Becuase it is the one that the system has evolved to consider the rule of thumb. The equilibrium appears to be 30% above asking and, and least local to our time period, appears to be stable.
Great-Grandparent> most M&A transactions trend to have a 30% premium above the trading price. I [...] could not find a good explanation to why
You> It’s probably just a good rule of thumb.
Me> But why is 30% better than 15%?
You> The equilibrium appears to be 30% above asking
I still don't understand how that's supposed to explain why 30% is the stable value, instead of another, as the GGP was asking. How does what you are saying add anything more than "It is what it is" to the discussion?
The point poorly expressed is that public markets transactions are highly scrutinised, and it is easy for shareholders to be highly litigious toward the directors.
The directors therefore have a strong incentive to only accept offers at a normal premium to current price, which seems to be about 30% by back of the cigarette packet maths.
Bidders therefore have an incentive to bid around 30% so their bids are more likely to be accepted.
The key thing is an incentive to avoid liability and get deals done. If the equilibrium was 80% then bids would be all at 80% and there would be less of them.
Sometimes complicated dynamical systems have equilibria that just are without a known reason. I can see that once 30% gained a bit of traction is just coalesced into an equilibrium. The common decision making analysis of just looking at what others have done and basing your decisions on that mean that things evolve to wherever “monkey see, monkey do” gains traction.
Not every number has to be derivable through some kind of formula. Realtors tend to take 6% as their commission. Why not 6.5%? or 5%? The answer is that sometimes they do, but it's just traditionally by default 6% unless one or more parties chooses to negotiate it. There's no math.
Remember that shareholders are in the stock because they expect some type of risk adjusted return. 5% is out because that's the risk free return. 7-10% can be gotten with lower risk by index investing. 15-20-30 we're starting to get into a range where the investor is willing to part with their stock given the risk they took on. 30% tends to be enough to get everyone to sell. If it was a hot, fast growing company, it would be higher - if it was possible to get everyone to sell at all.
