Private Company Share Valuations
Whether it be as a pricing exercise prior to a commercial transaction, probate or for tax purposes (such as the implementation of an Employee Incentive Share Scheme), private company share valuations are a technical exercise in which we have built up much expertise.
In the absence of a stock market quoting the price of the shares, the valuation of a private company can be a challenging process, where a number of key assumptions need to be considered. It is generally accepted there is no single correct way of valuing the shares of a private company, but by building an in-depth understanding of the company and the market it operates in, a valuation specialist will be able to assist in arriving at a reasonable estimate of the value of your business.
When valuing the shares, the first priority is to determine the most appropriate calculation basis. This will often be determined by the type of company being valued, ie trading or investment, the historic trading results and the recent activity in the company shares:
- Earnings Basis – A multiple of maintainable adjusted future earnings, using the P/E ratio most appropriate to the company sector, size and status.
- Asset Based.
- Based on the return on capital employed.
- Based on recent share transactions.
- A combination of the above bases. It is very common to calculate a value based on a multiple of future earnings, adjusted for ‘extra’ net assets (eg freehold property, Intellectual property and surplus working capital) held in the business.
Where appropriate, we will negotiate with Shares Valuation Division of HMRC, on your behalf. This will be necessary with regard to the discount appropriate to your shareholding, as well as the basic underlying valuation itself.
When undertaking this service, the process is as follows:
- Holding an initial fact-find meeting, to understand the background, business and valuation requirements.
- Researching the business and industry sector data, including relevant multiples or indexes of what P/E ratio prices have been achieved in recent comparable sale transactions.
- Preparing a valuation report, including supporting assumptions and computations.
- Presenting this report to the Board and HMRC as appropriate.
When performing private company share valuations, we shall be mindful of your principal objectives. Whether they be minimising the tax on a transaction, such as an Employee Incentive Share Scheme, obtaining best price for a commercial acquisition or general fairness, we shall advise accordingly. You will have peace of mind that the most appropriate valuation has been used.
