What is Control Premium? Control premium refers to an amount that a buyer is willing to pay in excess of the fair market value of shares in order to gain a controlling ownership interest in a publicly traded company. A buyer who pays a control premium gains access to the firm’s cash flows, day-to-day operations,…
What is a Non-Binding Offer? A non-binding offer, also referred to as an indicative offer, is used in a sales process to establish the terms of a deal between the seller and the buyer. It serves as an “agreement to agree” between the two parties. Through the document, the buyer expresses an interest to acquire…
What is a Fundless Sponsor? A fundless sponsor is an investment fund that lacks committed equity capital required to complete acquisition transactions up front. Unlike private equity firms that already possess equity capital to finance transactions, fundless sponsors must raise equity and debt financing on a deal-by-deal basis, after signing a Letter of Intent (LOI)….
What is Takeover Premium? Takeover premium is the difference between the market price (or estimated value) of a company and the actual price paid to acquire it, expressed as a percentage. The premium represents the additional value of owning 100% of a company in a merger or acquisition and is also known as the control premium. The…
What is Tax Depreciation? Tax depreciation is the depreciation expense claimed by a taxpayer on a tax return to compensate for the loss in the value of the tangible assets used in income-generating activities. Similar to accounting depreciation, tax depreciation allocates depreciation expenses over multiple periods. Thus, the tax values of depreciable assets gradually decrease…
What is Additional Paid-in Capital vs. Contributed Capital? The shareholders’ equity section of the balance sheet contains related amounts called additional paid-in capital and contributed capital. The key difference between additional paid-in capital vs. contributed capital is that the latter is referred to as the total value of cash and assets that shareholders provided to…
What is the No Shop Provision? A No Shop Provision is a clause included in an agreement between the seller and the buyer that prevents the seller from soliciting purchase proposals from other parties for a given duration of time. In essence, the provision limits the seller from seeking other potential buyers of the business…
What is the Revlon Rule? The Revlon Rule addresses conflicts of interest where the interests of the board of directors conflict with their fiduciary duty. Specifically, the Revlon Rule arose out of a hostile takeover. Prior to the takeover itself, the duty of the board of directors is to protect the company against the takeover….
What is an Investment Teaser? An investment teaser is a critical first step for a business in the capital-raising process. The teaser is a brief and confidential document designed both to gauge interest in, and to generate interest from, potential investors or buyers of a company or its securities. It’s used to present an investment…
