Minority interests
Lotus Amity values minority interest in private companies. The minority interest valuations are often required in acquiring or issuing shares, in shareholder disputes and employee share schemes. A minority shareholder in a private company can potentially suffer from several key disadvantages, including:
- inability to influence the direction of the company and future investment
- inability to influence the financial operations of the company, including, for example salaries paid to controlling owner operators
- inability to influence the distribution of profits as dividends
- inability to influence the sale of the business and other assets of the company
- limitations on the sale of shares per the shareholders agreement
- few potential buyers
When valuing minority interests, Lotus Amity analyses the disadvantages that may influence the future cash flows available to the shareholder and the ability to sell that minority interest.
Experience
Examples of minority interest valuation engagements include the following:
- Valuation of a minority interest in a company developing and providing software platforms in the waste and environmental services sector. Valuation report prepared for the administrators of an estate, with a value at the date of death and at the current date. Lotus Amity analysed monthly revenue and profitability growth, dividends as percentage of after-tax profit, closing cash balances and working capital requirements and used a DCF Income Approach and Market Approach to value the interest.
- Valuation modelling of a minority interest in a quarrying group. Model prepared for the group to assist in pricing the interest held by a leaving shareholder. The model considered the monthly revenue and profitability, dividends as percentage of after-tax profit, capital expenditure, surplus land and properties, joint venture investments and modelled future cash flows and a discount rate.
- Valuation of the ordinary shares in a superannuation management, administration, advisory and promoter group. Valuation prepared to assist in the valuation of the options per the employee share option plan. The group included recent business acquisitions, preference shares, options, convertible notes, recent capital raises and more than a hundred shareholders. Lotus Amity analysed the investment and management agreements, the business acquisitions and capital raises, preference share terms and share transfers, past and forecast FUM, revenue and profitability, expense composition, cost reduction strategy and industry benchmarks. To value the business, post-acquisition proforma revenue, margins and liquidity and discounts rates were modelled using a DCF income approach and guideline publicly traded companies, comparable transactions and prior transactions were considered under a market approach. To value the ordinary shares, the values and impact of the preference shares and options were modelled and deducted.