Example
Company XYZ has an EBITDA of $1,500,000 and is currently available for sale at an Enterprise Value(EV)/EBITDA multiple of 5x. This gives the company a valuation of $7,500,000 (=$1,500,000 * 5). A potential buyer may believe that they can improve the EBITDA to $2,000,000 by just replacing the CEO, who is currently overpaid. Thus, he could potentially value the firm at $10,000,000 since the value he expects to achieve from replacing the CEO is the extra $500,000 (=$2,000,000-$1,500,000) in EBITDA, which in turn translates to $2,500,000 (=$500,000 * 5 or =$10,000,000-$7,500,000) control premium over the initial value of the firm.
Read more about this topic: Control Premium
Famous quotes containing the word example:
“Our intellect is not the most subtle, the most powerful, the most appropriate, instrument for revealing the truth. It is life that, little by little, example by example, permits us to see that what is most important to our heart, or to our mind, is learned not by reasoning but through other agencies. Then it is that the intellect, observing their superiority, abdicates its control to them upon reasoned grounds and agrees to become their collaborator and lackey.”
—Marcel Proust (1871–1922)