What is the correct way to model a minority position in a company, financed with a combination of new leverage and convertible preferred securities? For example:
Assume the founder of the business owns 51% and a sponsor owns 49%. With new leverage and sponsor equity, the new sponsor would purchase the 49% stake and take out any existing debt. The capital would be invested as a convertible preferred security.
Any help here would be greatly appreciated Thanks!
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How about instead of demanding people send you a model, you let us know what you are having trouble with and we help you think through it.
For starters, do you think you can handle this problem if the sponsor just bought 100%
No.
Help with Minority Equity Accounting Please (Originally Posted: 05/03/2013)
Hi Guys,
Appreciate if you could please help me with the below
Say you have a company (Company A) which owns 60% of another company (Company B)
Company A takes over the remaining 40% of Company B using its cash from its balance sheet
Company A Total Equity = Shareholders Equity + Minority Equity
Can someone please explain me what would be the effect here on the Balance Sheet and on Total Equity? Shareholders Equity? Minority Equity?
Appreciate your help!
bump
Why do you list minority equity if Company A owns 60% to start with?
http://www.investopedia.com/terms/m/minorityinterest.asp
He's thinking the second definition. For example, what is minority interest and why do you add that into EV?
But, he poses the question from the point of view of Company A. Assuming he didn't think 60% stake in Company B counts as minority equity, A is purchasing B, meaning it is irrelevant in the EV of Company B.
Cash would decrease in line with liabilities
Company A only owns 60% of Company B
Comp A Pre-remaining 40% acquired: Cash: 100 Liabilities: 40 Equity: 60
Comp A Post-remaining 40% acquired: Cash: 60 Liabilities: 0 Equity: 60
Never open your mouth until you know what the shot is.
On Day 1, Company A owns 60% of Company B. Therefore, all of Company B's assets and liabilities are consolidated on Company A's balance sheet, with 40% showing up as "Minority Interest". Post-transaction, the Assets and Liabilities on the Balance Sheet won't really change (except to reflect financing of the transaction) and what was previously Minority Interest now just goes into Common Equity.
Mrb87 I agree with you, however can you explain what would happen if you used cash for the acquisition of the 40% how does the Balance Sheet Balance?
Before Acquisition Cash 100 Total Assets:100
Liabilities 50 Minority Interest 20 Equity 30 Total: 100
Post Acquisition Cash 80 ( reduced by 20 for acquisition of minority interest) Total Assets: 80
Liabilities:50 Minority Interest: 0 (reduced by 20 for acquisition) Equity: 50 (increased by 20 for acquisition) Total: 100
Where do you allocate the missing 20 under total Assets?
Your equity does not change upon this acquisition. No goodwill as you are paying 20 for 20. Simply cash down 20 and MI down 20. That's it.
bump
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