Topic 47

M&A Values Are Not All the Same

Topic 47 explores the definition and applicability of the various values that are encountered in evaluating M&A opportunities.

INVESTMENT VALUE

  • Investment value is the enterprise or equity control value of a business to a particular buyer. Therefore, it includes all of the integration, structure, and tax synergies expected to be realized by that buyer.1
    • Acquisition premiums paid in deals generally result in total consideration amounts approaching buyer's investment value and generally include the effect of control premiums.
    • The negotiation process will determine how much of the expected integration, tax, platform, and synergy values of a particular buyer are shared with the seller.

CONTROL VALUE

  • Control value is the enterprise or equity value of a business to any number of buyers. It includes a notional control premium reflecting an owner's sole power and capability of realizing and accessing all the economic cash flow benefits possible arising from the exercise of control over the policy and operations of the target, including management appointment and compensation, company policy and direction, acquiring assets, making acquisitions, dividends, changing articles of incorporation or by-laws, going public, and so forth.2
    • The control premium reflected in a control value is not necessarily equal to an acquisition premium.
    • Such value may or may not be expressed after discounts for lack of marketability (see Topic 48).

FAIR MARKET VALUE ...

Get Practitioner's Complete Guide to M&As: An All-Inclusive Reference, with Website now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.