- ‘Standard’ control premiums should be adopted with extreme caution
- More valuable to study cashflows and projections to understand the ‘level of control’ built into the cashflows and, wherever possible, to take account of level of value issues in the cashflows
Despite the appeal of the simplicity of the ‘levels of value’ chart in business valuations, the assumption that takeover premiums exist for all companies, in all industries, at all times is arguable. On this basis, ‘standard’ control premiums should be adopted with extreme caution.
In this article Stephen Reid FCA explores the difference between a control value and marketable minority interest value, being the premium for control or minority interest discount. He challenges the use of ‘standard’ control premiums and argues that studying cashflows and projections to understand what ‘level of control’ is built into the cashflows and gives some examples to illustrate how to think about the issue.
In my opinion, there is no need for a valuer to have a ‘standard’ control premium, indeed it is troublesome to have one.
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