BV803-CON Session: Understanding Tranched Preferred

CE 1 | Business Valuation

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Session Description

What is Value of the Right or Obligation to Buy More Shares? How Does That Impact My Common Stock Value?

Capital-intensive companies such as biotechs frequently structure investments as “tranched preferred”, where the investors and the company agree to fund a certain amount at the initial close, and an additional amount at a subsequent date at a specified price if certain milestones are met. In these structures, the company may have to report the fair value of the right or obligation to buy/sell more shares in the later tranche. This session will explore a couple of valuation approaches that have been used for these analyses and present a new approach that takes into account various situations regarding the impact of the required milestones and how the investors might proceed if the milestones aren’t met. In addition, we will consider the impact on common stock valuation in a tranched preferred structure.


Amanda A. Miller, Ph.D.  | Valuation Executive Director | Ernst & Young

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Disclaimer: The opinions expressed in this presentation are that of the presenter(s) and do not necessarily reflect the views and opinions of the American Society of Appraisers.

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