MOCK AM : GPCM, GTM : Really confused about when to add control premium

The question says : the company commands a control premium of X. And we are given the EV/EBITDA multiple for market, and the EBITDA for the company itself.

In the answer, we should not add the control premium !

My question is when should we add the premium ? If we add it, should we add it to the equity portion only ?

Example we find MVIC - Debt = Equity => Then Equity * (1+control premium).

literally just posted the same, its an error it should be 9 * 1.3 they say ebitda multiple (including control premium)

I don’t think it’s an error. You typically don’t include premiums when using the GTM… Who verified this for you?

So if we use the GTM method, even if the item set says that the company commands a control premium, we should not add the premium ?

There is also an example (5) in the curriculum for the GPCM where the control premium has not been added.

I have the feeling this is very subjective…

Also after further research, i found the keyword “synergic buyer”. Can we assume that if nothing says that the buyer is synergic (he really want to buy) vs the buyer is financial (he is “indifferent”), then we dont add the premium ?

It’s definitely not an error. GTM ignore the premiums, they are already built into the multiple. GPCM is when you’d add.

Add with GPCM assuming that you’re taking control!

To Gnrocks: It’s not really subjective. It just depends what your angle is and what method you’re using.

You add the premium in GPCM if necessary and relevant. If MVIC/EBITDA = 10, and a premium is necessary, you multiply 10 by (1+premium).

However, regarding lack of control discounts and lack of marketability discounts, you only apply those to Equity Value (i.e. MVIC - Debt).

For the control premium, shouldn’t we add :

10 * (1 + premium * %Equity)

Example if the premium is 30%, and we have 2/3 of capital in equity, then the premium would be 20%, because the MVIC multiple is for all the capital

I know the exact question you are talking about. In the reading it says GPCM adds a premium but in the example, it doesn’t add it.

Too bad the exam doesn’t accept subjective answers.

So… for GPCM, should it be multiply 10 by (1+premium)? Or multiply 10 by (1+premium * equity %)??

It doesn’t matter if you place the premium on top of the whole firm, or place it on the your share of equity.

100*1.2*.8 = 100*.8*1.2

Hm… are you sure about this one?

I think in GPCM there are two methods:

  1. Use MVIC/EBITDA = 10, calculate MVIC - Debt = Equity * Equity Premium


  1. Use MVIC/EBITDA = 10 * [Control Premium * (1-Debt to Assets)] = Adjusted MVIC EBITDA then multiply by EBITDA and get MVIC - Debt = Equity.

That’s what Scheweser explains.

According to the curriculum text, it seems Control Premium applies to GPCM, but not GTM. GTM ignores it.

GTM doesn’t ignore it-- it’s just already accounted for in this method. GPCM doesn’t account for it because it’s not based on the sale of the entire company. You would add it if you were in a scenario that warranted a control premium (synergistic buyer using GPCM to buy 70% of the shares, for example).

The text also says that premia and discounts apply depending on where you start and where you want to go with the valuation.

Multiply the firm’s value by the control premium, then remove debt, and multiply by your proportion of the equity.

After additional research yesterday i have found out that in the mock exam, the reason why they didn’t add the control premium is because the data were probably based on whole company sales (control situation) and the guy in the question also wants to purchase a control position => No adjustement necessary.

Basically for GPCM

Original data / Target Data

Control / Control => No adjustment

Control / Non-control => Discount for Lack of Control

Non-control / Control => Control premium

Non-control / Non-control => No adjustement

This means we have to look in the question for keywords suggesting synergic/strategic buyers.

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