How to Value Shells Entities?

By Abhi Mathews, CFA, CBV

One of the first days, when the I started in a boutique Investment Bank, many many years ago, the question arose by the head of Trading – can you value these shell companies, for me, you are a business valuator / appraiser? The answer was, of course, we have valued similar entities and I’ve been through this exercise before. 

If you do not know what shell companies are or in what context we are referring to, then feel free to give us a call to discuss as we have contacts, who primarily practice in the public markets, that we can make referrals to – if your private entity is a fit. FYI – we are not referring to the shell entities used for secrecy, tax planning, fraud or tax evasion –  see image below of an example (courtesy of the Miami Herald).

A shell company valuation, actually, is a simple valuation but there are many qualitative factors that one must consider when deciding which shell company to buy, as an investor. A shell company has no operating company and minimal assets and, as such, its an adjusted book value approach. Typically, the shell entity has liabilities (i.e. operating leases, salaries etc.) inherently and some assets (i.e. cash, prepaid, capital assets). Furthermore, there are often hidden assets and hidden liabilities; one of the hidden assets is the value of the tax losses and the applicability of it upon a change of control. The decision to pick a shell company often rests with the management of the shell, their connections, knowledge, their industry and market expertise and of course, the valuation of the shell / the transaction, and the cash in the shell.

The principal and the vice president of Minerva Valuations, both, have experience in public and private markets. In the public markets, we have assisted on numerous cross border M&A, local M&A and debt/equity raises. Specifically, the principal worked pre and post 2008 – 2009, when the public market industry landscape has changed dramatically and thus seeing the impact regulations have played on the financing industry / M&A space, over the time period. We have a managing director joining Minerva Valuations, who also, has experience advising firms, in the U.S., in both the private and public markets.

 

 

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