Why acquisition premium matters to a first-time founder
An acquisition premium shows how much extra a buyer will pay above a chosen value for the target on its own. The buyer may pay extra to gain control or combine the businesses for greater value. For sellers, it helps explain an offer. For buyers, it shows how much future benefit must support the higher price.
Examples of acquisition premium
A listed target’s share price before deal rumours is £20, and a buyer offers £26 per share. The premium is £6, or 30% of the £20 reference price. If rumours had already changed the price, choosing an earlier unaffected date could produce a different percentage.
Common misunderstanding
The premium is not automatically value created for the buyer or cash guaranteed to every seller. It depends on the starting value and may reflect control, competing bidders, scarce assets or optimistic savings and growth from combining the businesses. Private companies have no quoted share price, so the starting valuation requires more judgement.
When to use it
Use it when comparing an offer with a share price before deal rumours, an earlier valuation or the value of the target on its own. State the date, valuation method and whether you are comparing the value of the shares or the whole business including debt. Test whether realistic savings and strategic benefits justify the premium.