Comments on: Premium for control - 42 Below http://blog.valuecruncher.com/2006/10/premium-for-control-42-below/ Tue, 16 Mar 2010 11:31:41 +0000 http://wordpress.org/?v=2.7 hourly 1 By: The Crunch http://blog.valuecruncher.com/2006/10/premium-for-control-42-below/comment-page-1/#comment-396 The Crunch Fri, 27 Oct 2006 02:51:23 +0000 /wordpress/?p=11#comment-396 It is, or should be, all about the cash flows. If an investor coming into a company has a higher value business plan for the business - i.e. a plan that they believe will make the business more valuable than it currently is. The investor will be prepared to pay above what the company is currently worth to implement that business plan. The investor will be prepared to pay away some of the additional cash flows they will generate to complete the transaction - but not all of them. The investor will also need to acquire a stake where they have the influence (ability) to implement the improved business plan. The improved business plan should either increase the cash flows or decrease the variability of cash flows (the discount rate) - or it doesn't improve the overall value. If there is not a new higher value business plan - just business as usual - why would someone pay a premium for controlling the business? It is, or should be, all about the cash flows.

If an investor coming into a company has a higher value business plan for the business - i.e. a plan that they believe will make the business more valuable than it currently is. The investor will be prepared to pay above what the company is currently worth to implement that business plan. The investor will be prepared to pay away some of the additional cash flows they will generate to complete the transaction - but not all of them. The investor will also need to acquire a stake where they have the influence (ability) to implement the improved business plan.

The improved business plan should either increase the cash flows or decrease the variability of cash flows (the discount rate) - or it doesn’t improve the overall value.

If there is not a new higher value business plan - just business as usual - why would someone pay a premium for controlling the business?

]]> By: Bone http://blog.valuecruncher.com/2006/10/premium-for-control-42-below/comment-page-1/#comment-395 Bone Fri, 13 Oct 2006 23:16:28 +0000 /wordpress/?p=11#comment-395 Surely there must be other components to the "premium for control" than synergies alone? The term "premium for control" is used in transactions where no apparent synergies exist or the transaction represents less than a 100% acquisition of the target company. Surely there must be other components to the “premium for control” than synergies alone? The term “premium for control” is used in transactions where no apparent synergies exist or the transaction represents less than a 100% acquisition of the target company.

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