Josh Schaeffer, PhD
Managing Director, Valuation & HR Advisory Services
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Economic Rights for Equity Allocation
A valuation for a security must take into account all of its significant economic rights. Some of the more common rights we’ve seen include:
Liquidation Preference: Shares receive priority payments in the event of a liquidation, before money is allocated to other share classes
Dividend Rights: Shareholders may receive dividends, or retain rights to any dividends not paid
Conversion Rights: Shares can be converted into another class of shares, usually common, when the alternate class is more valuable
Redemption Rights: The shareholder can force the company to redeem the security and pay a fixed or variable price
Participation Rights: The shareholder will be paid a portion of value paid to other shareholders, often up to a preset cap
Anti-dilution Rights: In cases of a supplemental round, especially at a lower value, the shareholder is made whole by an adjustment of the shares or a subsequent issuance
Services
We help companies by doing the following:
- Assisting in the choice among multiple, forward-looking methods of equity value allocation
- Valuing an enterprise and allocating the value between all of its share classes
- Modeling the economic relationship between multiple securities for scenario analysis
- Estimating the implied business enterprise value and value of other securities based on a recent transaction
- Assisting companies in understanding the economic rights of their stakeholders
