6. Valuation

6. Valuation

1. Introduction

   • Strategy
     • Why? Who with? NB! Covered in the other lectures.
     • Valuation
       • How much? How structured?
       • Post-merger integration
         • How?

2. 1. Step: Value of target stand-alone

   • 1.1 Comparable companies analysis
     • 1. Share
       • 1. Business and financial characteristics
         • 2. Performance/vallue drivers
           • 3. Risks
           • Margins
             • Growth
               • CAGR 5-7 % good in TMT
           • Plot g+m against EV/EBITDA
             • Locate range, and check R^2.
     • 1.2 Comparabe Transaction analysis
       • 1. Premium paid for control
         • Main difference from comparable companies
         • 20-40 %
           • Pick 2 or 3
   • 2. Step: Synergies
     • Operatinal
       • Financial
         • Problems
           • 1. Hard to predict
             • 2. Likelihood of achievement
               • 3. Timing uncertainty
                 • 4. Cost to achieve
     • 3. Debt component
       • 4. Scenario analysis
         • 5. Costs
           • 6. Valuation vs Pricing
           • V(B+T) > VB + (VT + PT) + E + OC + IC
             • PT = Premium
               • 20-40 % to existing market value
               • ET = Expenses of acquiisition process (Cash cost)
                 • 3-5 % of VT + PT Investment banking fees Legal fees Accountant fees Other fess Interest payments on debt
                 • OC = Opportunity cost
                   • Management distraction Sales force focus and reaction of customers Competetive responses ?
                   • IC = Integration cost (Post merger integration)
                     • 10 - 15 % of VT + PT

3. Cases

   • Euromoney feedback
     • 1. Understadning about the business
       • Revenue stream, product mix, leading brands, cost structure (variable vs fixed)
       • 2. Familiarise with key competitors
         • Selling similar product to same costumer base
         • 3. Strategic fit
           • Can I sell my product to their costumers base
           • 4. Value drivers
             • Plot g+m. where is the target trading vs others? Only after answer the questioan the company is cheap or expensive
             • 5. Is there value to derive fom the deal?
               • Better management running a more oprofitable business?
               • 6. Valuation
                 • Forecast, DCF , Multiples, LBO, Pricing, what can other pay.
   • Vista/Solera
     • Pay: 55.85 per share, 6.5 bn including debt
       • Premium

4. Due dilligence

   • Buywea use increased due dilligence to reduce price
     • Takeover premiums and length of due dilligence
       • Sellers cab increase competative tension - better buyer reseach
         • Sellers can shorten due dillience - be well prepared and organised
           • M&A deal leaks can be used to influence deal negotiations