More from Hitchner’s BV Myth Busters

BVWireIssue #259-3
April 17, 2024

discounts & premiums
control premium, discount for lack of control (DLOC), factset mergerstat, discount

They’re up to Myth No. 12, which is, “to value a minority interest in a private business, you must first value it on a 100% control basis.” The Myth Busters, a group of AICPA BV Hall of Famers formed by Jim Hitchner (Valuation Products and Services), have been tackling certain ideas, concepts, or notions kicking around the BV world that they feel need to be dispelled. These myths are covered in the Hardball With Hitchner monthly publication.

Be direct: As for the minority interest valuation issue, Hitchner presents an “alternate viewpoint that I believe has wide consensus,” which is to value minority cash flows directly (“direct method”). The other method is to value enterprise cash flows first and then make adjustments to value the subject minority interests (“indirect method”). It is pointed out, however, that the analyst needs to consider the audience for the valuation. Many triers of fact prefer to see the indirect method—a traditional valuation of a 100% interest and then discounts applied for lack of marketability and control.

Control discounts are derived primarily from data included in the FactSet Review (formerly known as the FactSet Mergerstat Review) and the online FactSet/BVR Control Premium Study. Using the latter, you can separate synergistic purchases and financial purchases, according to BVR.

The other members of Myth Busters are: Harold Martin (Keiter), Ron Seigneur (Seigneur Gustafson LLP), Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos PC), Ed Dupke (Dupke Consulting LLC), and Jim Alerding (Alerding Consulting LLC).

Please let us know if you have any comments about this article or enhancements you would like to see.