The positive effect of a share valuation

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Published: 26 Mar 2015

When a purchase or sale transaction has to be done how do you get there?

Sometime ago, I was introduced by an accountant to his client company, which had a succession problem to resolve. Two directors, who each had a 24% interest in the company, wanted to sell out and the remaining two directors wanted to take over full ownership and responsibility of running the company. That was known and agreed, but how was it possible to agree a valuation for the two 24% shareholdings?

At the first meeting with the directors, I noticed there was an awkward atmosphere, almost an undercurrent of distrust on each side, although they went about their daily duties in a civilised manner. Obviously the price to be agreed for the shares was weighing on their minds.

With their fears allayed they were able to relax

So I took the opportunity to explain to them what information I needed and the basis on which I would value the shareholding. With their fears allayed, all four directors relaxed and the first meeting reached a successful conclusion.

I prepared my valuation report and sent a draft to the accountant, who in turn passed it on to the four director shareholders. There was e-mail correspondence with two of the directors and a subsequent meeting with the other two directors, in both cases explaining the reasons for a valuation of a 24% shareholding at £234,000. At the final meeting with the accountant, the four directors agreed to a valuation of £250,000 for 24% shareholding.

It was nice to see their smiling faces when I spoke to the directors after the meeting. Job done!

This story proves two things

Firstly, the directors would still be arguing today over the price without a valuation report, which gave them the information they needed to agree a price.

Secondly, share valuation is as much an art as a science: the true price is what a seller is prepared to sell for and what a buyer is prepared to pay. In other words, a share valuer bridges the aspirations of the seller with expectations of the buyer.

If you require a share valuation you are invited to have an initial free consultation with David Cane of Sundial Tax & Finance Ltd (Contact Details: (T) 0845 177 0036; (M) 07749 080 806; (E) [email protected]