Yes. Very sad that option-holders and shareholders often do not have sufficient information about the rights attached to each share class, to estimate the value of their shares (even if they can perfectly value the enterprise overall).
The options-holders and shareholders may have perfect information about the share structure and preference structure of the company, but unless they're in the room when the deal is being done, they won't know what that means in terms of final value.
The value of anything is the lesser of what someone will pay for it and what the owner will sell it for. The PE team may have raised expectations about the value before the sale, so that everyone thought they would get something despite the preferences. Then they sold it for less...
There is no such thing as an "accurate valuation" though.
I was just involved in the sale of a company that had no assets, an outstanding court case against it that it was losing, and a tax bill of $3.5m against it. The buyer paid $5m for it. That number was literally the fist number that I plucked out of the air during the first conversation we had with the buyer, and somehow it stuck as the deal valuation.
Unless you're in the room during the deal, you have no idea what number is going to be used.
It sounds strange that a company with 'no assets' was bought for a non-negligible sum.
If you had said 'it had no physical assets' or 'book value of its assets was zero' or similar, it would make sense.
But if literally had no assets, what was the buyer buying? The name of the company?
Back on topic: even after the 5MM exit value is known, it's impossible for me to value the shares of an employee who owns 1% of the shares. The value is almost certainly between zero and 50k, but without seeing the share docs, no one knows.
Yes, basically, the name of the company. And that is an intangible asset worth entirely whatever people think it's worth. The only place where you can make any guess as to what it's worth is in the room when the deal is being done.
As you say, if you have 1% of the company, then you could have 1% of $1 (which was a serious offer for the same business made 3 years ago) or 1% of $5m. The big difference is not in the 1%, but in the sale price. To get the same difference from share structure, you'd need a variance in shareholding of 1%-1000%.
Though I'll grant you that share classes and preferences can reduce your value to 0, but it's a lot harder for preferences to raise the value an order of magnitude.
Again, if you're not in the room when the deal is done, you have no idea what anything is worth, or whose interests are really being looked after. There's all sorts of shady deals and backhanders that can go on with bonuses and commissions that mean that everyone except the shareholders come out good.
It's kinda like the old poker saying: there's always a sucker at the table. If you don't know who it is, it's you. Same for acquisitions... if you're not in the room when the deal is being done, then you're the sucker.
