12.4 Chapter 4: share transfer restrictions (blokkeringsregeling) and valuation issues

When, because of certain share transfer restrictions (blokkeringsregeling), a valuator is requested to assist on valuing a certain percentage of the shares outstanding in the share capital of the company, the valuator experiences certain valuation issues or dilemmas. Based on interviews with experienced valuators, the following dilemmas were assessed: the applicable valuation standard, the correct valuation methodology to be used, the possible application of valuation discounts, the process of valuation in general and specifically the element of a fair process, and, ultimately (based on the valuation analysis), setting the price of the shares to be transferred.

In order to investigate how valuators deal with the various dilemmas, an empirical study has been carried out among a group of approximately 80 Dutch valuation experts. For the purpose of the valuation in respect of the share transfer restrictions rules, there is consensus about the valuation standard and the valuation methodology, namely choosing the value in use for the current selling shareholder thereby applying the DCF-method and the multiples.

Dilemmas that are handled differently by the valuation experts are the role of a possible bid made by a third party, the information and valuation process and how to safeguard a fair process, and the question if and/or to what extent a minority discount should be applied because of a lack of control. Also, no consensus exists about the question whether or not, based on the valuation, a share price should be concluded. 25% of the experts indicate that they simply choose the mid of the valuation range, 35% applies a certain weighted average of the outcome of valuation analysis and 40% indicated that they use a different method. Although Dutch legislation clearly indicates that a price, equal to the value of the shares, should be assessed by the expert, still 25% chooses an arbitrary mid-point of a range. In my view, this is unsatisfactory since a price is required for the purpose of the respective legal proceedings. Experts should conclude about the price (being equal to the value), on a well-funded basis, combined with a certain scenario analysis.