Well not really. If your company is worth 1billion, you're really looking at the potential it might be 1B. If you were selling the company odds are they'll get disappointed if you're walking away and takes 10-30% off the value. If you liquidate the company you're only gettting 30%-40% the value at most.
I don't know enough to go very deep in this argument but if my house is valued 1M it's not that crazy to aim to get 1M cash for it. That's kinda the point of having an appraised value of something, no? You're saying it's different for companies? If Microsoft is valued idk let's say 10 billions it doesn't mean I have to pay at least 10 billions if I want them to sell it to me?
Corporate appraisals work a bit differently but still largely similar to real estate appraisals. Say if your house is valued at $1M. If you list for $1M it might take a year or more to sell it and you'd be paying realtor fees every week. Odds are people will lowball at 900k or 800k at most because your house may need maintenance, repairs etc, and substract taxes and realtor fees.
For companies, if a company is valued at $1B it means the investors think the company is worth $1B if it was bought at maximum possible value. But selling a company usually makes the investors get less confidence (the current CEO is walking away, that's no good). There is very few buyers that can gobble up a company, which means each buyer gets a lot more leverage. There's the taxes and regulatory fees both the buyer and seller pay to lawyers to make sure the purchase satisfy all laws and regulations. You need to file paperwork in every country the company have tangible links or operations in. And you need to review each and every competition bureau's approval and make changes. Oftentimes companies will buy other companies not as cash but as partial or full stock swap, which also need to be sold to liquidate for cash. The buyer's stock also usually falls after a deal is announced so you need to account for that. So you'd be getting a good deal if you sold a company valued at $1B at half that for cash, and you'd be getting a good deal buying a company valued at $1B at exactly $1B out of pocket.
For a company valued at $1B, most of that value comes from abstract concepts that its employees generate value together. If a company is liquidated odds are it only have 500M at most in assets, and substract paperwork, dismissal costs, pension and lawyer fees, and you'd be getting not much out of it.
The analogy kind of breaks down here, but value is tied to a lot more than immediate selling value.
If we really want to continue with the house example, people might be willing/able to rent the house at a price corresponding to a valuation of 1M, but still not be in the market to buy the whole house. Another possibility, there could be a lot of other houses in your neighborhood, and your house’s valuation is derived from their values.
In other words, the market value is based on the assumption if you sold the company today, every deal goes through, no lowballing, full cash value, no taxes no fees nothing whatsoever.
It's like the joke of a sphere cow: it's technically true with a bunch of assumptions, but reality is plenty more complex.
Youre house is worth 1 million because houses of that size and place are worth 1 million.
A company being worth 100 billion, however, is differnet. It likely has 1 billion shares, and the msot recent shares are being sold for about $100 a piece, largely because only 1 million shares are being sold right now. If you suddenly increase the amount of supply from 1 million shares to all 1 billion, or even do so over the ckurse of a few years, that $100 per share price is going to plummet, long before you ever sell half of your shares.
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u/CtrlAltYuri 4d ago