Date posted: 01/03/2021

Control values: the fallacy of applying a ‘standard’ takeover premium

Is it time to banish the rote application of ‘standard’ control premiums to comparable company multiples and in determining minority interest discounts?

In brief

  • ‘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.
Stephen Reid FCA

Three key trends from the valuation practice survey

The first CA ANZ Valuation Practice Survey asked members for their views on the key trends affecting valuations. Here are three insights it revealed.

Take Survey

Business Valuation

We offer tools and resources to help members working in business valuation.

Read more