How to value a partner's share when a partner leaves

The short answer

A partner’s share is worth the equity value of the business times the partner’s percentage. Equity value is enterprise value (what the operations are worth based on the cash they generate) minus net debt. The arithmetic is simple. Agreeing on each input is the hard part, which is why a partner buyout needs written assumptions from day one.

Book value is not economic value

Many buyouts start with someone opening the balance sheet and pointing to shareholders’ equity. That is a reference, but it is rarely the value of the share.

	Book value	Economic value (valuation)
What it measures	What was invested and retained, at historical cost	What the business is worth based on future cash flow and its risk
Looks at	The past	The future
Includes clients, brand and team?	Almost never	Yes, through the earnings they produce
When it fits	Asset-holding companies, such as real estate holdings	Businesses valued for their operating profit

In a profitable service business, economic value tends to sit well above book value. In a business with repeated losses, it can sit below. Using the wrong figure shortchanges one side, and whoever notices later tends to fight.

The calculation, step by step

1. Enterprise value (EV). Estimated with industry multiples applied to adjusted EBITDA and with discounted cash flow. Our business valuation calculator gives a first range, and how much is my business worth explains the methods.
2. Minus net debt. Loans and borrowings minus cash. The result is equity value. See enterprise value vs equity value.
3. Times the partner’s percentage. As recorded in the company’s documents, not as remembered.
4. Contract adjustments. Discount, valuation date, timing and payment terms, if the agreement sets them.

Illustrative example

The figures below are fictional. They come from Empresa Alfa, the clinic network used in our sample valuation report, in Brazilian reais. Assume a partner holding 30% wants to leave.

Item	R$ millions
Adjusted EBITDA	6.2
Enterprise value (range)	35.0 to 41.0
Net debt	2.1
Equity value (range)	32.9 to 38.9
Partner’s share (30%)	9.9 to 11.7

If Alfa’s book equity were, hypothetically, R$ 8 million, the book value of the share would be R$ 2.4 million. The gap between those two figures is exactly where disputes start.

What the agreement says

Whatever the partners agreed comes before any calculation. Look in the partnership agreement, articles of association or shareholders’ agreement for:

• Valuation method: book value, independent valuation, a fixed multiple or another formula.
• Valuation date: usually the date of departure.
• Payment terms: lump sum or installments, with or without adjustment.
• Right of first refusal: whether remaining partners have priority to buy.
• Who appoints the valuer and what happens if the parties disagree.

In Brazil, when the articles of association are silent, the law points to a settlement of the departing partner’s interest (apuração de haveres) based on a special balance sheet drawn up at the departure date, which values the company’s assets and rights, including intangibles, at market value. Other countries have their own rules. In every case, speak with a corporate lawyer before making an offer.

Does a minority discount apply?

A minority discount reflects that a small holder cannot decide alone on dividends, investment or a sale. It is more common when a stake is sold to an outsider. When the remaining partners buy out the departing one, a pro rata value without a discount is the usual starting point, unless the agreement says otherwise. If a discount is applied, it should be written down and justified early, not introduced at the last meeting.

Lump sum or installments

Few partners have the cash to buy the other out in one payment. Common structures:

• Installments with interest or inflation adjustment and security (a pledge of the shares being bought, guarantees, withheld dividends).
• Redemption by the company itself, when cash and structure allow.
• A new partner who buys the departing partner’s share. See selling part of my business.
• Bank financing for the remaining partners.

A lump sum and a long payment schedule are not worth the same. A long schedule moves risk to the partner who leaves, and that is usually reflected in the price.

Keeping the buyout from becoming a dispute

1. Agree on the method before the number. It is easier to accept a rule before you know who benefits from it.
2. Fix a valuation date. Without one, each side picks the month that favors it.
3. Put the assumptions in writing: adjusted EBITDA, owner compensation, debt, contingencies.
4. Use an independent valuer accepted by both sides, working from the same documents. Our business valuation checklist helps organize them.
5. Keep the number separate from the relationship. The math does not change because the exit is friendly or tense.
6. Keep running the business. If results fall during the talks, value falls for both sides.

When to bring in a valuer

When the share at stake is significant, when the agreement does not set a method or when the partners already disagree on the figure. A partner buyout valuation with the method, assumptions and valuation date explained gives both sides a common basis to negotiate and, if needed, to take to their lawyers.

Meu Equity provides an independent business valuation for partner buyouts, with the calculation explained to both sides.