Business valuation analysts generally agree that minority interests in a privately held company are worth less on a per-share basis than controlling interests. But if a company is being run optimally, what benefit would a minority owner have by taking control? Possibly none, so why apply a discount for lack of control (DLOC)? Courts in Canada have latched onto this notion and are questioning DLOCs that get automatically applied to minority interests, according to panelists during a recent webinar, co-presented by the Alternative Investment Management Association (AIMA) Canada and the CBV Institute.

Explain it: The DLOC analysis has become more nuanced, the panelists said. Instead of merely applying a discount derived from traditional sources, adjustments need to be made based on the specific subject entity. The courts will question the fairness of the DLOC and wonder whether it’s a windfall to the remaining owners. Analysts will need to justify the discount based on subject-specific facts and circumstances.

The February 15 webinar, Trends in Canadian Business Valuations Confirmation, also discussed secondary transactions, regulatory scrutiny, ESG issues, and more, The panelists were: Kevin Hutchinson, senior vice president, investment finance and valuations—OMERS; Chris Polson, partner, forensic services—PwC Canada; and Cameron McInnis, chief accountant—Ontario Securities Commission (OSC). The moderator was Peter Neelands, director investments, Third Eye Capital. Click here for the event page.