Valuing private company: Shane Bauer wants to invest in Trajectory Tech, a private company. Based on earnings of multiples of similar publicly traded companies, Shane estimates the value of the private company's shares to be $18.97 per share. He plans to acquire a majority of the shares in the company. The expected control premium is 12 per cent. He estimates the marketability discount for such a company to be 15 per cent. The discount for the key person, one of the founders who may leave the company upon Shane's control of the company, is 15 per cent. What price should he be willing to pay for these shares?

Question

Quizplus · Accepted Answer

The correct price should be $15.35, which is calculated as follows:Value per share = $18.97Control premium = 12%Marketability discount = 15%Key person discount = 15%Price per share = Value per share * (1 + Control premium) * (1 - Marketability discount) * (1 - Key person discount)= $18.97 * (1 + 0.12) * (1 - 0.15) * (1 - 0.15)= $15.35

Valuing Private Company: Shane Bauer Wants to Invest in Trajectory