Stock options/stock warrants are issued by both publicly traded and privately held companies. As a company grows and achieves milestones over the years following its incorporation, the company value and the value of the underlying shares of the stock option will increase. Management needs to make sure on a regular basis that the stock options are not being overvalued or undervalued. A periodic stock option valuation by an ‘Independent Appraiser’ ensures that the stock options are priced at fair market value.
Why is stock option valuation important?
• A periodic stock option valuation talks a great deal about a company’s culture of trust and transparency.
• Knowing the value of the stock options is essential to make informed decisions about granting stock options.
• Periodically pursuing a ‘Sec 409A’ appraisal helps to ensure regulatory compliance, mitigates tax-related penalties and drives business growth.
• Stock Option Valuation can help to mitigate the risk of dissenting shareholders and ‘turnover & retention risk’ of senior executives.
• Valuation of certain compensatory stock options may also be required for calculating gift, estate and generation-skipping transfer tax purposes.
What does the stock option value depend on?
• Any option’s value depends on its volatility, time value, risk free rate of interest, strike price and stock price.
• In case of warrants, additional factors like dilution, premium, gearing/leverage and restrictions on exercise need to be contemplated.
How does ValuLink determine the stock option value?
• ValuLink has over the years performed several stock option valuations across multiple industries for public as well as privately held companies.
• With broad experience and judgment, professionals analyze the complexity of the underlying asset by considering different factors which affect the option premium.
• ValuLink professionals apply the suitable option-valuation models, the most popular being ‘Black-Scholes Model’, ‘Lattice Model’ & ‘Monte Carlo Simulation’.
• ValuLink professionals select valuation methods that best fit the need and apply suitable approaches to determine the fair market value of the underlying asset.
Want to know the fair market value of your company’s common stock? Contact our Valuation Expert for more information.
In Today’s financial environment where decisions related to complex business transactions are surrounded by high levels of legal, financial and tax-related risks and uncertainty, ValuLink’s Fairness Opinion Expert can assist you in managing and mitigating these risks effectively.
Fairness Opinions are commonly issued in association with mergers & acquisitions, corporate restructurings, leveraged buyouts, legal disputes and more. It is highly recommended to obtain a fairness opinion before completing such business transactions to avoid expensive litigation and conflicts of interest.
Benefits from ValuLink’s Fairness Opinion services:
• Obtain an independent and impartial analysis by a qualified “Fairness Opinion Expert” to support the decision by board of directors and management
• Assess reasonability and fairness of proposed transactions from a financial perspective
• Achieve essential transparency and minimize risks of disagreements amongst shareholders
• Execute fiduciary duty and obtain protection in case of potential litigation disputes
ValuLink has the required expertise and resources in providing fairness opinions associated with a wide variety of complex corporate transactions involving both public and private companies, law firms and others.
Want an opinion on a fair transaction price to mitigate your business risks? Contact our Fairness Opinion Expert for more information.
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