Watch out for incorrectly or inappropriately applied discounts.<\/p>\n
<\/p>\n
There is a commonly held belief that minority shareholdings should automatically qualify for quite high discounts for lack of control, but this issue is not as simple as the headlines suggest.<\/p>\n
It is a real Pooh trap for those who do not understand the issues which lie behind the use of a discount in a share valuation.<\/p>\n
The first thing to note is that there is a lot of case law on the subject. Prima facie, valuers must refer to the relevant piece of case law when applying the discount.<\/p>\n
Secondly it\u2019s important to consider and then explain the argument that supports the application of the discount. For example, there is not case law for every single percentage of discount so it may be necessary to interpolate a number between two fixed points. Once again, the detail is everything.<\/p>\n
Another area where discounts for lack of control get muddled is in the use of quoted comparables and on occasion unquoted comparables. The closing price of a listed stock is made up of (typically) thousands of minority trades on that day. Each of these trades because they are of minority holdings, include the implicit discount for lack of control. Therefore, you should not discount a quoted company comparable valuation of a shareholding for lack of control. Of course, there may be other reasons to apply a discount for example if you are using US comparables against a UK shareholding under examination, there may be a case for applying a discount to reflect the fact that US stock markets typically trade at a premium to UK stock markets.<\/p>\n
Another area which is very sensitive in terms of the use of what we call DLOC (Discount for Lack Of Control), is scenarios where shares may be passing between extant shareholders or even members of a company\u2019s leadership team. If there is no change of control resulting from the transfer of shares because it will be the same team running the business\/controlling the board\/controlling the cap table, it becomes an interesting point of discussion, does it not?<\/p>\n
If you have valuations where small or large shareholdings are moving between founders, family members or indeed in other scenarios, do give us a buzz and we can help you think through what needs to be done about this critical issue. Remember that poor use of discounts without the appropriate application of evidence and arguments, can open a valuation to attack.<\/p>\n","protected":false},"excerpt":{"rendered":"
Watch out for incorrectly or inappropriately applied discounts.<\/p>\n","protected":false},"author":2,"featured_media":798,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-797","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/posts\/797","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/comments?post=797"}],"version-history":[{"count":1,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/posts\/797\/revisions"}],"predecessor-version":[{"id":799,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/posts\/797\/revisions\/799"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/media\/798"}],"wp:attachment":[{"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/media?parent=797"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/categories?post=797"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.athla.co.uk\/insights\/wp-json\/wp\/v2\/tags?post=797"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}