Complex Securities Valuation

Equity Allocation for Complex Capital Structures

For any number of reasons – including financing rounds and restructuring – companies can find themselves with multiple classes of equity. A mix of preferred shares, options, and warrants isn’t unusual. This presents unique and complex challenges to equity allocation, because share classes can differ in terms of both economic and control rights. Economic rights, for instance, depends on how features such as liquidation preferences and conversion rights behave under a wide range of distinct outcomes.

Valuing these instruments requires consideration of all of the relevant terms plus the company’s future prospects.

Economic Rights for Equity Allocation

A valuation for a security must take into account all of its significant economic rights. Some of the more common rights we’ve seen include:

Liquidation Preference: Shares receive priority payments in the event of a liquidation, before money is allocated to other share classes

Dividend Rights: Shareholders may receive dividends, or retain rights to any dividends not paid

Conversion Rights: Shares can be converted into another class of shares, usually common, when the alternate class is more valuable

Redemption Rights: The shareholder can force the company to redeem the security and pay a fixed or variable price

Participation Rights: The shareholder will be paid a portion of value paid to other shareholders, often up to a preset cap

Anti-dilution Rights: In cases of a supplemental round, especially at a lower value, the shareholder is made whole by an adjustment of the shares or a subsequent issuance


We help companies by doing the following:

  • Assisting in the choice among multiple, forward-looking methods of equity value allocation
  • Valuing an enterprise and allocating the value between all of its share classes
  • Modeling the economic relationship between multiple securities for scenario analysis
  • Estimating the implied business enterprise value and value of other securities based on a recent transaction
  • Assisting companies in understanding the economic rights of their stakeholders