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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.
Program Agenda
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
Conclusions
Learning Objectives
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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