Time to Abandon Discounted NAV? Why the Income Approach Should Be The Cornerstone For Valuing All Private Minority Interests
BVR's Webinar Series
Thursday, September 18, 2014
10:00am-11:40am PT • 1:00pm-2:40pm ET
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Conventional appraisal wisdom says that the value of a non-controlling, illiquid interest in a private company or holding company is the net equity or net asset value, discounted for lack of control and lack of liquidity. But is this how markets for these types of interests really work? What are the problems with this indirect approach, and is there a better way? In this presentation Eric Nath will systematically dismantle the conventional wisdom down to its foundation, and build a new valuation structure that is an integrated, defensible, real-world procedure that may be applied in almost all cases.
- How markets in private minority interests actually work
- Research into private equity, venture capital, and other dark corners of the markets - current state of the markets and how they function
- Implications of this research in the valuation of completely illiquid private minority interests
- Areas for new research
- Intersection of "fair market value" and "fair value" with actual market realities – is our goal to find a theoretical or a real value?
- What appraisal standards say about theoretical versus real value
- What the courts say about theoretical versus real value
- Sources of guidance on valuing private minority interests
- Economic analysis compared to discount analysis – sample example and the development of practical economic models
- Compare valuation taxonomies regarding the analysis of whole companies versus the analysis of minority interests – two very different processes that are often confused by appraisers as well as the courts
- Distinguish the importance (and practical benefits) of working in the real world versus the notional or hypothetical world
- Compare the economic implications of discounted NAV versus the Income Approach
- Redefine restricted stock studies based on economics rather than a factor analysis
- Develop integrated, scientifically valid, and defensible financial models for valuing minority interests directly rather than indirectly
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