In an extensive study on control premia coming out in the new March BVU this week, Brad Pursel offers the following conclusions:
Control premiums are a significant input in many valuation engagements and are often featured prominently in assessing the reasonableness of an offer to acquire a public company. Significant data now exists that a valuation specialist may analyze in determining an appropriate control premium to apply. However, as discussed in this article, it appears that before determining what control premium to apply, the valuation specialist must answer a fundamental question: what is the most meaningfully way to measure a control premium in terms of equity or invested capital? The data presented in this article would appear to indicate that the utilization of invested capital is a more meaningful method of measuring a control premium and, therefore, applying a control premium to a public company value to convert it to a controlling interest basis. Other search criteria, such as buyer type, country, and exchange, indicated that these may also be important to consider in selecting transactions for further analysis. However, even if there is agreement by valuation specialists on the method of calculating a control premium and the criteria to utilize in selecting transactions, it is still a complex task to analyze transactions in order to consider the numerous factors that may have influenced the magnitude of the control premiums observed and then to relate these factors to a subject company at a different point in time with its own unique characteristics. Recent academic research has indicated that the 52-week high price for target companies has a key role in purchase prices and control premiums and, therefore, needs to be considered in a control premium analysis. Additional empirical study of control premium data may lead to a more meaningful analytical framework to be used by valuation specialists, financial advisory firms, and other interested constituents.