Discuss why bidders pay for higher premiums in domestic M & As than they do in...

Discuss why bidders pay for higher premiums in domestic M & As than they do in multinational M & As?

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Expert Solution

Premium is the excess amount that a bidder pays to acquire a company, premium is the difference between the price paid by bidder and the estimated value of the company. Bidders pay premium in domestic M&A because of the following reasons:

Bidders want to make sure that the deal is closed as early as possible.
When company gets merged or acquired, synergy creates. In simple words, synergy is one plus one equal to eleven. Bidder Company pays extra premium to acquire a target company because the management thinks that the synergy generated by the combination of two companies will be greater than the actual price paid for the target, Synergy will reap more benefits in coming future.
Sometimes bidder company wants to motivate the target company to perform well that is why, pays premium to acquire that.
Acquirer company pays premium in buying target company because of target company's brand image, name, market share, product, network, solid customer base etc.

Acquisition premium is recorded as Goodwill in the balance sheet of acquirer.

jeff jeffy answered 1 year ago

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