Blockage Discount


Blockage discount is a reduction in the value of a large number of shares or a significant ownership stake in a company when selling them all at once could disrupt the market. It accounts for the difficulty of finding buyers for such a big block of shares without causing a negative impact on the share price. The discount is applied to the value of the shares to reflect this potential market impact and provide a fair valuation. Blockage discounts are used when a large shareholder wants to sell a substantial number of shares, and they help establish a more realistic value for the shares considering the challenges of selling them in bulk.

Further Explanation

Blockage discount refers to a reduction in the value of a large block of shares or a substantial ownership interest in a company due to the potential difficulty of selling such a significant stake in the open market without causing a disruption or negatively impacting the market price of the shares.

When an individual or entity owns a substantial number of shares in a publicly traded company, attempting to sell them all at once can flood the market and drive down the share price. This creates a liquidity issue and can result in a lower overall value for the block of shares being sold.

To account for this potential market impact and to provide a fair valuation, a blockage discount is applied to the value of the shares. The discount reflects the perceived reduction in value due to the marketability risk associated with selling a large block of shares.

The blockage discount is typically determined by assessing various factors, such as the trading volume of the company’s shares, the prevailing market conditions, the size of the block being sold, and the potential impact on the stock price.

Blockage discounts are often applied in situations where a significant shareholder, such as an institutional investor or insider, intends to sell a large number of shares. The discount serves as a way to account for the potential adverse effects on the market and helps establish a more realistic value for the block of shares in question.

It is important to note that blockage discounts can vary depending on the specific circumstances and the characteristics of the company and its shares. Professional appraisers or financial experts may be consulted to determine the appropriate blockage discount for a particular transaction or valuation.

Why Appoint Valtech as Valuation Adviser?

Valtech’s team has provided valuation advice to over 200 listed companies in Hong Kong, China, Singapore, Taiwan, Australia, the United Kingdom, the United States and Germany.

Valtech Valuation is a professional valuation firm accredited with ISO-9001 in valuation advisory services. The financial market and valuation requirements are highly dynamic. We are determined to develop and maintain a quality management system to foster an environment which is sustainable and evolving continuously. Our founders stress on development of a system and an environment that our consultants are provided with necessary support and opportunities to thrive.

We are a team of professionals from multiple disciplines including audit, financial modelling, tax, internal control and surveying. Our management adheres professional excellence. Abundant resources are reserved to develop standardized policies and procedures for quality control. We have solid track record in valuation advisory for listed companies, private equity, fund managers and financial institutions. We work closely with big four and other international accounting firms, corporate financial advisors, fund managers and legal advisors.

Valtech Advantages:

Advanced Valuation Techniques: Valtech Valuation can develop and implement advanced valuation techniques that are specifically tailored to the needs of clients. These techniques can go beyond traditional valuation methods and incorporate factors such as market trends, industry benchmarks, and risk analysis to provide more accurate and insightful valuations.

Customized Valuation Models: Valtech Valuation can create customized valuation models that align with the unique investment strategies and asset classes. By understanding the specific requirements and objectives of these entities, Valtech Valuation can develop models that capture the nuances of their portfolios, resulting in more precise and relevant valuations.

Data-driven Insights: Valtech Valuation can leverage its access to comprehensive data sources and analytics tools to provide data-driven insights. By analyzing market data, economic indicators, and performance metrics, Valtech Valuation can offer valuable insights into the valuation of assets, identify emerging trends, and help inform investment decision-making.

Adherence to Compliance and Reporting Standards: Valtech Valuation can ensure that valuation practices adhere to regulatory compliance and reporting standards. By staying updated on relevant regulations, such as accounting standards and industry guidelines, Valtech Valuation can help clients meet their reporting obligations accurately and in a timely manner.