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Initial Valuation


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The Initial Valuation is specially designed for companies with a stable business, as it is based on the historical figures of the company and on the assumption that a similar trend will continue in the future. If the company you wish to value shows a year-on-year variation in sales or profits over the last few years, we suggest you ask for a Complete Valuation instead. An Initial Valuation performed on a company with an uneven track record may produce unreliable results.

Published in: Economy & Finance, Business
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Initial Valuation

  1. 1. P R E L I M I N A R Y V A L U A T I O N<br />[XYZ Company]<br />January 2010<br />New York - London - São Paulo - Madrid<br />
  2. 2. INDEX<br />
  3. 3. 2. Financial Hypothesis<br />Introduction – Company Description<br />XYZ is a company founded in 1984 and specialized in sale of toys of all kinds, bicycles, childcare articles, sporting articles, trophies, jewellery, gift items, tales and children’s books, electronic games, and youthful and sports wear. <br />The XYZ’s business model fits within the sector of retail. From the standpoint of XYZ, this is a sector with low entry barriers that have had a slightly positive trend in the last years. <br />The client believes that XYZ has got a very high brand recognition in its market segment and that the company is not very sensitive to economic cycles. <br />XYZ<br />Note: Information provided by XYZ COMPANY.<br />
  4. 4. 2. Financial Hypothesis<br />Main EBITDA and EBIT1 Hypothesis<br />The operating margin before amortizations, interest and taxes (EBITDA) is one of the more significant operating magnitudes. It is defined as the result obtained when resting the sum of direct costs and indirect costs (excluding amortizations, financial and extraordinary expenses and taxes) to sales. <br />XYZ’s EBITDA goes under a decrease principally due to a slightly increase in the operating expenses as it has been explained before. <br />For the forecast of fixed assets’ amortization it has been calculated, according to the analysis carried out by e-Valora and the information provided by the client, an amortization average period of 25 years for the historical fixed assets and of 10 years for the rest of the fixed assets on the balance sheet at December 31st 2008. For the new fixed assets, not real estate, it has been fixed an amortization average period of 10 years. <br />The operating margin before interest and taxes (EBIT) of XYZ goes through a similar trend to the one of the EBITDA in the estimated period. After a decrease of the amortizations in the past years, the new fixed asset investment makes the amortizations increase and because of that, there is a lower operating profit. <br />As a result of the balance between sale and costs increases, the impact on EBIT is quite more significant that in EBITDA (-2.9% vs -7.2% TACC 2009-2013 respectively).<br />Amortization Trend<br />EBITDA and EBIT Trend<br />Note 1: EBITDA refers to operating profit before amortizations; and EBIT refers to operating profit (earnings before interest and taxes).<br />
  5. 5. 3. Valuation Methodology<br />Introduction<br />In order to carry out the valuation of XYZ, e-Valuation has used contrasted valuation methodologies and generally accepted by market analysts. The application of each of these methodologies, Discounted Cash Flow (DCF) and Trading Comparable Companies, results in a specific valuation range estimated for XYZ. To arrive at this valuation range for the company, a specific valuation range is primarily calculated for each methodology, and each valuation is subsequently weighted under e-Valuation’s criteria. We believe that the use of these methods improves the reliability of the valuation obtained, since they are complementary methods, and allows us contrasting the results of each one (including basic assumptions used). <br />In the case of the DCF, the baseline information for the realization of the forecasts is principally based on e-Valuation estimates. This information has enabled the elaboration of a qualitative and quantitative analysis of the current situation and expected future development of XYZ. <br />If the strategy followed by the Company in the future varies from the one that has been submitted, or if the information provided to e-Valuation has got discrepancies with reality, our view about the value of XYZ would vary accordingly. Each of the methodologies previously named uses the information of XYZ in different ways, providing complementary views of the business value. <br />
  6. 6. FINAL RANGE<br />2.334 - 2.730<br />6. Conclusion: Valuation Range<br />Conclusion: Final Valuation Range<br /><ul><li>Taking into account the results obtained according to the methodologies described, and considering that our reference methodology is the DCF (with a weight of 80%, compared to 20% of Tradings), we obtain an average value, to which we apply a reliability range of +/- 10%.
  7. 7. Trading comparable method has been weighted with only 20% because companies with a high level of comparability to XYZ have not been found, since they are also manufacturers and/or sell in bulk amounts and have got a much larger size, and their geographical markets of action are not confined to Spain.
  8. 8. With these parameters, we conclude that the final range that falls within the enterprise value of XYZ is the following: between 2,233,805 and 2,730,206 euros (between 3.9 x and 4.8 x times EBITDA recorded by the Company in 2008 ). </li></ul>Market Value of the Equity Value<br /><ul><li>To calculate the market value of XYZ’s shares (Equity Value), the company’s net debt (financial debt minus cash) at the moment of the valuation has to be subtracted to the enterprise value previously analyzed.
  9. 9. Based on historical data provided by the company, and taking the amount of net debt of December 2008 (221.190 euros) as reference, the valuation range of the Equity Value of the company would be between 2,012,615 and 2,509,016 euros.</li></li></ul><li>Enclosure I. e-Valora Presentation<br /><ul><li>e-Vauationoffers merger and acquisition advisory services, as well as company’s valuation and financial and strategic consulting services.
  10. 10. Founded in November 2000 by a professional team coming from Banesto and UBS, e-Valuation has valued more than 700 companies. From companies with an invoicing lower than 1 million euros up to enterprises that invoiced more than 500 million euros, from start-ups to companies with an experience of 80 years in the market, including services as well as industrial companies.
  11. 11. e-Valuation has got a professional team with a wide experience un investment banking, coming from entities such as Bank of America or Rothschild, that have worked in corporate transactions (companies’ purchase, sale and merger) from all economic services for an aggregated value higher than 2,000 million of euros.
  12. 12. e-Valuation works with absolutely independence to banks, investment funds and public entities, which allows offering independent financial advisory services and without being influenced by outside interests.
  13. 13. e-Valuation has got ISO 9001 Certification in Corporate Finances Advisory and Companies’ Valuation Services, as well as Chamber Trust - Seal, the trust mark granted by Madrid Chamber of Commerce.
  14. 14. It has got offices in:
  15. 15. e-Valuation Financial Services North America 14 Wall Street, 20th Floor New York City, New York 10005 United States
  16. 16. e-Valuation Financial Services Sourth America Brickell Avenue , 11t th Floor Miami ,3313 United States
  17. 17. e-Valuation Financial Services Northern Europe </li></ul> One Canada Square, 29th Floor, Canary Wharf <br /> London E14 5DY <br /> United Kingdom<br /><ul><li>e-Valuation Financial Services Southern Europe </li></ul> c/ José Ortega y Gasset, 42 <br /> Madrid, Madrid 28006 <br /> Spain<br />
  18. 18. Enclosure III. Information Provided by XYZ Company<br />Information Provided to e-Valora by XYZ<br />
  19. 19. Enclosure V. Glossary<br /><ul><li>Intangible Assets or Intangible Fixed Asset: Non-physical assets such as franchises, trademarks, patents, copyrights, goodwill, shares, securities and contracts (as distinguished from physical assets) that grant rights and privileges.
  20. 20. Tangible Assets or Tangible Fixed Asset: Physical assets (such as machinery, property, etc).
  21. 21. Amortization: Accounting procedure that gradually reduces the cost of value of an asset, tangible or intangible, (e.g. investments in research & development), through periodic charges to the profit and loss account in order to fix the costs during its estimated profitable life.
  22. 22. Trading Comparable Companies: Business value obtained through methods that compare the company to be valued to similar enterprises, dividing the market value of the last ones by a financial magnitude of the companies’ profit and loss account (such as net income, net sales, etc). When multiplying by the same enterprise’s magnitude of the company to be valued, we will obtain its approximate value.
  23. 23. EBIT: Earnings Before Interest and Taxes.
  24. 24. Balance Sheet: Statement of a company’s financial position at a given point in time. Lists the assets of a company and how they have been financed. Total assets is liabilities plus shareholders’ equity.
  25. 25. Cost of Supplies: Cost related to the production, supply, transport and storage of raw materials and the materials used in the production process. In this section can also be included the cost of outsourcing services to provide the customer.
  26. 26. Profit and Loss Account: Financial statement that shows the expenses and revenues generated during a period of time.
  27. 27. Weighted Average Cost of Capital: Calculated as the cost of equity * (equity value / firm value) + cost of debt * (net debt / firm value) * (1- corporate tax). It is a discount rate typically used to discount future free cash flows to the moment of valuation.
  28. 28. Discounted Cash Flows (DCF): Company’s valuation method based on the idea the value of a company is related to what it is able to generate in the future. It is calculated as the future cash flows of a company, discounted back to present value using an appropriate discount rate
  29. 29. Net Debt: Total debt of the company minus any cash or liquid funds that the company has but does not require for its operating activity. </li></li></ul><li>Enclosure VI. e-Valuation´s References<br />2008 - 2009<br /><ul><li>Advertising
  30. 30. Automotive
  31. 31. Aviation
  32. 32. Biotechnology
  33. 33. Brokerage and Financial Services
  34. 34. Building Materials Manufacturer
  35. 35. Business Services
  36. 36. Construction and Contracts
  37. 37. Construction and Materials
  38. 38. Construction Related Services
  39. 39. Consulting, Audit and Advisory
  40. 40. Ecological and Recycling
  41. 41. Editorial
  42. 42. Education and Training
  43. 43. Electronics
  44. 44. Engineering and Machinery
  45. 45. Entertainment and Leisure
  46. 46. Forestry
  47. 47. Healthcare
  48. 48. Insurance
  49. 49. Internet
  50. 50. Local TV
  51. 51. Logistics
  52. 52. Media
  53. 53. Metallurgy
  54. 54. Quality Consulting
  55. 55. New Techonlogies
  56. 56. Other Building Specilialists
  57. 57. Outsourcing Services
  58. 58. Production and Distribution
  59. 59. Public Administration
  60. 60. Rail
  61. 61. Recreation
  62. 62. Renewable Energies
  63. 63. Restaurant
  64. 64. Retail
  65. 65. Software and Data Security
  66. 66. Sports
  67. 67. Steel
  68. 68. Technology
  69. 69. Telecommunicaciones
  70. 70. Textiles
  71. 71. Transportation and Logistics
  72. 72. Quemical Industry </li></ul>NOTE: For confidentiality reasons the name of customers is not mentioned.<br />
  73. 73. Enclosure VII. Contact Details<br /><br />e-ValuationFinancialServicesNorth Americae-ValuationFinancialServicesNorthernEurope<br />14 Wall Street, 20th FloorOneCanadaSquare, 29th Floor, CanaryWharf<br />New York City, New York 10005 London E14 5DY<br />UnitedStatesUnitedKingdom<br />e-ValuationFinancialServicesLatinAmericae-ValuationFinancialServicesSouthernEurope<br />BickellAvenue ,11º Floor Miami 33131 c/ José Ortega y Gasset, 42 <br />UnitedStates Madrid, Madrid 28006<br />Spain<br />