Acquisition Premium Study: An analysis of acquisition premiums in Australia from 2012 to 2022
7 March 2023
An acquisition premium is the difference (excess) between the market value of a company and the price paid to acquire it. An acquisition premium represents the increased cost of buying a target company during a merger and acquisition (M&A) transaction.
The Valuations team at Findex conducted a study of acquisition premiums in Australian transactions between 1 January 2012 and 31 December 2022. This study was conducted for analysis purposes only. The underlying data for the acquisition premium was sourced from S&P Capital IQ and yielded approximately 564 transactions (with meaningful data) that were completed during the period.
No specific definition exists for acquisition premium, which could reflect the value of both control and synergies. Our study is based on all transactions irrespective of the percentage acquired. Acquisition premiums observed for transactions where percentage acquired is equal to or more than 50% may arguably have higher proportion of control premiums, however, it must be noted that it is difficult to separately quantify control premiums from observable data of acquisition premiums.
Magnitude of the acquisition premium paid in a specific transaction may be impacted by several factors which may include the following:
Overall deal environment in the economy and specific industry;
Nature of industry/sector in which the target operates;
Type of consideration;
Competitive situation in the bidding process;
Percentage already owned by the buyers;
Percentage sought to be acquired in a transaction;
Size of the transaction; and
Buyers size and purchasing power relative to the transaction and target’s size.
Not all the above factors are analysed and presented in this study due to limitations in the availability of data and/or results of observed data not being meaningful.
We note that S&P Capital IQ reports acquisition premiums based on:
Offer Per Share Price;
Share Price one month before announcement;
Share Price one week before announcement; and
Share Price one day before announcement.
However, our analysis is based on acquisition premiums reported based on share price one month before announcement due to availability of valid data points, and also that it is believed to be relatively less affected by bid speculation. We also note that our analysis is based on all positive acquisition premiums.
Acquisition premiums by sector
We observed significant variability in the acquisition premium for transactions across different sectors. Materials dominated the number of transactions, whereas, the health care sector recorded the highest median acquisition premium since 2012. The lowest median acquisition premiums were observed for the real estate sector.
One month pre-announcement
Number of transactions
Trends in acquisition premiums from 2012 to 2022
The highest acquisition premiums were observed for transactions closed during 2022. 2022 also witnessed 13 out of a total 41 transactions (where a premium was reported) closed in materials sector along with fluctuating gold price.
The lowest median acquisition premiums were observed during 2017 (28.7%), impacted by low premium for transactions in the materials, real estate and services (other) sectors. The highest average acquisition premium was observed in 2022 (70.3%), among which ~61% is materials, energy or information technology transactions.
Consideration type: Cash versus Equity
Cash remained the preferred consideration type followed by equity. During the majority of the 10 years’ analysed, median acquisition premiums were lower for transactions with cash as the consideration type, as compared with transactions where equity/scrip was the adopted consideration type.
Share of transactions by consideration type:
Transaction size and acquisition premiums
We note that generally lower acquisition premiums were observed for larger transactions (measured by the implied enterprise value). This may suggest that prices of larger firms are relatively more efficient. Furthermore, there exists a possibility that acquirers perceive that relatively less opportunities exist for merger and acquisition synergies due to larger firms being more mature.
Share of transactions by size (Enterprise value):
Findex Valuation Services
At Findex, we are experts in assessing the true potential of a transaction or liquidity event. Whether you’re planning an acquisition, divestment, restructure, option plan, refinance or developing a new business strategy, we can help ensure your valuation is prepared on a fundamentally sound basis. Using relevant research, analysis and professional care, our Valuations team take a tailored approach to provide you with independent valuation considerations and the information required to assess the true potential of a transaction (or liquidity event) and instil confidence in your decision making.
Contact us today to talk with a valuations expert and assess the true potential of a transaction and instil confidence in your decision making.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the thought or position of Findex (Aust) Pty Ltd ABN 84 006 466 351 (Findex).
7 March 2023