Wednesday, June 30, 2010

Pre-IPO Stock Sales Creating 409A Valuation Chaos

"The potential impacts of private secondary market sales on 409A valuations are, in a word, complex. Transactions may reflect discounts or premiums for marketability, liquidity, and/or control, each of which impact the fair market value of private company stock. Fur ther, purchasers may be willing to pay a premium for access to private stock they would not otherwise have, thus overpaying vis-à-vis fair market value. Such overpayments are sometimes referred to as a posturing or access premium, and are difficult to quantify. Similarly, sellers may be willing to take a lower-than-fair price due to extenuating financial exigencies. These issues are just the tip of the iceberg. When Arcstone is engaged to value equity securities where secondary sales have occurred (or are contemplated), we take a close look at the facts and circumstances surrounding the transactions themselves."

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