Mand a toolkit valuation methodologies

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Mand a toolkit valuation methodologies

  1. 1. M&A TOOLKIT Valuation: Valuation Methodologies© 2007-2013 IESIES Development Ltd. All Ltd. Reserved © 2007-2013 Development Rights All Rights Reserved
  2. 2. There are three main valuation methodologiesVALUATION METHODOLOGIESAsset-based Add the value of the business up asset by asset, using either historical cost (book value) or current market price (replacement cost) as the price for each assetComparable Identify similar businesses to the target (Comparables) andMultiples calculate their price ratios (Multiples); apply this to the target. You can choose to compare: • Trailing, current or forward ratios • Transaction (M&A) or trading (listed) ratiosDiscounted Forecast future cash flows, then discount to get Net PresentCash Flow Value (NPV) of the business © 2007-2013 IES Development Ltd. All Rights Reserved
  3. 3. The different valuation methodologies have different pros and consPROS AND CONS OF VALUATION METHODOLOGIES Advantage DisadvantageAsset-based •Audited at historic •Except for businesses in distress, value, not subjective asset value is not usually related to business valueComparable •Quick and easy •Companies are neverMultiples •No knowledge of truly comparable industry required •No forecast requiredDiscounted •Provides insight into •GIGO - Only as good asCash Flow sensitivities and its assumptions business economics © 2007-2013 IES Development Ltd. All Rights Reserved
  4. 4. Companies are rarely truly comparableFINDING COMPARABLE COMPANIES •Same industry? •Same geographies? •Same competitive position? •Same future growth prospects? Objective: Identifying •Same business model? companies with •Same financial drivers? similar future cash •Same risk profile? flow performance •Same management quality? © 2007-2013 IES Development Ltd. All Rights Reserved
  5. 5. When you are using multiple based valuation, you need to select the most appropriate multipleAPPROPRIATE USE OF DIFFERENT MULTIPLES P/E •Very quick comparisons to listed companiesP/FCF •FCF usually less distorted than Earnings •Measures perpetuityP/Sales •Target not profitable •Buying market share/scale •Bringing a new margin structureP/Customer •Start-ups pre-commercialisation with similarP/Page view business modelsP/Book •Asset-stripping •Buying financial businesses – Asset Managers, Banks, Credit card companies etc © 2007-2013 IES Development Ltd. All Rights Reserved
  6. 6. When you are using multiple based valuation, you need to select the most appropriate multipleCHOOSING DIFFERENT MULTIPLES Trailing Forward Description Denominator is Denominator is the last audited an average of figures for the analyst estimates previous for current financial year financial year Advantage Factual data Includes latest data Trading Current listed Enlarges universe to Usually stocks include better generates lowest comparables ratios Transaction Recent Includes acquisition Usually acquisition premium generates deals highest ratios If you are doing objective analysis, calculate ALL Multiples If you are trying to persuade, select the ones that support your case best © 2007-2013 IES Development Ltd. All Rights Reserved
  7. 7. For a multi-business company, you may use a range of valuation methodologies for the same companyCOMPANY VALUATION$m 20 120 15 35 50 Business 1 Business 2 Business 3 Real Estate Enterprise Value DCF-based Valuation Multiple-based Asset-based Valuation Valuation © 2007-2013 IES Development Ltd. All Rights Reserved
  8. 8. A REAL deal will use all valuation methods, and present a range of valuations, not a “magic number”COMPANY VALUATION$/share Current 18.3DCF Valuationwith synergies 24 32 "As Is" DCF Valuation 16 23 Comparables(Transactions) 19 26 Comparables (Trading) 14 28 12 month trading range 17 21 10 15 20 25 30 35 © 2007-2013 IES Development Ltd. All Rights Reserved 7

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