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CS Professional · Corporate Restructuring, Valuation and Insolvency · Overview of Business Valuation

Bhima Pharma Ltd is valued for a proposed sale of its entire business to a strategic buyer, and separately for a minority shareholder's exit in a squeeze-out of a few shares. A consultant states that the same number must be used in both cases. Which response is most appropriate?

The consultant is incorrect. Value is purpose-specific: a controlling sale to a strategic buyer may include synergies and control, while a minority exit is valued on a different basis. So the same business can legitimately carry different values for different purposes.

  1. AIncorrect, because the purpose and the standard of value can differ, so the value may differ for each purposeCorrect
  2. BCorrect, because every business has one single intrinsic value for all purposes
  3. CCorrect, because the Companies Act prescribes one formula for all transactions
  4. DIncorrect, because valuation is not required for a sale of business

Explanation

Valuation depends on its purpose, the premise of value (going concern or otherwise), and the interest valued, such as control versus minority. A strategic buyer may pay for synergies and control, which a minority exit may not reflect. There is no single universal value or single prescribed formula.

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