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How to value a holding company with subsidiaries
How to value a holding company with subsidiaries

Many people ask us how they can value a holding company with several subsidiaries or business lines, here is how!

Daniel avatar
Written by Daniel
Updated over a week ago

Very few companies are cohesive units, with one product and several departments all working around it. Most companies serve more than one product to several types of customers. As customers and services differ more and more, the single company starts to look different. First it becomes split in departments, then business units, then maybe subsidiaries, and then just a loosely held together portfolio.

What we see then, is that every company can locate itself in this spectrum, including the holding company with subsidiaries.

Valuation also changes according to how the company is configured.

On the one hand of the spectrum, the cohesive company, valuation is the most simple, it's a straight up valuation of its future return (its projections) and its risk. It can be done on Equidam following the normal procedure.

In the least cohesive version, a portfolio, things are also simple. Each participation is valued and the value of the whole is equal to the sum of the parts. The valuation of the portfolio is the sum of the valuations of its participations.

When things are in between, also valuation gets complicated.

If the company you are trying to value is in the middle (as a holding company with subsidiaries might be), you need to choose between one of the two approaches stated above:

  • You either treat it as a single company, you sum all the revenue projections of each subsidiary, you answer the Questionnaire as if the company was a single one, and get one valuation

  • or you treat it like a portfolio, you value each subsidiary on its own and then add the valuations together.

How do you choose between the two approaches?

The main question to think about is: how are the subsidiaries connected?

Are they truly independent? [if yes, treat it as portfolio]

Do they share costs, brand, IT or something else? [not clear cut still]

Could they be sold separately? [if yes, treat it as portfolio]

Are they key to each others operations? [if yes, treat it as one company]

By answering these questions, you should better understand whether to value your holding company as a single company or a portfolio!

If you still have doubts, please reach out to us anytime!

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