"Price is the belief of the market, and premium is the bet of capital." When the chess game of the capital market enters the stage of competition for control rights, premium becomes the key to the struggle among all parties. 30% - this number that frequently appears in the control rights transactions of listed companies, is it the market's rational assessment of the future growth of the company, or a bubble phantom in the capital competition?
Goheal observed that in recent years, the premium of control acquisition has shown an "inertial pattern": the 30% premium rate seems to have become a psychological expectation. Whether it is the major shareholders of listed companies selling shares or the secondary market bidding acquisition, the acquirer seems to be willing to pay this "extra ticket fee" for control rights. But the question is, what is this premium based on? Is it a reflection of the true value of the company, or a product of capital frenzy?
The essence of the control premium: Why is capital willing to pay a high price?
If a company is compared to a city, control is like the key to the city gate. Whoever holds the key can determine the future direction of the city. But why are buyers willing to pay a high premium to get this key?
1. Voice premium: Obtaining control means being able to lead the company's strategic direction, adjust the management team, and optimize capital operations. Therefore, the acquirer is willing to pay a premium for this power.
2. Resource synergy effect: For industrial investors, acquiring a listed company is not just a financial investment, but more likely to be for integrating upstream and downstream resources and expanding the market. The premium is to pay for future synergy benefits.
3. Asset securitization premium: The valuation logic of the capital market is different from that of physical enterprises. The valuation of some industries in the secondary market is often much higher than that in the primary market. Therefore, the acquirer, through mergers and acquisitions, loads unlisted assets into listed companies and enjoys the arbitrage space brought by the valuation increase.
4. Shell value premium: Although the promotion of the IPO registration system has depreciated shell resources, for certain specific industries or companies that cannot be directly listed, backdoor listing is still an important way to go public, so control itself also has a certain "premium attribute".
Goheal found in the M&A cases in the global capital market that the control premium in mature markets is usually between 15% and 30%, while in emerging markets it may be higher, especially in periods of shortage of shell resources and high industry prosperity, the premium may even exceed 50%. But does this mean that a 30% premium is a reasonable market benchmark?
30% premium: rational expectation of the market, or irrational bubble?
When the premium is a rational premium, 30% is reasonable
In some cases, paying a high premium does conform to business logic. For example, a rapidly growing technology company has high industry competition barriers and strong future profitability, and the acquirer is willing to pay for future growth. Then, a 30% premium can be regarded as a reasonable long-term investment.
In addition, if the target company holds key resources such as scarce licenses, land, and patents, and the market demand for these resources is strong, the premium will be more realistically supported. For example, in industries restricted by licenses such as finance, medical care, and education, the premium is often higher than that of traditional manufacturing.
When the premium is an irrational bubble, 30% becomes a game of passing the parcel
But in another case, the premium may be just part of the bubble in the capital market. For example, some acquisitions are not based on the real value of the enterprise, but for short-term speculative arbitrage, or even for "telling stories" to drive up the stock price. In this case, the 30% premium may be just the result of market speculation. Once the market changes and the bubble bursts, investors will be the ones who suffer in the end.
What is more worthy of vigilance is that there may be interest transfer behind some control transactions. For example, major shareholders of listed companies transfer shares at a high premium, which is actually cashing out and leaving the market, while the takeover party is often hyping concepts in the capital market, which eventually leads to a sharp drop in stock prices and investors suffer losses.
Goheal reminded investors that not all transactions with a 30% premium are safe. The key lies in whether the business logic behind it is valid and whether it has real industrial value support.
Pricing game in control acquisition: Who is leading the price and who has the right to speak?
In the pricing game of control acquisition, sellers and buyers have their own thoughts, and multiple variables such as market factors, regulatory policies, and capital liquidity jointly determine the final transaction price.
1. Bargaining power of major shareholders: Major shareholders often want to sell shares at a higher price, so they will emphasize the long-term value of the company, industry prospects, etc. to increase the premium.
2. Bargaining strategy of the acquirer: The acquirer needs to evaluate the integration costs and market risks after the acquisition, and usually find bargaining chips through due diligence, market benchmarking, etc. to reduce transaction costs.
3. The impact of market sentiment: In a bull market environment, investors are generally optimistic about future growth, and the premium may be higher; while in a bear market environment, the buyer's bargaining power is enhanced and the premium may be compressed.
4. Constraints of regulatory policies: M&A transactions in some industries need to be approved by regulators, such as finance, military industry, and the Internet. Policy uncertainty will affect transaction prices.
In this game, who can hold the right to speak often depends on the market position of the company, the bargaining power of the two parties to the transaction, and changes in the market environment.
Conclusion: 30% premium, the golden rule of the market or the fireworks of capital?
In the world of control transactions, a 30% premium seems to be a "recognized price", but it may be a true reflection of the growth of the company or an illusory bubble in the capital market. So, for investors, how to judge whether the premium of a transaction is reasonable? How to avoid being cut off in the capital frenzy?
Is the premium of control transactions a reflection of value or an illusion of the market? Welcome to leave a message to discuss!
[About Goheal] Goheal is a leading investment holding company focusing on global mergers and acquisitions, focusing on the three core business areas of listed company control acquisition, listed company mergers and acquisitions and restructuring, and listed company capital operation. With its deep professional strength and rich experience, it provides enterprises with full life cycle services from mergers and acquisitions to restructuring and capital operation, aiming to maximize corporate value and achieve long-term benefit growth.
