A buyout price is not just a formula

The signal

An agreement to buy someone out does not answer what their shares are worth.

“Fair value” or “market value” may sound objective, but a private-company valuation still depends on a date, financial inputs, debt treatment, comparables, discounts, assumptions and professional judgment. Small methodological differences can become the dispute after the right to exit is no longer disputed.

What happened

Court-record facts. In litigation concerning a private company, it had already been determined that one shareholder’s stake should be purchased by the other side. The issue before the Irish Supreme Court was confined to the valuation process and appellate review of the expert evidence.

The High Court had valued the company using earnings before interest, tax, depreciation and amortisation of €44.9 million and a multiplier of 6.1. After deductions including debt, it reached an equity value of €87.5 million and a price of €30.6 million for an assumed 35% stake. A separate ruling established that the actual holding was 30%, producing an ultimate purchase figure of €26,228,571.

The multiplier was highly consequential. The Supreme Court observed that a change of 0.1 would move the company valuation by €4.4 million. The parties’ experts had discussed both transaction comparables and publicly traded comparables, but the trial judgment did not adequately explain why its particular approach and multiplier were chosen.

What the court decided

Holding. The Supreme Court dismissed the appeal and upheld the Court of Appeal’s decision to send the valuation issue back to the High Court.

It held that a trial judge may adopt a valuation method different from those advanced by all the experts. But if the judge takes that “third way,” the judgment must provide a rational basis rooted in evidence or logic so that the parties and an appellate court can understand it.

The Court said valuation is not an exact science. The experts had agreed that choosing an appropriate multiplier required informed judgment about the suitability and weight of comparables, rather than a purely mathematical exercise. The trial judgment did not make its reasoning sufficiently clear.

Key takeaways

Paraveilux interpretation — not a court finding.

• A buyout mechanism is incomplete if it identifies an obligation to sell but not a usable path to price.
• “Independent valuation” still leaves questions about instructions, information, assumptions, expert selection and what happens when opinions diverge.
• Debt and other deductions can amplify modest changes in an earnings multiple; the headline formula can conceal the variables doing most of the work.

The hidden variable

Paraveilux interpretation — not a court finding. The hidden variable was the reasoning between inputs and output.

Two valuers can use the same broad formula and still disagree about which companies are comparable, whether transaction or trading evidence deserves more weight, how current performance should be normalised and which risks belong in the multiple. A clause that names “EBITDA times a market multiple” may only move the argument one level down.

The decision is also a reminder to separate valuation governance from litigation doctrine. The Court ruled on how a judicial valuation and expert record must be reasoned. It did not draft or validate a contractual buy-sell formula.

Questions for an owner

Practical questions, not prescriptions.

• What valuation date applies, and can either side influence results before that date?
• How are earnings normalised for founder pay, related-party charges and one-off events?
• Which debt, cash, working-capital and contingent-liability adjustments are included?
• Is any minority or marketability discount permitted, prohibited or left open?
• Who selects and instructs the valuer, and what records must each side provide?
• What process resolves a material difference between valuations without restarting the whole dispute?

Related reading

Shareholder agreements beyond the cap table highlights the terms that make an exit clause operational. Founder exit, death and incapacity continuity places valuation inside the wider funding and continuity plan.

Evidence boundary

Scope and currentness. This Irish appeal concerned judicial review of a court-ordered purchase valuation in oppression proceedings. The Supreme Court did not decide the underlying entitlement to a buyout, endorse one valuation formula for private companies, or set universal rules for contractual founder exits. Its reasoning about expert evidence and judicial explanation arose from this record. This brief was checked against the official judgment on 12 August 2026; it does not assess later treatment or changes in Irish company law.

Source transparency. The business roles above are anonymised. The source decision is Donegal Investment Group plc v Danbywiske and others [2017] IESC 14, decided 27 February 2017. This brief is general risk education, not legal advice or a valuation opinion.