Buyback of inherited shares

racey

I inherited shares in a private company who have asked if I would like to sell them them back.
They are asking financial advisers to give me a valuation.
Why would they want to buy them back? The company have not been paying dividends.
Will it be inconvenient to them if I decide to keep the shares?

bigadaj

It's a bit easier for them to tidy things up probably.

Valuation of unlisted shares is an inexact science, different people will ascribe a range of values depending on factors like sales, profits, cash flow, assets, intellectual property etc etc

Do you have a value you think they are worth, if so then see how that compares to what they offer, if it's anywhere near decent I'd accept it.

racey

bigadaj wrote: »

It's a bit easier for them to tidy things up probably.

Valuation of unlisted shares is an inexact science, different people will ascribe a range of values depending on factors like sales, profits, cash flow, assets, intellectual property etc etc

Do you have a value you think they are worth, if so then see how that compares to what they offer, if it's anywhere near decent I'd accept it.

I have an idea of what they may be worth. I've apportioned the "Shareholders Funds" from the 2016 accounts. It will be interesting to see how their valuation compares. If they are not paying dividends, though, the shares are worthless to me.

eskbanker

racey wrote: »

If they are not paying dividends, though, the shares are worthless to me.

An odd choice of word - I can understand it if you mean that you're not looking to hold zero-yield shares in your portfolio but they're clearly not literally worthless if they have value to a buyer!

racey

eskbanker wrote: »

An odd choice of word - I can understand it if you mean that you're not looking to hold zero-yield shares in your portfolio but they're clearly not literally worthless if they have value to a buyer!

Quite correct.

bowlhead99

racey wrote: »

I have an idea of what they may be worth. I've apportioned the "Shareholders Funds" from the 2016 accounts.

That's a very inexact way of valuing a private business. For example, Microsoft (which does pay dividends) has a market price to book value ratio of 8x. Amazon, which doesn't, is valued by the market at 20x book.

Depending on the nature of the business, someone who might consider acquiring the company might pay ten times or more what the sustainable annual profits are. Whether or not dividends are actually paid, and regardless of whether the "shareholders funds" are at a high level or a low level. Businesses that aren't capital-intensive might not have a huge amount of assets but be quite valuable - even if the profits aren't physically distributed to the shareholders each year, they still belong to the shareholders.

By contrast, some types of businesses are really valued closer to the size of their balance sheet - Lloyds Bank is just under 1x book while JP Morgan is about 1.3x. But I suspect your inheritance wasnt a privately owned bank

It will be interesting to see how their valuation compares. If they are not paying dividends, though, the shares are worthless to me.

My employer doesn't pay dividends either but consistently grows turnover and profits by double digit percentages year after year and should fetch a decent value when eventually sold to a private buyer, rival business or lists on the stock exchange or whatever. I've never got a penny of dividend from my few shares in it, but if my other senior colleagues took the attitude that their shares were worth nothing due to lack of dividends, I'd very happily buy them out for a few pennies (or prorata share of shareholders' funds).

If the shares you inherited are literally "worthless" to you due to lack of dividends, I'll take them off your hands for £100 ?

racey

IanManc wrote: »

I'd have thought that it would be more likely to be inconvenient to you if you decide to keep the shares, because shares in a private company cannot be sold on a market and would need a matched bargain from a willing buyer if you were able to find one, so you can't just sell them anytime you like. You're being offered a way to liquidate the shares, and you may well not get a better opportunity.

I agree that I might not get a better opportunity. I'm trying to establish a realistic value.
As the company approached me I guess that want to buy back the shares. I don't think they are suggesting it for my benefit.

[Deleted User]

Hi,

racey wrote: »

I agree that I might not get a better opportunity. I'm trying to establish a realistic value.
As the company approached me I guess that want to buy back the shares. I don't think they are suggesting it for my benefit.

if you can understand this, might help to explain.

racey

bowlhead99 wrote: »

That's a very inexact way of valuing a private business. For example, Microsoft (which does pay dividends) has a market price to book value ratio of 8x. Amazon, which doesn't, is valued by the market at 20x book.

Depending on the nature of the business, someone who might consider acquiring the company might pay ten times or more what the sustainable annual profits are. Whether or not dividends are actually paid, and regardless of whether the "shareholders funds" are at a high level or a low level. Businesses that aren't capital-intensive might not have a huge amount of assets but be quite valuable - even if the profits aren't physically distributed to the shareholders each year, they still belong to the shareholders.

By contrast, some types of businesses are really valued closer to the size of their balance sheet - Lloyds Bank is just under 1x book while JP Morgan is about 1.3x. But I suspect your inheritance wasnt a privately owned bank

My employer doesn't pay dividends either but consistently grows turnover and profits by double digit percentages year after year and should fetch a decent value when eventually sold to a private buyer, rival business or lists on the stock exchange or whatever. I've never got a penny of dividend from my few shares in it, but if my other senior colleagues took the attitude that their shares were worth nothing due to lack of dividends, I'd very happily buy them out for a few pennies (or prorata share of shareholders' funds).

If the shares you inherited are literally "worthless" to you due to lack of dividends, I'll take them off your hands for £100 ?

I've already conceded the point about the shares being worthless.
I realise that my method of valuing the business is inexact. How do you suggest I do it when the only information I have is the filed accounts at Companies House?

steampowered

racey wrote: »

Why would they want to buy them back?

There is a good chance that the existing shareholders are planning to do something which has prompted them to clean-up their corporate structure.

This might mean they want to raise money from new investors.

Or it might mean that they are planning to sell the company.

Will it be inconvenient to them if I decide to keep the shares?

It is impossible to say. If your shareholding is very small (below say 10%), it would not make much difference - unless they are planning to sell the company (a purchaser would want to buy 100%).

racey wrote: »

I realise that my method of valuing the business is inexact. How do you suggest I do it when the only information I have is the filed accounts at Companies House?

Private businesses are often bought and sold on the basis of a multiple of EBITDA. The accounts filed on Companies House for a smaller company won't give you this information.

If it is a reasonable sum of money it may be worth asking an accountant who works in share sales.

As they are getting a financial adviser to suggest a valuation, I'd wait and see what he/she comes up with.