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

Kaveri Foods Pvt Ltd is being valued for the purchase of a 15% minority stake by an investor, who will have no board seat or control. A second buyer is acquiring 100% of the company. Which statement about the factors affecting their valuation is correct?

A minority stake in an unlisted company usually attracts discounts for lack of control and lack of marketability, whereas a buyer of 100% may pay a control premium. Per-share values therefore differ because the degree of control affects value.

  1. ABoth values per share must be identical, as the company is the same
  2. BThe minority stake should usually carry a discount for lack of control and marketability, while the 100% buyer may pay a control premiumCorrect
  3. CThe minority stake should carry a control premium, as it is smaller
  4. DThe 100% buyer should get a discount for lack of control

Explanation

Control allows a buyer to change management, strategy and dividends, so it is worth more per share. A small stake with no control and often limited liquidity in an unlisted company attracts discounts. The other options reverse or deny this relationship.

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