Can Control Premium be Estimated by Measures of the Economic State? - A Focus on the North American Technology Intensive Industry

Abstract

Purpose: The purpose of this thesis is to examine factors relevant to control premium in the external capital market of the company. The result is meant to provide an indication to realizing a fair price level for a technology intensive company by looking at its external environment and current market state. Background and Theory: To further explain our idea about correlating control premium level to macro factors we have explained measures of control premium (CP), described current industry outlook, origin of the current financial crisis and then thoroughly described data collection methods as well as how we reached our conclusions. Method: Quantitative data collection for all acquisitions in the North American technology intensive sector 2004-2010 has been gathered through the software Capital IQ. Capital market static data have been extracted from the software DataStream. These have been correlated with linear regression to understand their relationship. Analysis: The overall control premiums have proved to be higher during the recent period of recession. Reasons for this is are explained to be inefficient markets and positive expectations of the future from the sellers’ point of view well as long-term valuation methods and a belief of an intrinsic value.