Illustration for each quad: Tesco & T&S Stores (success) GM & EDS Diversification Cisco has completed 108 acquistions – most recently a provider of set top boxes, following on from Linksys acquisition which took them into the consumer market. (Product Development) Morrisons & Safeway
Valuations & exit planning
Increasing the value of your clients business Tim Luscombe
OpportunityReframe your clients perceptionof your fees
Valuation TechniquesAsset Based * Ratio(s) of Profits*Cash flow based * PaybackPeriods * ROI *Buyers Valuation* BenchmarkAll Estimating What a willingbuyer will pay to a willing seller It is an art, not a science
Asset basedValue of net assetsAdjust for depreciation methods?As above, + good will elementMarket Value of net assets Strip out cash & property
Profit Based Typically P/E ratios Value of the companyPost tax profits of the company
P/E Ratios Find an equivalent public company’s P/E RatioDiscount that ratio for the lack of liquidity in the market in private companiesApply to adjusted post tax profits Over different periods
Cash Flow basedMultiples of EBITDAEarnings before interest tax depreciation andamortizationDCF and / or NPV calculationsBased upon forecast cashflows
Payback PeriodsNumber of years to recoupinvestmentUsually between 3 and 5 yearsFactors include costs ofintegration and savings fromconsolidation.
Return on InvestmentROI based upon forecast post tax profitsEnables easy comparison to alternativeinvestmentsDifferent rates of return for different buyersRate of return is set by reference to cost ofcapital
Buyers ValuationLooks at the increased value of thecombined businessesWill consider cost of capital, but alsoearnings dilution (especiallyimportant in public companies)Estimating costs of integration butalso synergistic benefits
Industry BenchmarksOften a very simple calculationWidely known in the industry – soalmost self-fulfillingExamples might be n x turnover orn x contracted revenue or £x persubscriber….