Non controlling interests
Valuation & CompsThe portion of a consolidated subsidiary the parent does not own, added back when bridging to enterprise value.
Also written: NCI, minority interest, noncontrolling interest
When a parent controls a subsidiary but owns less than all of it, consolidation is all or nothing: 100% of that subsidiary's revenue, EBITDA and assets go into the group accounts. The parent's own equity value reflects only its share.
That mismatch is why non controlling interests are added in the bridge. Enterprise value has to represent the claims on the whole consolidated business, because the denominator of the multiple, consolidated EBITDA, describes the whole business too. Without the adjustment you divide a partial numerator by a full denominator.
The mirror image is an equity method investment, where the stake is too small to consolidate. None of that associate's EBITDA is in the group figure, so its carrying value is subtracted rather than added.
Where it is material, the cleaner answer is often to value the subsidiary separately on a sum of the parts basis rather than trusting the balance sheet carrying value, which is a historic accounting number rather than a market one.
Worked example
A parent owns 70% of a subsidiary generating 100 of EBITDA, and 400 of EBITDA elsewhere. Consolidated EBITDA is 500, because consolidation takes all of the subsidiary.
The parent's market capitalisation is 2,000 and it has 500 of net debt. Without adjusting, EV/EBITDA looks like 2,500 over 500, or 5.0x.
The 30% the parent does not own is worth roughly 180. Adding it gives 2,680 over 500, so 5.4x. The unadjusted figure divided a partial numerator by a full denominator.