Module II· Valuation — Regional NotesAdvanced
Question
What is group/affiliation law, and what valuation risks arise in group valuations?
Answer
Group/affiliation definitions
- Dependent companies: a company over which another can exert a controlling influence.
- Group: several companies combined under unified management.
- De facto group: no domination agreement, but de facto dependency.
Mechanics
The parent may cause a dependent subsidiary to take disadvantageous measures, but must compensate the disadvantages — otherwise it faces damages claims.
Compensation risk
where disadvantages aren't compensated, minority shareholders can claim damages. Classic cases: intra-group pricing, cash-pooling terms, asset transfers, service charges.
Valuation implication
- When valuing dependent subsidiaries: analyze "de facto group effects" separately — are margins "artificially" low or high because of group pricing?
- A stand-alone valuation requires an adjustment to market-equivalent margins.
- Cash-pool risks: on the parent's insolvency, the subsidiary can suffer a cash loss.
Deep diveShow more details
Pitch tip
"In carve-out valuations of dependent subsidiaries, always build a 'stand-alone margin bridge' — normalize group charges, transfer prices, and service fees to market prices. The lift can be 200–500 bps of EBITDA margin."