Valuation of Equity Interests in Complex Capital Structures

Complex capital structures are becoming more and more prevalent in the private sector, and thus, it is imperative to know this component of valuation to stay ahead of the curve. The following is a synopsis of the topics that will be addressed:

  • Users of complex capital structures
  • Preferred vs. common vs. debt valuation nuances
  •  Typical Preferred features
    •  Economic vs. noneconomic
  •  Four methods of Allocation:
    • Probability Weighted Expected Return Method (PWERM)
      • Simplified Scenario (fully-diluted)
      • Relative Value
      • Full Scenario
      • Pros/Cons
    • Option Pricing Model (OPM)
      • Equity vs. Enterprise inputs
      • Pros/Cons
    • Current Value Method (CVM)
      • Pros/Cons
    • Hybrid Method (PWERM/OPM)
      • Pros/Cons
  • How to select the right method?
    • Going concern
    • Rank of security
    • Cost/Benefit of the approach – is it practical for the client?
  • Market Benchmarks
  • Additional considerations
  • Why was the structure chosen?
    • Warrants
    • Series Volatility
    • Discounts
    • Mark downs
    • Company/Industry specific components

Presenters: Gregg Hamilton-Piercy, CFA, ASA & Tom Hamilton-Piercy, CFA - MFA Global, Montreal

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