M&A: average premiums in Europe 2017-2018, by industry

A purchase premium in terms of mergers and acquisitions refers to the excess paid by an acquirer over the cost of the shares being acquired. In other words, if company (A) has a share price of one hundred dollars and company (B) pays 150 dollars per share to acquire the company, the purchase premium paid was 50 percent. In 2018, premiums for high technology companies were the highest of any industry.

Global premiums paid

Worldwide, purchase premiums to four-week stock price was highest in the healthcare industry. This was mainly due to the high premiums paid in the healthcare industry in M&A deals conducted in the United States. Regionally, premiums varied, with lower premiums paid in Asia and the United Kingdom (UK) seeing the highest.

Valuing target companies

Enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) is a key valuation metric used by investors and analysits to compare companies within the same industry against each other. In Europe, EV/EBITDA valuations tend to be high, meaning acquiring companies are likely to be overpaying.