Premium Paid Analysis and Accretion/Dilution Premium paid analysis is a valuation method used to determine the intrinsic value of a target company by com...
Premium paid analysis is a valuation method used to determine the intrinsic value of a target company by comparing it to similar companies that have recently been acquired or merged. This method takes into account both the price paid for the target company and the value accretion it has received since the acquisition.
Accretion refers to the value a company receives from the acquirer or merger, including the cost of the acquisition itself, debt assumption, and other cash flows. Dilution refers to the value a company loses when it is acquired or merged, which can be calculated by subtracting the price paid from the market value of the acquired company.
The net premium paid analysis is the difference between the price paid and the value accretion. This method is used to adjust the price paid for the target company to reflect the value it has received from the acquirer.
Here's an example:
Company A is acquired by Company B for $20 per share.
Company A had a market value of $15 per share before the acquisition.
Value accretion = 15 = $5 per share.
Net premium paid = 15 = $5 per share.
This means that Company A was acquired for $5 per share, which is the net premium paid.
Key takeaways:
Premium paid analysis is a valuation method that takes into account both the price paid and the value accretion received by a company.
Accretion is the value a company receives from the acquirer, while dilution is the value a company loses when it is acquired.
The net premium paid is the difference between the price paid and the value accretion