This Valentine’s Day, we look at parental love: a family-owned services company transferring shares from one generation to the next.
The question is not lovey-dovey, but practical:
How do you set a defensible transfer price that auditors and tax authorities are comfortable signing off on?
Unlike a strategic M&A transaction, this requires a focused valuation exercise — stripped of synergies, strategic premia, and competitive tension. The objective is clarity and defensibility.
Meet Services BV
Services BV is a stable regional technical services provider, delivering installation and maintenance services to households and businesses.
- Revenue: €20.0m
- Mature, steady business — no aggressive expansion plans
- Net debt: €1.5m
(This is the amount deducted from enterprise value to arrive at equity value.)
The task is to determine a reasonable equity value for internal transfer purposes.
Step 1: Management’s View of the World
We start with management’s medium-term plan.
It anticipates:
- Revenue growth of ~3% for the next three years
- 2% growth thereafter
- Stable EBITDA margins of 12%
Exhibit 1 — Management’s redacted forecast profile
| €m | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 |
| Revenue | 20.00 | 20.60 | 21.22 | 21.85 | 22.29 | 22.74 |
| EBITDA | 2.40 | 2.47 | 2.55 | 2.62 | 2.67 | 2.73 |
| EBITDA margin | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% |
This is not a growth story. It is a steady compounding story — typical of a mature Dutch technical services SME.
From Forecast to Cash Flow
DCF valuations are driven by cash, not accounting profit.
Using management’s forecast (supplemented with industry benchmarks where relevant), we derive free cash flow to the firm (FCFF):
Exhibit 2 — FCFF (Base Case)
| €m | 2025 | 2026 | 2027 | 2028 | 2029 |
| FCFF | 1.18 | 1.22 | 1.25 | 1.31 | 1.34 |
We then calculate a terminal value of €18.11m using the Gordon Growth Model for simplicity. Discounting both the annual FCFF and the terminal value to present value results in an enterprise value of €16.65m.
Step 2: The “Defensibility” Case
(Conservative scenario — incorporating ESG-related downside)
For share transfers, relying on a single forecast is rarely sufficient. A conservative case provides a prudence anchor.
This is not a crisis scenario. Instead, it reflects plausible downside drivers for Services BV — which can also be interpreted through an ESG lens:
- Slower contract renewals
Enhanced customer ESG standards may slow procurement processes or reduce framework renewals. - Margin compression
Higher labour costs following new collective bargaining agreements (“S”). - Higher reinvestment needs
Older equipment becomes obsolete due to new environmental and safety standards (“E” and “S”).
In this more cautious scenario:
- Revenue growth compresses to 2%
- EBITDA margin declines to 11%
- Capex increases slightly as a percentage of revenue
Taken together, these adjustments reduce free cash flow:
Exhibit 3 — FCFF (Conservative Case)
| €m | 2025 | 2026 | 2027 | 2028 | 2029 |
| FCFF | 0.56 | 0.98 | 1.00 | 1.04 | 1.05 |
The first year absorbs most of the impact — reflecting tighter working capital and reduced operating leverage — before cash flows stabilise. Terminal value falls to €14.22m.
Step 3: Establishing a Transfer Range
The management case and conservative case provide bookends for a credible equity valuation range.
Exhibit 4 — Equity Bridge
| €m | Base Case | Conservative |
| Enterprise Value (EV) | 16.65 | 12.78 |
| Net Debt | (1.50) | (1.50) |
| Equity Value | 15.15 | 11.28 |
This implies a defensible internal equity value range of approximately:
€11.3m – €15.2m
The spread is meaningful (about 25%), but not extreme. It reflects prudence without scenario engineering.
To Conclude
Internal share transfers require discipline.
The valuation must be:
- Transparent
- Evidence-based
- Clearly separated from arm’s-length pricing
- Free of strategic or control premia
When structured properly, a DCF framework can provide accountants and advisers with exactly what they need:
A practical, defensible basis for documenting a reasonable internal transfer price.
And perhaps that’s the most sustainable form of value transfer — one that keeps both the family and the tax authorities comfortable.