Working out shareholding value

ChrisH4321

Can somebody help me work out a shareholding value please? The company is not on the stock market.

My ex is refusing to clarify the value in a divorce settlement though the company are issuing shares to current share holders at a value of €1740 per share. He has previously communicated to me he spent €2000 when he bought them early 2010 but the share certificate he produced to the court showed 5 ordinary shares purchased at €0.01

Any help greatly appreciated.

Thanks

westy22

The €0.01 is the nominal value given to each share and bears no relationship to what he paid or what they are worth.

If he has 5 shares and people are currently buying them at €1,740 then, on paper, the value of the shares will be €8,700.

However, if the shares aren't listed on any open market then it is a case of what somebody would be prepared to pay for them today - that could be €100 or €2,000 depending on how much they wanted them.

It would be very difficult for a Court to assign an accurate value to closed shares in a private company. It would be best for you and your ex to agree on a value in writing and submit that to the Court.

MEM62

Working out the value of a company really needs to be done by a specialist with a knowledge of that specific industry. It has nothing to do with the face value of ordinary shares. For example, many years ago (1980's) I sold a Freight Forwarding company. At that time the general rule of thumb was that the company was worth 2.5 x its annual turnover plus the value of its assets. There will be an up to date method for valuing the company in question based on the sector the business is in, how long it has been established, turnover, profit margin and assets etc. On the assumption that your husband will not be cooperative in the process the auditors may be a good place to start asking questions.

longtermplanner

"the company are issuing shares to current share holders at a value of €1740 per share"

I would have thought that was a good starting point - and it would be for your ex to justify why a different value should be used.

Thrugelmir

Holdings in private companies are particular difficult to value. As there's no open market. Very much a question of accepting what some one will offer.

The issuing of new shares may well have the purpose of being a capital raising exercise. So not as straightforward as it may appear. By not subscribing to new shares your ex is in fact being diluted in terms of shareholding.

Been on the receiving end of a similar situation some years ago. In the end the shares were valued at what I paid for them, i.e. a 1p each.

bowlhead99

MEM62 wrote: »

Working out the value of a company really needs to be done by a specialist with a knowledge of that specific industry. It has nothing to do with the face value of ordinary shares. For example, many years ago (1980's) I sold a Freight Forwarding company. At that time the general rule of thumb was that the company was worth 2.5 x its annual turnover plus the value of its assets. There will be an up to date method for valuing the company in question based on the sector the business is in, how long it has been established, turnover, profit margin and assets etc. On the assumption that your husband will not be cooperative in the process the auditors may be a good place to start asking questions.

I completely agree with all of the above except for the last sentence. Auditors are engaged by companies to give an opinion on whether financial statements present a true and fair view of the company's profits and assets according to generally accepted accounting and auditing standards. That opinion will have been given retrospectively on accounts drawn up at some historic point in time. Like having an MOT on your car to say it passes their tests at that date with no warranty as to its state today.

All this tells you is the accounts at that point are materially correct. It doesn't tell you whether the company is 'worth' 5x or 100x or 0.2x its annual profits or net assets shown in the accounts, i.e., what any independent person would consider to be the fair, arm's length value of the company or a non-controlling share in it. The auditors wouldn't touch that question with a bargepole. You would get different investment professionals coming up with different values in a wide range. And they would all want to charge you thousands for the privilege, presuming you could even get access to the company's records.

The price of a recent transaction in the same class of shares is sometimes a good rule of thumb. Of course it's feasible that the other people who just bought those shares have restrictions on them, e.g.if they leave the company within x years after getting them, they surrender the shares, and/or they are unable to sell or transfer them. By contrast your ex's shares having been allocated some years ago, may have already "vested" and be worth more.

At least, on paper. Generally companies (non public ones) who let their employees buy shares in the business, do so with the expectation that the shares will ultimately be worth significantly more than the cost they buy in at. That is the whole point of using shares to incentive your key staff. But the issue is that shares that can't be sold to members of the public, cannot be turned into cash in absence of some major event such as the company being sold in its entirety to new owners. So, for all practical purposes the shares could be worthless as Thrugelmir suggests.

Unless you suspect the shares are worth more than the 1740/share - having had the ex get you some of the key financial data from the company, and maybe employed an accountant to guide you as to why they might be worth more - you are going to have to use that as your start price in a discussion. A stumbling block might be that the private company might not want to let you see the accounts or key financial data unless ordered by a court, if they're not already in the public domain. Obviously if you know what price shares are being issued at, you've already got some confidential information from someone, so perhaps you can get more if you all stay amicable.

Either way, you are not going to get the answer on a public forum. The general gist with of how to value a private company can be found at http://www.privateequityvaluation.com - however for a non-professional it is likely to raise more questions than answers.