Obtaining A Valuation For Loan Collateralization

May 2013       Download PDF      Print

Situation

One of the owners of Nueterra Holdings, a privately held company that develops and manages health care services, wanted to use some of his stock as collateral against a loan he was obtaining from a local bank. The bank required the owner to obtain an independent, third-party appraisal to determine how much stock would be needed as collateral with a loan-to-value ratio of 75%.

Engagement

The National Bank of Olathe, on behalf of this owner of Nueterra, engaged Allied Business Group to determine how much Nueterra stock would need to be pledged as collateral for the loan. This required us to first determine the fair market value of 100% controlling, non-marketable interest in Nueterra using the income, market and asset methods of valuing a business.

We then determined appropriate discounts to derive the fair market value of a non-controlling, non-marketable interest in the company. By dividing this value by the number of outstanding shares, we were able to determine the value of a single share of stock. The resulting share price enabled us to calculate how many shares would be required to satisfy the bank. The valuation of Nueterra was complex due to the company's business structure, which involves numerous holding companies, related entities, related party transactions and a complicated ownership structure.

Result

Allied provided the Nueterra owner with accurate and complete valuation information that allowed him to secure his loan using Nueterra stock as collateral. Moreover, Allied worked on a tight deadline, and was able to complete the engagement before year-end by relying on its in-depth experience performing appraisals for other complex business structures, and by leveraging knowledge gained from managing M&A transactions for several health care-related companies, it was determined that the shares held no value.