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Corporate Valuation by Laura Zanetti, Gianfranco Gianfrate, Mario Massari

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Chapter 15Value and Prices in the Market for Corporate Control

15.1 PRICE FORMATION IN THE MARKET FOR CONTROL

From a business valuation point of view, the functioning of the market for corporate acquisitions assumes importance for numerous reasons. The level of competition existing in the market of control in every industry depends on:

  • Contribution of the market to the restructuring of the offer of products and services, granting the efficient allocation of assets within and among industries
  • The degree to which the transactions involving a transfer of control benefit the buyer company's shareholders rather than the target company's, considering, therefore, the legal regime provisions aimed at protecting the minority shareholders of both the companies involved in the transaction
  • The policies aimed at increasing the overall functionality of the market itself—for example, the possibility of carrying out leveraged buyout deals, and the presence of rules allowing or facilitating the execution of mergers and acquisitions, thus improving the dynamism of the market for control
  • Lifting the ban on bids for some categories of firms (i.e., state-owned companies)

The analysis of how the market for corporate control works is shedding light on many topics we cover in the book.

For example, some problems in interpreting deal multiples mentioned in previous chapters can be understood more clearly using the model of price formation in the market for corporate control. Furthermore, the concept ...

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