Do Controlling Interests Warrant a Lack of Control Discount?
The application of lack of control discounts to minority interests in closely held businesses is a generally accepted practice in the business valuation community. This paper challenges this practice by proffering reasons why controlling interests may warrant a discount for lack of control. In order to test the hypothesis that investors pay higher premiums for relatively higher levels of ownership, Mergerstat Control Premium data were analyzed. The authors found that buyers do pay relatively higher control premiums for controlling interests greater than 80%. This research provided support for the application of control discounts to controlling interests greater than 50% but less than 80%.Abstract
Contributor Notes
Gene A. Trevino, PhD, ASA, is president of Valuation Associates in San Antonio, Texas. He specializes in the valuation of privately held businesses and the valuation of economic loss.
David P. Martin is active as an investment banker in evaluating companies for recapitalizations, employee stock ownership plans, mergers, acquisitions, and divestitures. In addition, Mr. Martin is often engaged as an advisor in negotiations leading to the consummation of the foregoing transactions.