Equity transfer appraisal: A basis for agreeing on price

When transferring an equity interest, the seller wants to receive a price that appropriately reflects the value they have built. The buyer needs to know whether the amount paid is commensurate with the rights and potential returns acquired. Looking only at the initial capital contribution or ownership percentage is often insufficient for both parties to agree on a price.

Equity transfer appraisal helps determine the value of a specific equity interest at a particular date for an agreed purpose. The appraisal result provides an additional basis for proposing a price, assessing an offer and negotiating a transaction.

At Hoang Quan Appraisal, we assess appraisal requests based on the equity interests clients intend to buy or sell. We then determine the scope of work, required documentation and appropriate implementation approach.

An equity interest may be worth more than the original capital contribution

The initial capital contribution reflects the amount invested at the time the capital was contributed. Over the course of its operations, a company may accumulate profits, expand its business, increase its assets or incur additional debts and financial obligations. These changes may increase or decrease the value of an equity interest.

For example, a member contributes VND 2 billion to acquire 20% of a companys charter capital. When the equity interest is transferred, its value is not automatically still VND 2 billion. The assessment must consider the companys financial position, operations and rights attached to the equity interest at the appraisal date.

Therefore, charter capital, book value and appraised value represent different types of information. Understanding these distinctions helps sellers substantiate their proposed prices while enabling buyers to assess an investment before entering negotiations.

Clearly identifying the equity interest being sold provides a sound basis for negotiation

Before calculating value, it is necessary to clearly identify the ownership interest being transferred.

A person holding 30% of a companys charter capital may sell their entire interest or only part of it. “Selling 10% of the charter capital” and “selling 10% of the equity interest currently held” are two different transactions. In the latter case, the transferred interest represents only 3% of the charter capital if the seller currently owns 30%.

In addition to the ownership percentage, the appraisal documentation should clearly establish:

• The owner and supporting evidence of ownership of the equity interest.

• The amount of capital contributed and the status of capital contribution obligations.

• Relevant rights and restrictions under legal documents, the companys charter and applicable agreements.

• The class of shares if the subject of the transfer is shares in a joint-stock company.

Correctly identifying the subject of the appraisal from the outset helps ensure that the appraisal result addresses the clients actual purchase or sale requirements. This also provides the basis for Hoang Quan Appraisal to agree on the scope of work before proceeding.

The same ownership percentage does not necessarily mean the same value

The ownership percentage is important information but does not fully reflect the characteristics of the equity interest being transferred. Its value must also be considered in relation to the company and the rights attached to that interest.

How does the company generate value?

Assets, liabilities, business performance and future income prospects are among the factors that should be considered depending on the specific case and appraisal method.

A company with substantial revenue does not necessarily generate strong profits. Similarly, a company holding significant assets may still face considerable debt obligations. Therefore, relying solely on revenue or adding up asset values to estimate the value of an equity interest may lead to an incomplete assessment.

What rights does the buyer acquire?

Voting rights, profit distribution rights, the ability to participate in decision-making and transfer restrictions may affect the assessment of value.

These factors must be evaluated based on actual documentation. A price premium should not automatically be applied simply because the ownership percentage is large. Likewise, a fixed discount should not automatically be applied because the equity interest is small.

At what date is the value being determined?

The appraisal date must be appropriate for the intended use of the result. Value may differ before and after a company distributes profits, increases its capital, incurs a substantial loan or transfers assets.

If a transaction takes an extended period and significant changes occur, clients should consult Hoang Quan Appraisal to assess whether the appraisal result remains appropriate before continuing to use it.

Should company value simply be multiplied by the percentage being transferred?

This is a calculation method many clients use for an initial estimate. However, it should only be considered after the appropriate underlying value and the characteristics of the equity interest have been correctly identified.

First, it is necessary to distinguish between the value of the entire business and equity value according to the valuation approach and method applied. Total assets cannot simply be multiplied by the ownership percentage to conclude the value of an equity interest.

Next, the rights, restrictions and other factors associated with the equity interest being transferred must be considered. Whether proportional allocation is appropriate or additional adjustments are necessary must be determined based on specific documentation and supporting evidence.

For clients who already have a previous appraisal result, Hoang Quan Appraisal needs to review the subject of the appraisal, appraisal date, intended purpose and relevant changes before determining whether that information can be used for the current requirement.

Hoang Quan Appraisal helps clients assess purchase and sale prices

Understanding the value of an equity interest provides a basis for considering transaction prices and negotiating with greater confidence. Hoang Quan Appraisal provides equity transfer appraisal services to help sellers establish asking prices and buyers evaluate proposed prices before making transaction decisions.

We serve clients seeking to transfer all or part of their capital contributions or shares, including transactions between existing members or shareholders and transfers to new investors. For each case, Hoang Quan Appraisal clearly identifies the equity interest to be appraised and considers the companys characteristics, ownership percentage and associated rights at the appraisal date.

From document preparation to delivery of the appraisal result, Hoang Quan Appraisals services focus on practical benefits for clients:

• Providing a basis for price negotiation: The appraisal result helps sellers consider their asking prices and buyers assess proposed prices based on information and analysis relating to the equity interest being transferred.

• Clarifying the basis of value determination: The report presents relevant data, methods, assumptions and limitations to help clients understand the result and use it appropriately for the intended appraisal purpose.

• Providing case-specific documentation guidance: We discuss the list of required documents and any additional information needed so that clients can prepare proactively.

• Agreeing on the scope, timeline and fees: Clients receive clear information about the scope of work, deliverables, estimated completion time and service fees before the appraisal begins.

Clients receive an appraisal report and appraisal certificate in accordance with applicable regulations. These documents clearly identify the appraised equity interest, appraisal date and intended use of the result. The appraisal serves as one of the bases for negotiation while the final transfer price is agreed upon by the parties according to the actual transaction conditions.

Contact Hoang Quan Appraisal for consultation on equity transfer appraisal services and a fee quotation based on your specific documentation.