How is a shareholder buyout valued?
Start with a defensible valuation of the whole company (often EBITDA multiple, discounted cash flow or net asset value), then take the departing shareholder's pro-rata share. Adjust that figure with a minority discount if the shares carry no control, and add or repay any shareholder loans. A shareholders' agreement may dictate the exact method.
What is a minority discount?
A minority discount reduces the value of a shareholding that cannot control the company. A 20% stake is usually worth less than 20% of the whole business because the holder cannot force a sale, set dividends or appoint directors. Discounts commonly range from 10% to 40% depending on the shareholder agreement and control rights.
When does a control premium apply?
A control premium is added when the buyer of the shares gains control of the company — for example, moving from 40% to a majority. Control has value because it lets the holder direct strategy, compensation and distributions, so buyers sometimes pay a premium above the simple pro-rata figure.
Should shareholder loans be included in a buyout?
Yes, separately. Money a shareholder lent to the company is a debt owed back to them and is usually repaid on top of the price paid for their shares. Conversely, if the shareholder owes the company money, that is deducted. Keep loan accounts distinct from equity value to avoid double counting.
Does a shareholders' agreement override this estimate?
Usually. A well-drafted shareholders' agreement typically sets out a mandatory buyout formula, valuation date, discount rules and payment terms that govern over any general estimate. Always check the agreement first — this calculator is a starting point when no formula is specified.