The SEC raised concerns that many control premiums
require more validation of how premiums are
determined. The Working Group decided to label the
control premiums applied to measure fair value for
financial reporting purposes as Market Participant
Acquisition Premiums for the following reasons:
1. To emphasize the importance of the market
participant perspective when measuring fair value.
2. To distinguish this premium from the more general
(and occasionally controversial) notion of control
premiums that are used in other valuation contexts.
The Working Group came up with the following, but not
comprehensive, list of factors that should be considered
in analyzing the price market participants should pay for
the subject controlling interest:
1. Acquisition activity in the industry
2. Stage in company life cycle
3. Market participant attributes
4. Size of market participants relative to subject entity
5. Balance of information
6. Capital structure of subject entity
7. Management objectives
8. Quality of management
9. Regulatory factors
10. Corporate by-laws and governing documents
11. Transaction structure
It is the Working Group’s opinion that it is most
appropriate for the MPAP to be applied based on the
total invested capital (or enterprise value) rather than
equity value. The Working Group came to this conclusion
for the following reasons:
1. To better align with the underlying economic benefits
giving rise to the MPAP.
2. To enable greater comparability across firms with
different capital structures.
The final exposure draft is expected to be issued later this year.
2
| Valuation Vantage
Spring-Summer 2015
“
Market Participant Acquisition Premium Final Exposure Draft...
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