Topic 15
Platform Value
Sellers expect to realize a portion of the platform value of their firm by extracting a premium in the purchase price. Platform value is an enabler that allows the buyer to invest in the acquired business and thereby realize the benefits of new opportunities. Without the platform (the acquired business), the benefits of new opportunities could not be achieved. Topic 15 explores this value dimension and proposes a practical approach to valuing platform value.
WHAT IS IT, HOW MUCH IS IT WORTH
- To sellers, platform value is the maximum amount they could expect to extract from a buyer arising from the value sellers think will accrue to the buyer from the cumulative value of future franchise capability benefits.
- To buyers, platform value is the value of future franchise capability benefits that arise from investment in new technology, markets, products, or services the benefits of which can be derived only from new buyer investments in the as-is platform acquired. Without the acquired platform capabilities, buyers would be unable to realize (or would encounter significant difficulty in realizing) the advantages of future franchise positions arising from exploiting new opportunities. (See Topics 16 and 17.)
- A very realistic approach for buyers to determine platform value is to answer this question: How much would a buyer be willing to pay to determine with reasonable certainty the future incremental franchise value that can be created from investment in new opportunities ...
