A premium depends on the reference point.
An acquisition premium measures the offer price above a specified reference value. Public-market analysis often uses an undisturbed share price; a private-company comparison might use a prior transaction, whose rights and timing may differ.
A premium does not prove that an offer is attractive. The reference may be stale, and cash, rollover equity, earn-outs and conditional payments do not have identical risk. Compare like-for-like equity values before applying the formula.
The formula, made clear.
- Reference value
- An explicitly dated and defined comparison equity value.
- Offer value
- Comparable equity consideration, not enterprise value.
Put the numbers in context.
An equity offer of $26,000,000.00 against a $20,000,000.00 reference carries a 30% premium, or $6,000,000.00.
| Input | Example value |
|---|---|
| Reference equity value | $20,000,000.00 |
| Offer equity value | $26,000,000.00 |
| Offer premium to reference | 30% |
What this calculation assumes
Same equity scope, dilution basis and currency. No discounting of deferred consideration, synergy valuation or fairness opinion. An offer below the reference yields a negative premium.
What to consider next.
Separate guaranteed cash, rollover shares and conditional consideration before judging the economics.
How we approach financial models →