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and




      present

 An Overview of
Valuation Models
About JobSearchDigest.com
   Every day our team researches all the online job
    sources (including the specialty niche ...
About The Investment Banking Institute
   Core financial, technical and modeling skills.
   Similar to the top firms.
 ...
Table of Contents


 I. Valuation Overview

 II. Comparable Public Companies

III. Precedent Transactions

IV. Discounted ...
Valuation

 Trying to answer: “What is the aggregate
  value of a company?”
     Total Enterprise Value (TEV)

 Remembe...
Valuation (cont.)
Commonly Used Valuation Methodologies
 Comparable Company Analysis - “What is the
  value of my company...
I. Valuation Overview

II. Comparable Public Companies

III. Precedent Transactions

IV. Discounted Cash Flow (DCF) Analys...
Comparable Public Companies

The first step is to pick the comp universe

Similar companies:           Sources include:
 ...
Multiples Analysis

 Relative valuation based on applying
  multiples
     A valuation multiple is a ratio between a val...
“Spreading” Comps
 An Excel-based “apples to apples” comparison
     Same time frames
     Eliminate unusual or non-rec...
Selecting Multiples and Ranges
           Sample Comparable Companies Valuation Multiples:
                Share
        ...
Pop Quiz

 Which of the following
  represent equity multiples?
  a. TEV/Revenues
  b. TEV/EBITDA
  c. TEV/EBIT
  d. ...
Pop Quiz

 Which of the following
  represent equity multiples?
  a. TEV/Revenues
  b. TEV/EBITDA
  c. TEV/EBIT
  d. ...
I. Valuation Overview

II. Comparable Public Companies

III. Precedent Transactions

IV. Discounted Cash Flow (DCF) Analys...
Precedent Transactions

 Another form of relative value is precedent
  transactions
   Many argue the most accurate
   ...
Precedent Transactions (cont.)

What have others recently paid?

Comparable Transactions:   Sources include:
 Target comp...
Precedent Transactions (cont.)
            Sample Precedent Transactions Summary Data:
Announce                          ...
Pop Quiz

 Difference between Comparable Companies
  (CC) analysis and Precedent Transactions
  analysis?
     a. None. ...
Pop Quiz

 Difference between Comparable Companies
  (CC) analysis and Precedent Transactions
  analysis?
     a. None. ...
I. Valuation Overview

II. Comparable Public Companies

III. Precedent Transactions

IV. Discounted Cash Flow (DCF) Analys...
Discounted Cash Flow Overview

        The DCF calculation represents a company’s
         “intrinsic” value using projec...
DCF Example
        Calculation of PV of Period (Years 1-5) Cash Flows:
Fiscal Year Ending ($MMs)             12/31/08   ...
DCF Example
 Calculation of PV of Terminal Value:
   Terminal Value Assumptions
   Terminal Year EBITDA                  ...
Pop Quiz

 When performing a Discounted Cash Flow
  analysis, what type of value should be
  the result?
   a. Market Va...
Pop Quiz

 When performing a Discounted Cash Flow
  analysis, what type of value should be
  the result?
   a. Market Va...
I. Valuation Overview

II. Comparable Public Companies

III. Precedent Transactions

IV. Discounted Cash Flow (DCF) Analys...
Conclusions
                            Pros                       Cons
                  Highly efficient market   Size...
Q&A
Q&A




Q: How to select which methodology
   to use?




               Copyright 2009
Q&A




Q: How have recent market events
   affected valuation?




               Copyright 2009
Q&A




Q: How is valuation affected in a
   distressed situation?




                Copyright 2009
Q&A




Q: How to value private vs. public
   companies?




                Copyright 2009
Q&A




Q: What is the best way to value
   early stage companies?




                Copyright 2009
Q&A




Q: Accounting for risk in today’s
   market?




                Copyright 2009
and




Thank You.
About Investment Banking Institute
 The Investment Banking Institute (IBI), with offices in 14 cities
  throughout North ...
About Investment Banking Institute
 IBI is affiliated with the CFA Institute, NASBA (the national
  association of the st...
Investment Banking Institute                                Student Testimonial

 I am so thankful for the class I took at...
Investment Banking Institute
                 Please visit us at

              www.ibtraining.com
For company information...
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Valuation Training Summary

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Valuation Training Summary

  1. 1. and present An Overview of Valuation Models
  2. 2. About JobSearchDigest.com  Every day our team researches all the online job sources (including the specialty niche sites)  We capture every Hedge Fund, Private Equity, Venture Capital and Investment Banking job  Daily email updates give you a competitive advantage in your job search www.JobSearchDigest.com Copyright 2009
  3. 3. About The Investment Banking Institute  Core financial, technical and modeling skills.  Similar to the top firms.  4 Weeks of training – 28 hours of live, in-class instruction, – Taught by current and former investment bankers.  Wide range of topics.  Classes monthly in major cities across the US, Canada and Europe.  Visit www.ibtraining.com for additional details. Copyright 2009
  4. 4. Table of Contents I. Valuation Overview II. Comparable Public Companies III. Precedent Transactions IV. Discounted Cash Flow (DCF) Analysis V. Conclusions Copyright 2009
  5. 5. Valuation  Trying to answer: “What is the aggregate value of a company?”  Total Enterprise Value (TEV)  Remember, common stock, preferred stock, debt and minority interest are ALL providers of capital  Right-side of the balance sheet Copyright 2009
  6. 6. Valuation (cont.) Commonly Used Valuation Methodologies  Comparable Company Analysis - “What is the value of my company based on valuation multiples of other similar public companies?”  Precedent Transactions Analysis - “What might my company sell for relative to other similar companies that have already been sold?”  Discounted Cash Flow (DCF) Analysis - “What is the present value of my company’s projected future cash flows?” Copyright 2009
  7. 7. I. Valuation Overview II. Comparable Public Companies III. Precedent Transactions IV. Discounted Cash Flow (DCF) Analysis V. Conclusions Copyright 2009
  8. 8. Comparable Public Companies The first step is to pick the comp universe Similar companies: Sources include:  Industries  Equity research reports  Business Models  “Competitors” section  Profitability from 10-K  Size  SIC codes  Growth  Internet  Geography  Senior bankers
  9. 9. Multiples Analysis  Relative valuation based on applying multiples  A valuation multiple is a ratio between a value and an operating metric – example: P/E ratio; price = value, earnings = operating metric – P/E = 25.5x, Earnings = $30 million; MVE = ?  There are 2 types of trading multiples  Operating (debt-free): TEV / Revenue, TEV/EBIT or TEV/EBITDA  Equity: Price/Earnings Copyright 2009
  10. 10. “Spreading” Comps  An Excel-based “apples to apples” comparison  Same time frames  Eliminate unusual or non-recurring items  Analyze forward-looking numbers  Also allows calculation of TEV for all of our comps, and then to calculate valuation multiples  All components of TEV must be at fair market value Copyright 2009
  11. 11. Selecting Multiples and Ranges  Sample Comparable Companies Valuation Multiples: Share Price % off 52- Market Enterprise TEV / Revenue TEV / EBITDA Price / Earnings Com pany Nam e 12/19/08 w eek High Cap Value Cash Debt LTM FYE+1 LTM FYE+1 LTM FYE+1 Kraft Foods $26.67 23.7% 39,345 59,201 737 20,593 1.39x 1.35x 9.4x 9.1x 13.8x 14.0x ConAgra Foods 15.98 35.7% 7,144 10,237 296 3,389 0.85x 0.81x 8.1x 6.9x 13.8x 11.0x H.J. Heinz Co. 37.25 29.7% 11,742 16,547 928 5,733 1.58x 1.63x 8.9x 9.1x 12.8x 12.9x General Mills 59.00 18.1% 19,975 27,496 640 7,918 1.91x 1.89x 11.2x 10.0x 16.7x 15.1x Kellogg Co. 42.63 27.1% 16,284 21,149 684 5,549 1.67x 1.62x 8.8x 9.0x 13.7x 14.2x Median 27.1% 16,284 21,149 684 5,733 1.58x 1.62x 8.9x 9.1x 13.8x 14.0x Mean 26.9% 18,898 26,926 657 8,636 1.48x 1.46x 9.3x 8.8x 14.2x 13.4x Copyright 2009
  12. 12. Pop Quiz  Which of the following represent equity multiples? a. TEV/Revenues b. TEV/EBITDA c. TEV/EBIT d. Price/Earnings e. All of the above Copyright 2009
  13. 13. Pop Quiz  Which of the following represent equity multiples? a. TEV/Revenues b. TEV/EBITDA c. TEV/EBIT d. Price/Earnings e. All of the above Copyright 2009
  14. 14. I. Valuation Overview II. Comparable Public Companies III. Precedent Transactions IV. Discounted Cash Flow (DCF) Analysis V. Conclusions Copyright 2009
  15. 15. Precedent Transactions  Another form of relative value is precedent transactions  Many argue the most accurate  What has been recently paid for comparable businesses?  Also a multiples-based valuation  Yield an acquisition or control premium Copyright 2009
  16. 16. Precedent Transactions (cont.) What have others recently paid? Comparable Transactions: Sources include:  Target company  SDC or other M&A characteristics databases  Transaction parameters  SEC filings  Time frame  Equity research reports  Press releases  Industry news
  17. 17. Precedent Transactions (cont.)  Sample Precedent Transactions Summary Data: Announce Target LTM Transaction Implied TEV / Control Date Acquiror Target Revenue EBITDA EBITDA Marg Value Revenue EBITDA Premium 06/07/00 Unilever, plc BestFoods, Inc. $8,660 $1,614 18.6% $22,995 2.66x 14.2x 15.9% 06/25/00 Philip Morris Nabisco Holdings Corp. $8,482 $1,326 15.6% $19,017 2.24x 14.3x 6.5% 07/17/00 General Mills Pillsbury $6,078 $802 13.2% $10,500 1.73x 13.1x n/a 04/12/07 Nestle SA Gerber $1,600 $340 21.3% $5,500 3.44x 16.2x n/a 07/03/07 Kraft Foods Groupe Danone (Biscuit Div) $2,700 $525 19.4% $7,200 2.67x 13.7x n/a 04/28/08 Mars Wm. Wrigley Jr. Co. $5,389 $1,181 21.9% $23,641 4.39x 20.0x 28.1% 12/02/00 PepsiCo. Quaker Oats Co. $4,903 $877 17.9% $14,204 2.90x 16.2x 12.1% 12/02/00 Kellogg Co. Keebler Foods Co. $2,697 $395 14.6% $4,469 1.66x 11.3x 6.7% Median 18.3% 2.66x 14.3x 12.1% Mean 17.8% 2.71x 14.9x 13.9% Copyright 2009
  18. 18. Pop Quiz  Difference between Comparable Companies (CC) analysis and Precedent Transactions analysis?  a. None. Both result in a controlling interest valuation  b. CC analysis results in a FMV and Precedent in liquidation  c. CC results in minority interest and Precedent controlling interest  d. CC results in controlling interest and Precedent in minority interest Copyright 2009
  19. 19. Pop Quiz  Difference between Comparable Companies (CC) analysis and Precedent Transactions analysis?  a. None. Both result in a controlling interest valuation  b. CC analysis results in a FMV and Precedent in liquidation  c. CC results in minority interest and Precedent controlling interest  d. CC results in controlling interest and Precedent in minority interest Copyright 2009
  20. 20. I. Valuation Overview II. Comparable Public Companies III. Precedent Transactions IV. Discounted Cash Flow (DCF) Analysis V. Conclusions Copyright 2009
  21. 21. Discounted Cash Flow Overview  The DCF calculation represents a company’s “intrinsic” value using projected cash flows Forecasting Free Estimate Cost of Estimating Calculating Cash Flows Capital Terminal Value Results • Identify • Perform a WACC • Estimate • Bring to present components of analysis Terminal Value value FCF • Develop target using EBITDA • Perform sensitivity • Project financials capital structure multiple or analysis using growth rate • Estimate cost of • Interpret results assumptions equity • Discount to • Decide # of years present value to forecast Copyright 2009
  22. 22. DCF Example  Calculation of PV of Period (Years 1-5) Cash Flows: Fiscal Year Ending ($MMs) 12/31/08 12/31/09 12/31/10 12/31/11 12/31/12 Revenue $1,440 $44,156 $46,363 $48,682 $51,116 EBIT $181 $5,624 $5,100 $5,355 $5,623 Less: Taxes 63 1,968 1,785 1,874 1,968 Debt-Free Earnings $118 $3,656 $3,315 $3,481 $3,655 Less: Capital Expenditures (45) (1,379) (1,391) (1,460) (1,533) Less: Working Capital Requirements (22) (36) (221) (232) (243) Add: Depreciation and Amortization 33 1,014 1,159 1,217 1,278 Total Net Investment ($33) ($402) ($453) ($475) ($499) Net Debt-Free Cash Flows: $85 $3,254 $2,862 $3,006 $3,156 Discount Period 0.03 1.03 2.03 3.03 4.04 Discount Factor @ 6.0% 1.00 0.94 0.89 0.84 0.79 PV of Net Debt-Free Cash Flows: $85 $3,064 $2,543 $2,519 $2,494 Copyright 2009
  23. 23. DCF Example  Calculation of PV of Terminal Value: Terminal Value Assumptions Terminal Year EBITDA $6,901 EBITDA Multiple 9.00 Terminal Value $62,105 Discount Period 4.04 Discount Factor @ 6.0% 0.7905 PV of Terminal Value $49,091  TEV = Sum of Period Cash Flows ($10,704) + PV of Terminal Value ($49,091) or $59,796 million Copyright 2009
  24. 24. Pop Quiz  When performing a Discounted Cash Flow analysis, what type of value should be the result?  a. Market Value of Equity, on a minority interest basis.  b. Total Enterprise Value, on a minority interest basis.  c. Total Enterprise Value, on a controlling interest basis.  d. None of the above. Copyright 2009
  25. 25. Pop Quiz  When performing a Discounted Cash Flow analysis, what type of value should be the result?  a. Market Value of Equity, on a minority interest basis.  b. Total Enterprise Value, on a minority interest basis.  c. Total Enterprise Value, on a controlling interest basis.  d. None of the above. Copyright 2009
  26. 26. I. Valuation Overview II. Comparable Public Companies III. Precedent Transactions IV. Discounted Cash Flow (DCF) Analysis V. Conclusions Copyright 2009
  27. 27. Conclusions Pros Cons Highly efficient market Size discrepancy Comparable Easy to find Liquidity difference Public information Hard to find “good” Companies comps in niche market Arguably, the most Poor disclosure on accurate method private and small deals Precedent Hard to find “good” Transactions comps in niche or slow M&A market Represents intrinsic Highly sensitive to value discount rate and Discounted terminal multiple Cash Flow (DCF) “Hockey Stick” tendencies
  28. 28. Q&A
  29. 29. Q&A Q: How to select which methodology to use? Copyright 2009
  30. 30. Q&A Q: How have recent market events affected valuation? Copyright 2009
  31. 31. Q&A Q: How is valuation affected in a distressed situation? Copyright 2009
  32. 32. Q&A Q: How to value private vs. public companies? Copyright 2009
  33. 33. Q&A Q: What is the best way to value early stage companies? Copyright 2009
  34. 34. Q&A Q: Accounting for risk in today’s market? Copyright 2009
  35. 35. and Thank You.
  36. 36. About Investment Banking Institute  The Investment Banking Institute (IBI), with offices in 14 cities throughout North America and Europe, conducts corporate as well as individual training for candidates ranging from Managing Directors to MBAs to College Undergrads and other professionals seeking to enter the industry. Since our inception in 2002, IBI has offered the most comprehensive course syllabus and longest running program available  IBI conducts more individual based programs in more cities than any other firm. Last year alone (2008) we held over 700 sessions worldwide for more than 2000 live training hours; moreover, our bankers/instructors possess a combined 129 years of I-banking and/or PE experience Copyright 2009
  37. 37. About Investment Banking Institute  IBI is affiliated with the CFA Institute, NASBA (the national association of the state boards of accountancy –overseeing CPAs), and the CFP Board  IBI has trained analysts and associates for hundreds of organizations (a partial list can be viewed on our website), the in-class training we provide our individual students is the same exact training provided to corporate clients  Interview preparation, resume revision, and job contacts are available through our Human Resources division on a one-on- one basis with no set expiration date  The training program can be repeated free of charge at any future date to ensure your skills are sharp when you need them to be  Seasoned Investment Bankers are available for help outside of class whenever needed Copyright 2009
  38. 38. Investment Banking Institute Student Testimonial I am so thankful for the class I took at the Investment Banking Institute. It was both an enriching knowledge vault and a confidence booster! Your walkthrough of the DCF calculations was an excellent refresher. While I still remember bits and pieces of how DCF works from my on-campus interviews back in college and work at JP Morgan, your presentation helped to consolidate everything in my mind. I also appreciate how you tied things back to an estimate of the company's stock price at the end -- I actually once got an interview question on that exact topic! The details and examples of the LBO modeling were extremely helpful, and the encouragement you gave students throughout the class was equally invaluable. A huge thank-you for your insight into current market conditions, and on how the subprime crisis actually unfolded. Although I manage to gain exposure to macroeconomic and market valuation issues at work every day at JP Morgan, it was your engaging, concise teaching method and holistic approach to the course that put everything in perspective for me. I will definitely recommend your course to my future classmates at Harvard Business School as I am sure they will benefit tremendously from it. Thank you very much. Anthony, Boston Copyright 2009
  39. 39. Investment Banking Institute Please visit us at www.ibtraining.com For company information, banker’s bios, and contact information for any of our local offices Headquarters: The Helmsley Building 230 Park Avenue, 10th Floor New York, NY 10169 212-380-7027 Copyright 2009

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