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Mergerstat Review
The source of control premium statistics most commonly used by business appraisers is the annual Mergerstat
Review, currently published by Houlihan Lokey How ard & Zukin of Los Angeles. Mergerstat compiles data on
publicly announced mergers, acquisitions, and divestitures involving operating entities, w here the transfer
involves at least 10% of the subject companys equity, the purchase price is at lease $1 million, and w here at
least one of the parties to the transaction is a U.S. entity. The current edition, Mergerstat Review 1999,
represents the 17th annual hardcover volume.
Mergerstat Review defines the "control premium" as the difference betw een the public market price of a
minority interest in the stock of a subsequently acquired company five days prior to a buyout announcement
and the actual buyout price. According to Mergerstat Review 1999, the all-industry average and median control
premiums paid in transactions involving 512 reporting companies in 1998 w ere 40.7% and 30.1%, respectively.
The range of average annual premiums from 1974 to 1998 is from a low of 35.1% in 1991 to high of 50.1% in
1974. Mergerstat Review also provides average control premiums by industry group and by sector as w ell as
premiums for individual transactions, but it does not provide any detailed or higher level statistical analysis of
the observed premiums in any given year.
The follow ing table summarizes average and median annual control premiums compiled by Mergerstat Review
for transactions occurring in 1989-1998 along w ith the minority interest discounts implied by the corresponding
control premiums:
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The follow ing table summarizes the distribution of the observed premiums and discounts:
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With regard to the negative control premiums, one likely explanation is that a subject company may already be
perceived to be "in play" and the buy-out price may already be captured in the market price of the stock.
With such a w ide variation of observed control premiums, an average or median can hardly be considered to be
definitive, and the appraiser must show care and informed judgment in applying discounts and premiums
derived from the averages to a specific company.
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