Igor Zax, founder and MD of Tenzor Ltd., moderated a panel at a conference “Private Equity in Central and Eastern Europe”, London, 15 October 2010, organised by C5. The presenation, Valuations – Practical Questions for PE Investor, focuses on shortcomings of traditional valuation techniques, exit strategies, criteria and motivations of investors.

1. Valuations – PracticalValuations – Practical
Questions for PE InvestorQuestions for PE Investor
Igor Zax, CFA
Tenzor Ltd
Presentation at C5 conference “ CEE Private Equity”
© Tenzor Ltd 2010
www.tenzor.co.uk
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2. Valuation ChallengeValuation Challenge
Two main approaches – multiples or DCF
Multiples – mostly focused on ratio - in
unstable economic environments it is much
more important what is the underling
number (last year profit may be current year
loss)
DCF – most of the approaches are based on
public markets and perpetual holding
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3. Investors are differentInvestors are different
Public investors. Virtually never alternative
to PE when buying the company, rarely an
exit root.
Industry buyers. “Real” competitor on
many deals, frequent exit root.
PE investors. Often competitor, historically
common exit root (secondary buyouts)
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4. Valuation for PE investorValuation for PE investor
PE investors are temporary holders with
clearly defined target period.
Valuation for PE investor is exit price
discounted by target rate of return.
Question is not what the company suppose
to be worth today, but WHO will buy it, at
what price and what should be done to
maximise it.
© Tenzor Ltd 2010
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5. Industry SaleIndustry Sale
One of the most common exit roots in many
asset classes
Questions to ask:
– Why would an industry buyer want to buy?
– Why they are not doing it now?
– What is the value of the business to them and
what is the cost of NOT acquiring.
– What can be done between now and then?
© Tenzor Ltd 2009
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6. Industry Sale- Main StrategiesIndustry Sale- Main Strategies
 Venture capital- long time common root.
Understanding technology gaps for major players
and taking developing risk (software, biotech,
etc.).
 Corporate governance. Building western style,
highly transparent organisation and selling it to
global player at a premium.
 “Farming”. Combining a number of smaller
businesses that industry buyer would not consider
due to their size © Tenzor Ltd 2009
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7. Industry Sale- Main StrategiesIndustry Sale- Main Strategies
Risk based sale. Mainly applicable to
distressed companies that are vital in a
supply chain of a major companies. Often a
de facto put option.
Industry consolidation- particularly where
profitability disproportionally increases
with size (such as some areas of retail).
Value chain shift
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8. Practical ImplicationsPractical Implications
1. Start with exit – defining likely exit root is
core for valuing the company.
2. Understand the needs of potential buyers
and premium they are willing to pay for
meeting it.
3. Design a clear plan of tailoring the
company to the buyers need.
4. Analyse Scenarios.
© Tenzor Ltd 2009
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9. Practical ImplicationsPractical Implications
Discounting expected outcome by your
target rate over expected horizon is the
price you are willing to pay – you may get
away with less.
Analyse seller’s motivation and competition
“Name me the price, I will name you the
terms”
© Tenzor Ltd 2009
www.tenzor.co.uk
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10. Thank You and Good Luck!Thank You and Good Luck!
Igor Zax, CFA, Sloan Fellow (London
Business School)
Managing Director, Tenzor Ltd. (London)
Tel: +447775708426
E-Mail: igor.zax@tenzor.co.uk
Web site: www.tenzor.co.uk
© Tenzor Ltd 2009
www.tenzor.co.uk
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