Premium evaluation in mergers and acquisitions of electricity companies

Abstract

The purpose of the article is to build a model for estimating the relative premium in mergers and acquisitions of electric power companies, based on four groups of factors: the company's operating and financial results, the country affiliation, the industry affiliation, the debt market conjuncture. The research methodology is based on a comparative business valuation method. The empirical base of the research includes data on 6504 deals that occurred throughout the world from 1997 to 2018. The research database includes data on both public and non-public companies for which the amount paid in the deal is known, as well as the value of total assets. The scientific novelty consists in clarifying the conceptual apparatus (the concept of relative premium in a deal has been introduced); the selection and grouping of factors affecting the size of the relative premium; identifying and quantifying the influence of variables included in each group of factors. The article proposed the author's approach to the grouping of countries and industries, based on the equality of premium coefficients in the regression and obtained groups of countries and industries with equal premiums. It is shown that the grouping of industries, obtained by the mathematical algorithm, almost completely corresponds to the industry structure of the electric power industry. The coefficient of determination of the final econometric model is more than 20 per cent, which can be estimated as a high-quality assessment. That is because the relative premium, not the amount paid in the deal, is predicted which is in close correlation with the value of the company's assets. The practical significance of the research study consists in the possibility of predicting the value of a business, as well as determining the value paid in a deal in cases where such information is not available in available sources.