Last updated on 2024年9月13日

How do you deal with the lack of transparency and comparability of control premium transactions?

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A control premium is the amount that a buyer is willing to pay above the market price of a target company to acquire a controlling stake. It reflects the value of gaining access to the target's cash flows, synergies, strategic benefits, and decision-making power. However, estimating the appropriate control premium for a business valuation can be challenging, as there is often a lack of transparency and comparability of control premium transactions. How do you deal with this issue? Here are some tips to help you.

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Vicente Costa, Msc

Controller | Business Intelligence | Data Analysis | Business Strategy | Valuation

1 Use multiple sources

One way to deal with the lack of transparency and comparability of control premium transactions is to use multiple sources of data and information. You can look at different databases, such as Mergerstat, FactSet, and S&P Capital IQ, that track and report control premium transactions across various industries and regions. You can also consult industry reports, analyst opinions, and academic studies that provide insights and benchmarks on control premiums. By using multiple sources, you can cross-check and validate the data and information, and avoid relying on a single or biased source.

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Vicente Costa, Msc

Controller | Business Intelligence | Data Analysis | Business Strategy | Valuation
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Using multiple sources is essential to enhance transparency in control premium transactions. By considering data from diverse bases, such as financial reports, market analyses, and independent valuations, we can build a more robust picture and reduce reliance on limited or biased information. This diversified approach not only broadens the perspective on transactions but also supports more informed and reliable decision-making.

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2 Adjust for differences

Another way to deal with the lack of transparency and comparability of control premium transactions is to adjust for the differences between the target company and the comparable transactions. You can use various methods, such as regression analysis, multiples analysis, or discounted cash flow analysis, to adjust for the differences in size, growth, profitability, risk, industry, geography, and other factors that affect the value of a company. By adjusting for the differences, you can make the comparable transactions more relevant and comparable to the target company, and estimate a more accurate control premium.

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Vicente Costa, Msc

Controller | Business Intelligence | Data Analysis | Business Strategy | Valuation
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Adjusting for differences is crucial when dealing with a lack of comparability in control premium transactions. Each company has unique characteristics—from its business model to market conditions—which makes it important to normalize variables like size, risk, and expected growth. By making these adjustments, we can level the playing field and ensure that the analysis reflects a fair and accurate assessment of the transactions, considering their specific contexts.

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3 Consider the context

A third way to deal with the lack of transparency and comparability of control premium transactions is to consider the context and circumstances of each transaction. You can analyze the motivation, strategy, and timing of the buyer and the seller, and how they influenced the negotiation and the valuation of the deal. You can also consider the market conditions, such as the level of competition, regulation, and demand, and how they affected the availability and cost of capital, and the attractiveness of the target company. By considering the context, you can understand the rationale and the implications of each transaction, and avoid applying a generic or outdated control premium.

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4 Use professional judgment

A final way to deal with the lack of transparency and comparability of control premium transactions is to use your professional judgment and experience. You can apply your knowledge and expertise in business valuation, financial modeling, and industry analysis, and use your common sense and intuition to evaluate the data and information, and make reasonable assumptions and adjustments. You can also seek feedback and advice from other experts, peers, or mentors, and challenge your own assumptions and conclusions. By using your professional judgment, you can add value and credibility to your control premium estimation.

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Vicente Costa, Msc

Controller | Business Intelligence | Data Analysis | Business Strategy | Valuation
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When transparency and comparability are lacking in control premium transactions, relying on professional judgment becomes critical. Experience and expertise help identify the nuances and unique factors of each transaction that data alone might miss. It's important to combine quantitative analysis with qualitative insights, such as industry trends or specific market dynamics, to form a more holistic valuation. Professional judgment helps navigate uncertainty and enhances the credibility of the valuation process.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How do you deal with the lack of transparency and comparability of control premium transactions?

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1 Use multiple sources

2 Adjust for differences

3 Consider the context

4 Use professional judgment

5 Here’s what else to consider

Business Valuation

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