Acquisition premium Flashcards
What does include the acquisition premium?
internal improvement synergies control premium (these could be inexistent for PE).
Status quo valuation
as is, without synergies and internal improvements.
Internal Improvement
value as the company was optimally managed. It is inversely proportional to the quality of management and also financial acquirers can benefit of this.
(Val of Int Impr=value of firm with restr. – value of firm without restructuring).
Control premium
It includes the benefits of control (control premium) and can be divisible or exclusive.
Private benefits of control
Self-dealing: monetary and high transferability
Dilution: monetary and implementable by few
Amenities: non-monetary and potentially transferable to many
Reputation: nonpecuniary and limited to a few people
What does not justify a premium?
brand name, mgt quality do not justify premium because they are already in the value
Voting premium method
Used to calculate control premium:
difference in value between ordinary shares and saving ones
Block premium method
Used to calculate control premium:
difference between acquisition price of a controlling block and market price of ordinary shares.
FORMULA: Value with Control benefits
Va=(Vb+Vdivisible )*x%+Vexclusive - assuming that all benefits realises for sure
Va=(Vb+Vdiva1 )x%+Vexc*a2 - with a probability of having benefit
Single share value: v=Va/(N*x%)
FORMULA: Minority discount
1-(1/1+premium)
FORMULA: STP(%)
STP(%)=((P_TO-P_ref)/P_ref) *a%
FORMULA: SBP(%)
SBP(%)=((P_BTa_BT+P_TOa_TO)⁄(a_BT+a_TO ))/P_ref *a%
Which are the different types of synergies?
Operational synergies: reduction in costs, increase in revenues, appropriate management of WC, more investments, higher returns (economies of scale and strategic advantages)
Financial synergies: diversification, cash slack, tax benefits(tax losses, assets writeup), debt capacity.
Synergies according to type of merger
Horizontal (economies of scale, increased market power)
Vertical (higher control over supply chain)
Functional integration (reduce costing).
The effect of synergies comes from
expected growth rates, cash flows, cost of capital.
