What a control premium means for sellers and buyers
For the seller, a control premium means an opportunity to be paid more than a pure minority stake would normally fetch. The buyer, in turn, pays for the right to make decisions and take measures that can increase the company's value over time.
In practice, it is about power and room for manoeuvre. Control gives the ability to influence everything from the composition of the board to the dividend policy, which can justify a higher price.
Factors that affect the size of the control premium
The size of the control premium varies depending on the company, the market and the circumstances of the deal.
- The degree of actual control acquired
- The company's size, stability and growth potential
- The ability to carry out strategic changes
- Ownership structure and minority protection
- Market conditions and competition between buyers
When these factors are weighed together, they determine how large a premium the buyer is willing to pay for control.
When a control premium comes into play
Worth bearing in mind
A control premium arises mainly in acquisitions where the buyer wants to secure a controlling influence, for example when buying a majority stake or the whole company. The situation is common in unlisted companies, where ownership is concentrated and control is of great practical importance.
The premium becomes particularly clear when control makes possible changes that were not possible before, such as restructurings, efficiency improvements or strategic acquisitions.
Frequently asked questions
What is the difference between a control premium and market value?
Market value refers to the price without control, whereas the control premium is the addition paid for the right to steer the company.
Do control premiums also occur in listed companies?
Yes, in public takeover offers a control premium is often paid to take over the company.
Is a control premium always justified?
No, it is only justified if control can actually create added value.
How large is a normal control premium?
It varies greatly, but it can range from a few per cent to considerably more depending on the situation.
Are minority owners affected by control premiums?
Yes, control premiums can create differences in value between majority and minority stakes, particularly in unlisted companies.