ArticlesCalculating the value of a (minority) shareholding

June 9, 2019by Lida Koumentaki

1. Preamble

There is often the need to valuate a company, either as a whole or just a share of it (most likely a percentage of its shares / a specific shareholding). This need for valuation is associated either with a business deal (still at the stage of negotiations) (e.g. a merge or an acquisition) or with a legal dispute.

The newly introduced law on S.A.s in more than one cases (e.g. articles 30, 45, 166 of Act 4548/2018) calls for a valuation of an S.A. or for a valuation of a specific share of it.

In previously published articles {Minority Shareholders. Part A: The Claim of redemption of their shares by the S.A.,  Minority Shareholders. Part Β΄: Claim for a buy-out by the Majority Shareholder(s) and Minority Shareholders. Part C: The right of the majority to buy-out the minority} we have examined cases where the courts come in and, with the help of experts, valuate a company and a specific share of it. But what are the methods they follow in order to calculate how much a company is actually worth?

Are there any laws?

The answer is no.

When it comes to public companies (listed either on regulated or unregulated markets), they all have something in common: the price of their shares is undisputable. The value of public companies (at least the value the stock market appoints to them) is easily calculated. “Blocks of shares” can of course reach prices that differ from the stock market value of the shares, but not by much.

The question is: How are private companies valuated?

A private company has no objective “market value”. No one can undisputedly assess its shares at any given point. Since such shares are not traded, the market has not been given the chance to show how much a private company is worth for it (the market).

There are a few valuating methods that are generally (and globally) accepted.

When it comes to assessing a specific share of a company, one must first valuate the company as a whole, according to specific financial information.


2. Valuating a company

According to experts, the most commonly used methods are based on:

The company’s Balance Sheet (BS)

Valuating a company according to its BS is, by far, the easiest and shortest way to go, since a BS is nothing but a snapshot of a company, taken the day the Balance Sheet is drawn. On the other hand, as a snapshot, the information a BS entails are static and thus could never represent the true value of a company. Although a BS could not, on its own, reliably evidence a company’s value, it is a good place to start an assessment and build on from that using other financial information.

Profit and Loss Statement (PNL)

When valuating a company according to its PNL, the focus is more on the company’s profits, dividend and sales. Such methods, when it comes to private companies, mainly take into consideration the return on capital. That seems to be the (only?) matter that interests an investor. When valuating a company using methods focusing on its PNL, when talking about profits we consider profits after tax.


A company’s goodwill is calculated mainly when negotiating a sale of said company. Goodwill is what is left when subtracting the company’s objective value from the sum a seller is willing to pay for it. Goodwill is the sum of a company’s intangible assets, such as its reputation, brand, place in the market, consumer and employee relations etc.

Cash flow discounting

This method valuates a company according to its cash flow discounting. The rationale behind it is that such a method will show a potential investor if a company is worth investing in the discounted cash flow finds the present cash value based on an expected cash flow -an x sum today is more valuable than the same x sum collected a year later. To elaborate, if one is holding 1€ today, with an annual interest rate of 5%, this 1€ will be worth 1,05€ in a year. Similarly, if 1€ payment is delayed for a year, today’s 1€ value is 0,95€.


3. Valuating a company’s shares

After figuring out how much a company is worth as a whole, its value is divided with the number of shares the company has issued. The result of this division is the value of each of the company’s shares (we have to stress that this is the most simplistic approach, as we, in this article, do not take into consideration the different kinds of shares a company can issue).

This approach makes a lot of (mathematical) sense. But it makes no economic sense. How can a minority shareholding, for example 2% of the company’s shares, have a value proportional to that of the remaining 98% of the same company?

When negotiating a sale of a minority shareholding, it is common that a discount is applied [discount from the value the shares come to have after the division: (company value/number of shares) x number of shares sold]. In practice we are shown that the discount applied has almost everything to do with the percentage of the company sold – that is with the powers over the company sold.

The smaller the shareholding, the less powers come with it.

Let’s talk with numbers

The discount that is in practice applied is as follows:

% of the company sold Discount applied
< 10% 60% – 75%
10% – 25% 45% – 55%
26% – 49% 30% – 40%
50% 15% – 25%
>50% 5% – 10%


A precedent set in the UK (case Lynall, Lynall v IRC (1971) 47 TC 375) is, at this point, worth mentioning, where the court ruled that, when calculating the value of a private company’s shares one has to, no matter the size of the shareholding sold, apply an additional discount of 25% to 50%.

Nothing is fixed

In order to apply any discount, all factors relating to the sale have to be taken into consideration. The aforementioned discounts are just a place to (or to not) start negotiations.

For example, the sale price will be affected not only by the percentage sold, but also by the percentage held by the rest shareholders. There is a big difference, for example, if the shareholding sold is that of 11% when the rest shareholders are holding 5% comparing to when there is one shareholder holding a percentage of 40%. The sale price will also most likely be affected by to the rights following the shares regarding the receiving of dividends, the appointing of BoD members, legal issues regarding the right to vote in GAs, the person buying the shares (for the shareholder already holding 98% over a company, compared to an “outsider”, a 2% shareholding is far more valuable) and so on.

Anti-embarrassment provision

When a minority shareholding is sold to existing shareholders, it can be agreed in advance (in a private agreement) that, within a specific time period following the sale, if the buyer of the minority shareholding decides to sell their shares to a new buyer, the initial seller of the minority shareholding will benefit from a (possible) surplus value of the shares they sold in the first place.

Forced sale

No discount is applied when there is a case of a forced sale (e.g. a drag along).


4. In Conclusion

One has to always align with everything all national or international (e.g. EU Regulations) laws compel. But when it comes to everyday functions of the market, we come to realize that there are some “laws” set by the market itself. Those “laws” set and chosen by the market are often more powerful than the actual legislation that is in place. In any case (and despite all the exceptions), “laws” set by the market are the ones that, in the end, will prevail: the free market (no matter its rivals) will always know what is best, what should be required, how to valuate, to appreciate and, in the end, how to attribute the true value to things.

Lida Koumentaki
Junior Associate

Υ.Γ. The article has been published in MAKEDONIA Newspaper (June 9, 2019).

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