The use of stock as a meaningful portion of a transaction generally leads to a:
A)Higher valuation
B)Lower valuation
C)Higher multiple
D)It depends

Question

Quizplus · Accepted Answer

The use of stock as a meaningful portion of a transaction generally leads to a lower valuation because stock is considered a riskier form of payment than cash. This uncertainty often results in a discount being applied to the value of the stock. Additionally, stock-based payments can dilute the ownership stake of existing shareholders, which can also lead to a decrease in valuation.

The Use of Stock as a Meaningful Portion of a Transaction