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How to settle difference in valuation upon business merge

Differences in business valuation

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Partnership A and partnership B agree to merge to form new partnership C. The agreed valuation of Partnership A is £400k and the agree value of Partnership B is £200k. What should the partners of partnership B pay to the partners of partnership A so that all are equal partners in partnership C?

Option 1: £200K

Option 2: £100K

Replies (7)

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By johngroganjga
02nd Aug 2016 12:19

They don't need to pay anything to become equal (sharing) partners. Do you mean what adjustment between them is necessary to equalise their capital accounts? If so the partners in B need to put in another £100,000 and the partners in A need to take out £100,000.

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By AJ05
02nd Aug 2016 12:33

Or Partners in partnership B to come up with the £200k difference to make it £400k equal to the value of partnership A...

Don't think this necessarily have to be physical cash though. Could be in form of assets or intellectual property.

I stand to be corrected.

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By AJ05
02nd Aug 2016 12:33

Or Partners in partnership B to come up with the £200k difference to make it £400k equal to the value of partnership A...

Don't think this necessarily have to be physical cash though. Could be in form of assets or intellectual property.

I stand to be corrected.

Thanks (1)
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By Gonline
06th Dec 2016 11:11

Apologies for the delay in re-visiting this and thanks for the responses so far! Another argument we have heard is that if all partners are to end up equal in partnership C, then partners of A should 'buy' 50% of partnership B, and vice versa. Therefore only £100k difference is involved? i.e. A buys 50% of B = £100k. B buys 50% of A = £200k. Difference = £100k? I have looked at this for so long I am confused! Can anybody help?

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By Portia Nina Levin
06th Dec 2016 11:18

It seems to me you have had all the answers. Both option 1 and option 2 are potentially correct.

Either the partners in partnership B put £100K in and the partners in partnership A take £100K out, or the partners in partnership B put £200K in and nobody takes anything out.

It is not exactly complicated. Have you considered the possibility that you are not the right person for the task?

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By Gonline
06th Dec 2016 12:20

Thanks for your prompt response! I am a business owner, not an accountant - hence i am asking this question to a panel of experts! We initially arrived at a £200k difference - as you say, it's not exactly complicated on the surface of it. However, another reputable source has argued that if you consider that this is a 2-way 'sale' of existing partnerships (as per my latter question, whereby partnership A buys 50% of partnership B and vice versa), then the difference is £100k. Do that make sense?

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By Portia Nina Levin
06th Dec 2016 12:26

Have you considered that you are not the right person for this task? Appoint a professional.

What you are suggesting is simply a variant (an over-complicated one) of A putting 100K in and B taking 100K out. The fact that you cannot see that speaks volumes.

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