The document discusses key topics in valuation analysis, including: 1) Two main questions in valuation - what a company is intrinsically worth and what someone will pay for it 2) Challenges in finding "pure comps" or comparable companies due to differences in operations and intangible factors 3) Synergies from M&A deals are often critical to the valuation as they are a key driver of what an acquirer will pay

1. Last Modified: August 9, 2011 12:37:09 AM. Presentation2
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2 Key Valuation Questions
1) What is the Company worth?
 Public and private market valuations
 Intrinsic value
2) What can/will someone pay?
 Who is the seller?
 Public or private
 Insider ownership or sizable public float
 Who is/are the potential buyer(s)?
 Strategic or financial
 What is the context of the transaction?
 Privately negotiated sale or auction
 Hostile or friendly
 What are the market conditions?
 Acquisition currency (Acquirer’s share price)
 Historical premiums paid
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2. Last Modified: August 9, 2011 12:37:09 AM. Presentation2
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Difficulty in Finding “Pure Comps”
 Subjective nature and process
 How do you assess differences in the operations and financial aspects?
 How do you assess intangible differences such as brand equity, reputation or management expertise?
 Comparables may be:
 Divisions of larger companies
 Private
 Company may be “first of its kind”
 What is the appropriate number of comps?
 Selection may be more art than science
 Use judgment and experience of senior team members
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3. Last Modified: August 9, 2011 12:37:09 AM. Presentation2
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Synergies: Often Critical to the Deal
 Synergy = increase in cash flow from the combination of operations in an M&A deal
 3 main sources of synergies
 Cost savings
 Revenue enhancements
 CapEx synergies
 Announced “cost savings” often critical to deal
 Relative scale: cost savings as % of Target sales/expenses
 Multiple paid based on Target EBITDA + cost savings
 Sources for synergy information:
 Company presentation on the transaction
 Press release
 Equity research
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Premiums Paid Analysis
 Premium (%) = Offer Price / Target Price – 1
 Use various time frames to control for leaks
 Premium to:
 1 day prior
 1 week prior
 1 month prior
 Other points: 52 week high & low, various monthly averages
 Get beyond the numbers!
 Why was the premium low or high?
 May use “unaffected share price”
 Prior to announcement of possible sale or evaluating strategic alternatives
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5. Last Modified: August 9, 2011 12:37:09 AM. Presentation2
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Narrowing Down the List
 Goal = transactions where target & the deal have similar business & financial characteristics
 Factors to consider:
 Operations, lines of business
 Size
 Financial aspects (growth, margins)
 Timing
 Consideration paid
 Circumstances surrounding the deal
 Market conditions
 What is the right number of deals?
 Bottom line: know the story behind each deal!
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Sources for Previous Acquisitions
 Previous analyses of other practitioners
 Internal resources & fairness opinions in filings
 Screen for comparable M&A transactions
 Popular databases:
 Thomson Reuters Securities Data (formerly SDC)
 Dealogic
 Mergerstat
 Compile list based on industrial classification
 NAISC or SIC code screen
 Other possible sources (to add color):
 News, industry newsletters, journals
 M&A journals and almanacs
 Research reports
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What is Acquisition Comparables Analysis?
 Comparison with similar transactions
 Actual vs. hypothetical valuation
 “Grounds you in reality”
 Price reflects:
 Control premium
 Potential synergies
 Key factors for similar deals:
 Timing & surrounding events (industry trends)
 Nature (contested, hostile or friendly)
 Consideration paid (cash, stock, or both)
 Bottom line: similar analysis as public comps, but a different perspective
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8. Last Modified: August 9, 2011 12:37:09 AM. Presentation2
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Essential Public Information Checklist
1) 10-K and/or annual report from latest fiscal year
2) 10-Q or interim from latest quarter or period
3) News announcements
 Sources: press release, Bloomberg, Reuters, AP, Dow Jones, etc.
 Earnings announcement before filing with SEC
• Companies now required to reconcile non-GAAP results to GAAP
• Details/disclosure various by company
4) Research estimates
 Typically, consensus estimates of EPS, revenues, EBITDA, etc.
 Common aggregators: Thomson First Call, Thomson I/B/E/S, Zacks, Capital IQ
5) Research reports
 Recent, in-depth reports from reputable Wall Street firms
 Other sources: S&P Industry Surveys / Tearsheets & Value Line
6) Share price (and latest dividend, if applicable)
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9. Last Modified: August 9, 2011 12:37:09 AM. Presentation2
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Finding the Comps Universe
 Previous analyses of other professionals
 Public filings:
 10-K / IPO Prospectus: “Competition section”
 Proxy Statement: “Peer group index”
 Fairness opinions (filed in Merger Proxy/S4)
 Research reports
 Consult with a senior team member before approaching
someone in research
 Other sources: Capital IQ, FactSet, S&P Industry Surveys &
Tearsheets, Value Line, Bloomberg
 Industrial classification screen
 NAICS code (replaced U.S. SIC system)
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Public Comparables Roadmap
1) Determine the Peer Group (comps universe)
2) Gather the Appropriate Information
3) Calculate Market Value and Enterprise Value
4) Calculate the Financial Performance Statistics
5) Calculate the Multiples
6) Analyze the Results and Derive a Range
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Illustrative Summary Trading Multiples
MARKET MULTIPLES ANALYSIS OF SELECTED TECHNOLOGY COMPANIES
(Figures in millions, except per share data) Enterprise Value as a
Multiple of: Price as a Multiple of: LTM Total
Market Value Enterprise Sales EBITDA EBIT 2011E 2012E EPS EBITDA Debt /
Company Stock Price of Equity Value(1) LTM LTM LTM EPS EPS Growth Margin EBITDA
Apple Inc. $353.21 $327,457.8 $299,062.8 3.0x 9.3x 9.8x 27.4x 32.2x 22.5% 32.0% 0.0x
Dell Inc. $13.95 $26,308.8 $19,442.8 0.3x 3.8x 4.6x 1.4x 1.9x 6.0% 8.4% 1.5x
Google Inc. $546.02 $176,303.2 $143,322.2 4.3x 11.2x 12.8x 35.5x 41.9x 18.9% 38.4% 0.5x
Intel Corporation $20.11 $105,597.6 $96,211.6 2.0x 4.5x 5.9x 2.4x 2.5x 11.1% 44.4% 0.1x
International Business Machines $166.22 $198,512.9 $216,577.9 2.1x 8.4x 10.3x 13.3x 14.8x 11.8% 24.7% 1.2x
Oracle Corp. $26.02 $131,804.7 $119,347.7 3.4x 8.2x 9.4x 2.2x 2.4x 15.1% 40.8% 1.1x
Vmware, Inc. $83.96 $35,455.9 $32,202.8 9.7x 42.0x 57.0x 2.1x 2.5x 25.3% 23.1% 0.6x
Yahoo! Inc. $11.09 $14,002.4 $11,625.0 2.1x 6.3x 9.3x 0.8x 0.9x 12.2% 25.7% 0.1x
High 9.7x 42.0x 57.0x 35.5x 41.9x 25.3% 44.4% 1.5x
Average 3.4x 11.7x 14.9x 10.6x 12.4x 15.4% 29.7% 0.6x
Median 2.5x 8.3x 9.6x 2.3x 2.5x 13.7% 28.8% 0.5x
Low 0.3x 3.8x 4.6x 0.8x 0.9x 6.0% 8.4% 0.0x
Microsoft Corporation $24.48 $205,100.0 $166,867.0 2.4x 5.6x 6.1x 2.6x 2.9x 9.7% 42.9% 0.4x
1. Calculated as Market Value of Equity plus total debt, minority interest and preferred stock, less cash & equivalents & unconsolidated affiliates. [ 10 ]

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What is Public Comparables Analysis?
 Comparison with similar companies
 Value of capital holders’ interests
 Analysis at a specific point in time and based on public information
 Create relative valuations based on key multiples
 On 5/3/2011, Apple traded 13.4x one year forward EPS of $25.99. What is Apple’s share price?
 Used to imply valuation
 Microsoft’s one year forward EPS is $2.58. Equity or Enterprise
What price per share would you imply for MSFT? “Value”
Financial Statistic
= Multiple
“Value Relationship”
“Value Driver”
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13. Last Modified: August 9, 2011 12:37:09 AM. Presentation2
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Enterprise Value vs. Equity Value
Enterprise Value Equity Value
- Debt + Debt
- Preferred Stock + Preferred Stock
- Minority Interest(1) + Minority Interest(1)
+ Cash - Cash
= Equity Value = Enterprise Value
1. Under SFAS 160, in the U.S., minority interest now referred to as “noncontrolling interest.” [ 12 ]

14. Last Modified: August 9, 2011 12:37:09 AM. Presentation2
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2 Main Valuation Concepts
 Equity Value:
 Value of shareholders’ interest
 Other common terms:
 Market Value, Offer Value, Market Capitalization
 Enterprise Value:
 Includes all forms of capital
 Equity, debt, preferred stock minority interest(1)
 Other common terms:
 Firm Value, Total Enterprise Value, Transaction Value, Aggregate Value, Adjusted Market Value
1. Under SFAS 160, in the U.S., minority interest now referred to as “noncontrolling interest.” [ 13 ]

15. Last Modified: August 9, 2011 12:37:09 AM. Presentation2
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What is the Purpose of Valuation?
 Initial public offerings / equity offerings
 Debt offerings
 M&A
 Buy- & sell-side advise
 Divestitures and restructurings
 Recapitalizations and LBOs
 Defense analysis
 Vulnerable to hostile takeover?
 Fairness opinions
 Is the price paid / received “fair”?
 Research
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Valuation is Highly Subjective
 Valuation is both ART and SCIENCE
 Art:
 Judgment and interpretation of data
 Selling the story and crafting the deal
 Science: Reasonable analytical justification
 Perspective: Buyer or seller?
 “Intrinsic” may not equal “realizable” value
 Make reasonable decisions based on
 Limited information
 Time constraints
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17. Last Modified: August 9, 2011 12:37:09 AM. Presentation2
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How Can You Value a Company?
Other Techniques Discounted Cash Flows
Leveraged Buyout Valuation Public Comparables
Merger Analysis Acquisition Comparables
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