Especially for closely-held businesses:
- Lack of control (minority interest)
Why pay less for the ownership interest?
- Inability to control the investment
- Inability to control timing of cash flows
- Less control, greater the discount - Lack of marketability (no ready market for the shares)
Why pay less for the ownership interest?
- When or how long before I can convert my investment to cash?
- Current economic benefit?
Annual dividends
Some exit or sale event in site?
Longer the holding period, greater the discount
Size of discount depends on:
- Method used to arrive at value
- Level of control and marketability of the subject interest
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