Control premium

Definition

What a buyer pays extra to own enough of a business to run it.

Why It Matters

Control is the right to set the salary, sign the loan, hire and fire, and decide when to sell, and none of it comes with a stake that cannot outvote anybody. So the same earnings are worth more per point of ownership to whoever ends up in charge, and the minority discount is the identical arithmetic read from the other end. A searcher buying the whole business pays this premium without ever naming it, which is why the concept looks academic until it is not. It becomes a live number the moment a partner or an investor takes a slice: a stake priced off the whole-business multiple has been priced as though it carried control, and it does not. In a deal this size the argument is rarely settled by a percentage anyway. It is settled by the operating agreement, which is where the votes that actually matter are written down.

In numbers: On $1.5M of SDE at 4x, the whole business is $6M. Price a 30% stake off that same multiple and it asks 30% of the money for none of the decisions, which is the premium being charged in reverse.