Expect a control premium? Is your new management good enough?

In BVR’s recent webinar on The Use and Application of Data for Control Premiums and Discounts, Gene Trevino (Valuation Associates Inc.) challenged a somewhat standard appraisal practice. The key question to ask,” says Trevino, “is can a buyer of a controlling interest do better at managing the company than the current owner? If you can’t do a better job than the current manager then you are hard pressed to apply a control premium. If you are working with the IRS on such a case they will ask you about this.”

Co-presenter Linda Trugman (Trugman Valuation Associates, Inc.) confirmed that the FactSet Mergerstat®/BVR Control Premium Study is the best source of data—as long as you understand where the data comes from and how the premiums are calculated. Some important things to know about the Study:

  • It includes completed domestic and international transactions where the target company was publicly traded
  • Only control transactions (50.1 percent or more) are included
  • Premiums are calculated as a percentage of the unaffected marketable minority price per share
  • The definition of the “Mergerstat Unaffected Price” is the price when the stock was judged to be unaffected by rumors of acquisition
  • Data are presented either including--or excluding--negative premiums (companies sold at a discount)