for the sale of shares of the company or itself;

Restrictions on transactions with shares (for example, legal restrictions on the free sale of shares of closed companies).

The second group of factors includes:

Possibility of free sale of shares or the company itself;

High dividend payments.

When a minority stake in closely held companies is valued, discounts are applied for both non-controlling nature and lack of liquidity.

The price for increasing risk, reducing the guarantee of payments and reimbursing cash resources in the event of bankruptcy is the use of various discounts for insufficient liquidity.

The smallest discount is the bond discount. Preferred shares have a greater discount for insufficient liquidity than bonds, but less than ordinary shares.

There are several methods for determining the discount for insufficient liquidity.

1. The “company price/earnings” indicator for a closed company is compared with the same indicator for publicly traded comparable shares on the stock markets.

2. The cost of registering shares and brokerage commissions charged for promoting the company's shares on the stock market are estimated. Expense data is taken as a percentage of the cost of the issued shares, and in the case of closed companies, these costs are hypothetical: what the expenses would be if the issue occurred.

Literature

1. Valdaytsev S.V. Business valuation and enterprise value management: A textbook for universities. - M.: UNITY-DANA, 2001.

2. Grigoriev V.V., Fedotova M.A. Enterprise valuation. - M.: INFRA-M, 1997.

3. Gryaznova A.G., Fedotova M.A., Lenskaya S.A. Business assessment - M.: Finance and Statistics, 2000.

4. Edronova E.N., Mizikovsky E.A. Accounting and analysis of financial assets, shares, bonds, bills. M.: Finance and Statistics, 1999.

Calculation of premiums and discounts taking into account the degree of control and liquidity of the shareholding

Algorithm for evaluating a specific block of shares in a company

ACCOUNTING FOR ACQUIRED CONTROL WHEN ASSESSING THE VALUE OF A PACKAGE OF SHARES

INFLUENCE OF LIQUIDITY OF SHARES AND THEIR PLACEMENT ON THE MARKET ON THE VALUE OF THE PACKAGE

Discount for non-placement of shares on the stock market

General methodology for assessing the value of securities

Valuation of preferred shares

The fundamental principle for valuing shareholdings is the need to

the need to preliminarily - if possible - evaluate the price

night value of the entire company in question as a whole (100% of its usual

new shares).

An algorithm for evaluating a specific block of shares in a company.

1. The estimated value of the enterprise as a whole decreases proportionally

the share of the considered block of shares in 100% of ordinary shares

Vpack = CK d,

where d is the relative size, in fractions of a unit, of the assessed block of shares

(assessed share) in one hundred percent of ordinary shares (authorized capital)

le) enterprises.

2. An amendment is made to the Vnак indicator taking into account the degree of control over

a company that can give an investor the purchase of a block of its shares

size d.

3. An adjustment is made to the value of the block of shares (share) of the company.

acceptance depending on the fact (with a more thorough analysis - degree)

liquidity or illiquidity of shares (shares) of the company being valued.

4. A discount is applied from the result of previous adjustments according to

indicator Vnaк, if the shares of the company being valued are illiquid and not

placed on the stock market.

The first step of the algorithm does not require comments.

Accounting for acquired control

As for the second step of this algorithm, when it is carried out

the question arises of how the price of one share (one percent) is affected by

unit of the authorized capital) of the enterprise as part of the acquired pa-

keta (paya) the following fact: whether it is controllable or uncontrollable

participation in the capital of an enterprise offered to the investor.

Discounts (bonuses) depending on the degree of control that is provided

is entered into the proposed (acquired) block of shares (share),

This is due to the fact that an investor who buys control over an enterprise

is able to use any of the possible existing channels

access to capital invested in the enterprise (in the company as a separate

legal entity), and to the income earned by the enterprise from this capital

Indeed, he can not only receive dividends (solving pain

their payment) and resell with a market gain (in extreme cases - with

exchange rate loss, but still extract your funds from the unsuccessful

enterprises) their liquid shares (shares) on the stock (secondary) market,

 use your influence for transfer transactions of the enterprise (not

at market prices) in favor of third parties affiliated with it;

- inflate your own wages received from employers

enterprise, if we mean a direct or indirect private investor who

who simultaneously acts as a manager or other hired worker

enterprise bodnik;

 receive a debt-free balance at a convenient time

property of the enterprise during the voluntary liquidation of the enterprise according to

the position of the investor who controls it;

 resolve sales issues at the right time (taking into account the listed

circumstances) or leasing non-functioning assets of the enterprise

entities that, using their influence, the investor controlling the company

is able to arbitrarily increase, reducing the volume of operations of the enterprise.

Bearing in mind the indicated advantages of the controlling enterprise

investor, we can say with complete certainty that the price of one share

tions as part of a block of shares and the entire block of shares (one percent unit-

tsy share and the whole share) should contain, as it were, "control premium", size

such a package (share) in an enterprise with a certain distribution of it

the investor purchasing such a package (share) has actual control over

enterprise and solving the issues listed above.

When calculating reasonable or investment market value

proposed (purchased) block of shares (share) of the enterprise under consideration

acceptance much depends on which of the methods discussed above

business valuations receive an assessment of a reasonable or investment market

night cost of SC* of the entire enterprise as a whole (all 100% of its usual

shares or the entire authorized capital).

So, capital market method focused on assessing the entire enterprise

tion or one of its shares (one percent unit of the authorized capital of hey

a company such as a company or limited liability partnership)

as if through the “eyes” of an investor acquiring a smaller share in the enterprise

majority. Therefore, if in reality (in relation to a specific

the size of the package acquired by a venture or simply strategic investment

vestor) in the specific case under consideration, an assessment of the

new or investment market value of the controlling stake

of the analyzed enterprise, then to the value of CK* one should add a certain

"control premium". It can reach 30-40% of the preliminary

estimating the value of SC* obtained by this method.

Transaction method on the contrary, it is initially focused on receiving

estimates of the market value of the enterprise under study based on investment

ra acquiring control over the enterprise. If the cost of the enterprise

IC* is assessed for the investor acquiring control over the company

mine, then it does not require adding to the SC value obtained by this method*

"control premiums" since the estimates used in the transaction method

multipliers by definition had to be calculated based on prices

only those transactions with shares of a peer company, the result of which was

control of the company was transferred to the buyer in such transactions.

If the value of the enterprise and one of its shares as part of the acquisition

the package being melted is valued for the investor who acquires a non-yielding

control the minority share in the company, then, on the contrary, it is obviously necessary

reduce the SK* value obtained by the transaction method by a certain

"discount for non-controllable nature" the package (share) in question. This

the discount is usually 20-25% of the preliminary cost estimate

enterprises.

The same consequences as using the transaction method have in

in this sense application discounted cash flow method And

method of asset accumulation. They also provide immediate cost estimates.

enterprises, if they have control over it (therefore, do not require

adding to the value of SC* any "control premiums" if in reality

In the current case under consideration, it will be offered or purchased

trolling stake - or controlling share - of the enterprise; on the contrary, if

in the real case under consideration in the enterprise assessed by these methods

yation will be offered or acquired a non-controlling minority interest

stva, then the specified discount is required for the non-controlling nature of the package or

Asset accumulation method also focused on the controller

the investor's enterprise, since only he will have enough influence

in order, if necessary, to insist on the sale of the assessed assets to

acceptance in themselves (with a simultaneous reduction in output even for

closure of the enterprise) and the assignment of the various le-

gal means of proceeds from this sale.

It is important that the size inherent in a particular industry "premiums for con-

troll" And discounts for uncontrollable nature of the assessed block of shares

numerically, as a rule, do not coincide.

This is explained by the fact that "control premiums" are calculated on

based on statistics that reflect the difference in stock prices of the same companies

differences between the share price of the packages, purchased to increase the ste-

enterprise control penalties, and the price of shares in ordinary purchase transactions

sales of small blocks of shares. At the same time discounts for insufficient

control character block of shares are determined on the basis of price comparison

the value of shares in ordinary transactions with small blocks of shares and their prices when

Large blocks of shares are sold in small blocks. It is clear that

shadow of control over the company when the fact of buying up small

packages requires a larger increase in the share price than would be expected.

give in excess of the share price in normal transactions when trying to get

compensation for loss of control, which many buyers

small parts of the large package being sold are not purchased at the same time.

The influence of the liquidity of shares and their placement on the market

With regard to taking into account whether the shares of the company being valued are

liquid, then this factor is significant only for an investor who has not purchased

regains control over the enterprise. It is important for him to maintain the opportunity to

extract from the enterprise - even if not at its expense, but at the expense of third parties -

buyers of shares or shares - their funds (so that they are blocked-

bathrooms there) at the moment when it is convenient for him (according to his consumer-

ski or other investment plans).

Thus, if a non-controlling interest is valued, and the shares

enterprises are illiquid (the share is not freely realizable), then from the cost

of this package, which already takes into account the degree provided by the block of shares

control over the enterprise, it is necessary to make discount for deficiency

liquidity of shares. Typically this discount is about 30%. Of course, in

different industries (based on specially collected statistics) it can

differ from this figure.

Note that, when evaluating a large block of shares that provides

troll over the enterprise, the liquidity factor can be completely neglected,

since the investor controlling the company acquires the opportunity to

another, if necessary, to extract their funds (directly from

enterprise, from its account and at the expense of its property - for example, by forcing

controlling managers of the company to buy back their shares at the expense of funds

enterprise, sometimes even to the detriment of the interests of other co-owners of the company).

Discount for non-placement of shares on the stock market. This discount is for

additionally if necessary . Its size is determined on the basis

new statistics on the costs of placing shares on the market of similar sizes

measure of companies in the same industry, and the firm in question, i.e. costs for

registration of shares for circulation, inclusion in the listing of stock exchanges,

hiring permanent brokers, etc. Approximate size indicated

discounts can be up to 10-15% of the value of shares, previously adjusted

based on the degree of control provided by the block of shares, and

also the degree of liquidity of shares.

Note that if discounts or bonuses in calculations are made by direct

possible subtraction (adding) of the corresponding amounts, then at each step

algorithm of the considered adjustments based on which

a discount or bonus is made, is the result of the previous step you-

completing this algorithm: first, taking into account the factor of acquired control,

or non-placement of shares on the market.