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There are several standard methods for determining the value of an M&A transaction:
n publicly traded comparable peer company analysis and acquired comparable peer
company analysis (frequently referred to as comparables)
Valuation
Range
Acquired Leveraged
Peer Company Buyout
Analysis Analysis
From a qualitative perspective, any nonfinancial details uncovered during the due
diligence discovery process will affect value. Significant intangibles that can raise the
value of a business above the price range indicated by the quantitative valuation methods
include:
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n brand names
n patents
n innovative products
n manufacturing skill
n undervalued assets
The existence of the following may have a negative impact on the valuation range for the
target:
n environmental hazards
n obsolete facilities
Moreover, if there are only a few available companies in a given industry, many potential
buyers or intense buyer interest in a particular target, the price may increase. Under these
circumstances, particularly determined buyers may choose to make a preemptive bid —
at a price much higher than the range indicated by the valuation methods — just to
guarantee success.
These peer analyses compare companies in an industry on the basis of growth rates,
margins, capital structure, size and returns, as well as multiples based on financial line
items such as sales, EBIT, net income and book value. Publicly traded comparables
highlight the current market assessment of the target vis-à-vis its peers. Acquired
company analysis reviews the premiums paid by acquirers for recent comparable peer
acquisitions (generally over the last two years). Understanding both types of comparable
company analysis gives insight into a company's value by comparing capital structures,
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Similar to other types of financial analyses, comparable company analysis is a mix of art
(selecting the relevant peer group and interpreting the results) and science (calculating the
financial ratios). The methodology for calculating the quantitative aspects of both sets of
analyses is essentially the same. First, the peer group for the target is selected. Then
financial ratios are calculated to show the value of the company relative to its peers.
Finally, the peers are ranked by various measures in order to discover why the company
might be valued as it is.
- s im ila rline ofbu s ines s Ca lcu la te fina ncia lra tios Do ra nk ing s
- s im ila r s ize - find price rela tive to peers - ra nk by profita bility
- s im ila rlife cycle s ta g e - is ta rg et overva lu ed or u nderva lu ed? - ra nk by g row th
- s im ila r ca pita ls tru ctu re - ra nk by levera g e
n share the same life-cycle stage (all growth companies or all mature companies)
n have comparable sales bases (distributors versus direct sales, retail versus
wholesale, franchise versus owned)
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Va lu a tion
The quantitative aspect of the comparables analysis is illustrated in the following
example. Since the calculations are similar for publicly traded and acquired peer
company analyses, the example will focus on a publicly traded analysis.
Exa m ple
All five companies below are publicly traded US telephone companies. Phone companies
represent an ideal peer group, since all share a similar industry, product line, life-cycle
stage, customer base, capital structure and, to a lesser extent, revenues. It is possible to
estimate the target's share price by calculating comparable financial ratios for companies
A, B, C and D.
Step 1: Calculate the equity and total value for the peer companies. (All US dollar
figures are in millions, except per share data.)
2. equ ity va lu e / ca s h flow , w here ca s h flow = ca s h flow from opera tions – preferred s tock dividends
4. corpora te va lu e / EBITDA, w here EBITDA= netincom e + interes t expens e + ta xes + deprecia tion& a m ortiza tion
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Step 3:Categorize the data in step 2 in terms of the maximum, minimum, mean and
median multiples for the peer group.
This table shows the multiples paid by equity investors for shares of similar companies.
Publicly traded peer company valuation analysis derives multiples of net income, EBIT,
EBITDA, cash flow, book value and sales for a set of peer companies.
Step 4:Using the target's actual financial data and the peer group multiples, find a range
of equity values for the target. (Note: numbers may not agree exactly due to rounding.)
2. im pu ted equ ity va lu e = (corpora te va lu e m u ltiple from s tep 3) x (ta rg et com pa ny va lu e) + (ca s h & m a rk eta ble
s ecu rities ) – (long -term debt + s hort-term debt + preferred equ ity a tliqu ida tionva lu e +
m inority interes ts )
Note that the imputed equity values for EBIT, EBITDA and sales are equal to the
corporate value less the net book value of any debt, preferred equity, minority interests
and cash or marketable securities. If this additional calculation were not done, the
imputed equity values for net income and book value would not be equivalent to the
imputed values generated with the EBIT, EBITDA and sales multiples because they are
based on the corporate value, not the equity value, of the company. The rationale for this
difference is that earnings are received only by equity holders (and are therefore a
multiple of equity value), whereas EBIT is received by holders of both debt and equity
(and is therefore a multiple of corporate value).
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Step 5:Divide the values in step 4 by the target's shares outstanding (66.6) to find a range
of per share equity values for the target.
Interpreta tion
The EBIT and EBITDA ratios generated by the analysis are most relevant for M&A
purposes. In general, sales multiples produce the upper end of the imputed equity
valuation range for an industry since they fail to incorporate the cost structure. EBIT and
EBITDA multiples provide the closest approximation of the ongoing value of a company
because they reflect the operating cash flow without consideration for the capital
structure. Book value provides a floor to the imputed valuation range because it reflects
historical costs but ignores cash flow or profitability. Price/earnings multiples are less
reliable gauges of value because of differences in capitalization, tax treatment and
economic cyclicality.
At times, unique multiples are used in certain industries in which profitability and value
are not necessarily reflected in operating performance. For example, the cellular
telephone industry looks at corporate value to total POP (percent of population); retailers
use same-store sales growth; hospital companies look at the number of beds; cement or
linerboard companies use price per ton of capacity; and real estate and timberland
companies use price per acre.
The goal of this analysis is to find a tighter range of equity values than is implied by the
range between the minimum and maximum values. At times, however, the business
attributes of either the highest- or lowest-valued company may be the most similar to
those of the target, in which case the maximum or minimum values for that particular
company should be stressed in the analysis. (Such variations can be especially important
when valuing private companies with different operating characteristics than their public
peers.)
The median is useful when the peer group contains extreme minimum or maximum
values that distort the value of the mean. In the above example, a typical (i.e., mean or
median) imputed share value for the target company ranges from a low of USD 23.44 per
share (using book value) to a high of USD 36.90 per share (using cash flow), while the
actual public trading price for the target was USD 28.13. The range clearly captures the
target's current public market value. In fact, the target company's stock price had
fluctuated between USD 28 and USD 31 per share over the prior 12 months. Although
the imputed range now appears quite wide, further analysis is likely to narrow it.
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In this example, the target company, although a dominant market player, has the slowest
growth in sales. It also has the highest debt-to-equity ratio (and return on equity), so it is
optimizing its capital structure relative to its peers. However, its EBITDA margin is only
average, so perhaps it can improve operating performance.
Interpreting the peer company analysis also involves checking the numbers for accuracy
and common sense, reevaluating the peer group for its suitability and eliminating extreme
values, and finding the story in the numbers, that is, an explanation, at least in part, for
the company's valuation relative to its peers. The steps are broken down in the following
checklist:
n Are the calculations accurate? Are the accounting methods similar and have all
extraordinary gains, losses and accounting changes been eliminated?
n Are the numbers consistent with common sense? Are the multiples reasonable and
in line with one another? If not, why not? Were there any stock splits, mergers or
other events that would skew the numbers?
n Finally, and most important, what conclusions can be drawn? Rankings are the
natural extension of the peer company valuation analysis.
To estimate the exact offer price, however, it is up to the buyer to refine the valuation
estimate based on any other available information on the company and using other
techniques, such as acquired peer company analysis, pro forma analysis (with a
discounted cash flow analysis incorporated) and LBO analysis.
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Although the previous example focused on publicly traded peer companies, a set of
acquired peer companies is calculated in almost the same way. There are only two
differences: equity value and corporate value are replaced by the offer value and
transaction value in the calculations and the interpretation of the results. The offer value
and transaction value are used because they reflect the price level at which the various
acquisitions took place. The offer value indicates how much it costs to buy common
equity and equity equivalents, while transaction value reflects the value of equity plus
refinancing of debt and transaction expenses. The logic is equivalent to using the current
trading ranges for the publicly traded peer companies.
The following example illustrates how a typical offer value and transaction value,
incorporating several capital structure items, are calculated.
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Exa m ple
Offer Va lu e Tra ns a ctionVa lu e
As s u m ptions Va lu es As s u m ptions Va lu es
Offer price per s ha re 12.0 0 Offer va lu e 20 8,216
Com m ons ha res 15,0 0 0
ou ts ta nding
Exercis a ble options 50 0 Tota lbook va lu e oflong - 90 ,0 0 0
ou ts ta nding term debt
Com m ona nd options 15,50 0 Les s :Q u a ntity converted
ou ts ta nding (20 ,0 0 0 )
Va lu e oflong -term debt 70 ,0 0 0
a s s u m ed
Price ofcom m ona nd 186,0 0 0
options
Short-term debt a nd 40 ,0 0 0
cu rrentlong -term debt
Avg . exercis e price of 7.0 0
options
Les s :Proceeds from (3,50 0 ) Opera ting ca s h requ ired 70 0
options
Ca s h a va ila ble 15,0 0 0
Book va lu e of 20 ,0 0 0 Les s :Exces s ca s h
convertible debt (14,30 0 )
Convers ionprice 10 .0 0
Nu m ber ofs ha res 2,0 0 0 Tra ns a ctioncos ts 4,0 0 0
is s u ed
Pu rcha s e price of 24,0 0 0
convertible debt
Tota l tra ns a ctionva lu e 30 7,916
Pa r va lu e ofconvertible 1,0 0 0
preferred
Convers ionprice 7.0 0
Nu m ber ofs ha res 143
is s u ed
Pu rcha s e price of 1,716
preferred
Tota loffer va lu e 20 8,216
Comparing acquisition premiums for peer company transactions indicates the percentage
premium above the equity market price that is required to purchase a company in that
particular industry, and the rankings, once again, should explain why.
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increased dividends. The target's pro forma and projected statements can then be
subjected to a discounted cash flow analysis to estimate the value of the business. In
order to calculate a pro forma accurately, a number of assumptions must be made:
n the form of consideration (all stock, stock and cash, debt, etc.)
Once these assumptions have been made, the pro forma financial statements and
projections can be calculated. A pro forma analysis usually includes at least the
following:
n pro forma projected combined income statements, balance sheets and cash flow
statements
n projected target income statements, balance sheets and cash flow statements
n projected acquirer income statements, balance sheets and cash flow statements
The assumption on timing determines the date of the initial financial statements
(historical pro formas), while the assumption about the form of consideration determines
the number of shares outstanding (for pooling) or the level of initial debt, equity and cash
on the balance sheet (for purchase). All of this is then presented on the transaction
summary page. The pro forma opening balance sheet for both a pooling and purchase pro
forma is illustrated in the tables titled "Tax-Free Pooling Accounting Combined Balance
Sheet" and "Tax-Free Pooling Accounting Combined Statements of Income", and "Tax-
Free Purchase Accounting Combined Balance Sheet" and "Purchase Accounting
Combined Statements of Income" assuming a December 31 transaction date.
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The historic statements are also carried forward for a period of time (generally five to ten
years), with assumptions about growth and margins for each company (the "projected
statements"). The separate acquirer and target statements are then combined to create the
pro forma projected combined statements.
Ta x-Free Pooling Accou nting Com bined Sta tem ents ofIncom e
Decem ber 31 Com pa ny X Com pa ny Y Pro Form a Com bined
(inUSD thou s a nds ) His torica l His torica l Com pa ny Xa nd Y
Sa les 3,750 1,0 50 4,80 0
Cos t ofs a les (2,250 ) (630 ) (2,880 )
G ros s profit 1,50 0 420 1,920
Selling , g enera la nd (750 ) (210 ) (960 )
a dm inis tra tive expens es
Incom e from opera tions 750 210 960
Federa lincom e ta x* (375) (10 5) (480 )
Net incom e 375 10 5 480
Retu rnons a les 10 % 10 % 10 %
* a s s u m es a 50 % s ta tu tory ta x ra te
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(2) U nder Sta tem ent ofFina ncia lAccou nting Sta nda rds No. 96, the lia bility m ethod ofa ccou nting requ ires recog nitionof
the ta x effects ofdifferences betw eena s s ig ned va lu es a nd the ta x ba s es of the net a s s ets a cqu ired a s d eferred incom e
ta x a s s ets orlia bilities . The a ctu a la m ou nt of thes e a lloca tions w ou ld need to be ca lcu la ted by a na ccou nting or ta x
profes s iona l.
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* This exa m ple does not trea t g oodw illa s dedu ctible for ta x pu rpos es . Ta x dedu ctibility is ra rely s eena nd u s u a lly lim ited
to a s s et pu rcha s es ofdivis ions . How ever, the trea tm ent ofg oodw illinM &As itu a tions is a com plica ted a rea of ta x la w ,
a nd the reg u la tions g overning ita re evolving . The rea deris recom m ended to cons u ltw ith a nexpertinthis a rea . Ta x
provis ion= (g ros s profit– g enera lexpens es ) × (ta x ra te) or[(170 9 - 960 ) × 50 %].
n an analysis of what the company would be worth at some point in the future based
on certain financial ratios from the comparable peer company analysis
The target's free cash flow is calculated in the separate projected income and cash flow
statements of the target in the pro forma analysis. Free cash flow is defined as:
n Base case: cash flow reflects the expected cash flow stream generated by the
target for the benefit of the acquirer.
n Worst case: cash flow reflects minimal contributions from the target.
n Best case: cash flow reflects any synergies that can be obtained from the
transaction.
The acquirer's weighted average cost of capital is the cost of each debt and equity capital
component and the amount of that component in relation to the total capital structure. The
components of the calculation are as follows:
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W here:
ris k -free ra te = retu rnona ris k -free inves tm ents u ch a s a US Trea s u ry bond
beta = a m ea s u re ofthe s tock 's vola tility w ith res pect to the m a rk et
m a rk et prem iu m = his torica ls tock m a rk et retu rnm inu s the ris k -free ra te
The last term in the WACC equation is known as the capital asset pricing model (CAPM)
and provides a measure of the firm's cost of common equity. Note that for M&A
transactions, the acquirer's weighted average cost of capital is calculated using the book
value of the debt and equity, not the market value. Mergers and acquisitions are two of
the circumstances in which the average cost, not the marginal cost (or the cost of the next
incremental addition of debt or equity) is appropriate.
Using the acquiring company's own cost of capital to discount the target's projected cash
flows is appropriate only when it can be safely assumed that the acquisition will not
affect the risk level of the acquirer. If the acquisition of the target will strain the bond
ratings of the acquirer, and therefore change the acquirer's cost of capital after the
transaction, the cost of capital should be adjusted to reflect the additional risk. As a
practical matter, most DCF analyses use a range of discount rates above and below the
acquirer's actual rate to account for various transaction capital structures.
Finally, when calculating the terminal values for the DCF valuation, either the perpetuity
or the growing perpetuity methods may be used. The choice of method usually depends
on the acquirer's intentions. Most corporate buyers use the growing perpetuity method
because they intend to add value to the target, whereas most financial (LBO) buyers use
the perpetuity method because they intend to sell the investment after a certain period of
time (typically five to seven years).
Terminal values are generally based on EBIT or EBITDA rather than after-tax cash flow
(net income + depreciation + deferred taxes). Since after-tax cash flow is usually subject
to various leverage decisions and tax rates, such valuations are rarely comparable across
companies. Therefore, M&A prices are usually based on multiples of operating cash flow
(EBIT or EBITDA), depending on the variability in the level of fixed asset depreciation
for a given industry. This is because an acquirer is interested in the operating cash
generated by a target before leverage is added.
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The EBIT or EBITDA income statement figure is multiplied by the relevant multiple
(usually a range as with the discount rate) from the acquired peer company comparables.
For example, if the range of acquisition multiples of EBIT for a given industry are 6.8-8.4
(and an average of 7.6), the perpetuity calculations would look like this:
EBITn ×7.6
present value of perpetuity =
discount rate
The numerator establishes the value of the business in the future, discounted back to year
n. This terminal value, or value of the business in year n, is then discounted back to the
present along with the cash flows.
n What is the breakeven point (the point at which the company makes the same
earnings per share after the transaction as it would have without the transaction)?
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n If the income derived from the acquisition exceeds the acquisition expenses
(interest expense and the fees of lawyers, accountants and bankers) in the near or
medium term, the acquisition is usually acceptable.
n Some buyers will not accept any dilution in the first year due to the impact on the
stock price (although foreign purchasers will usually take a longer-term view).
Exa m ple
The following is an earnings cross-over analysis done for an M&A project code-named
"Crimson." Code names are standard for merger and acquisition valuations in order to
minimize the number of individuals who know the true identity of the target and the
acquirer. The use of code names helps prevent early leaks to the media or illegal insider
trading in the equity of either company before the public announcement of the
transaction.
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Note:
1. a s s u m es no a m ortiza tionofdebt a nd a one-tim e increa s e of30 0 m illioninYea r 2 for ca pita lexpenditu res
As the calculations show, the acquisition of Crimson will be dilutive to the net income of
the acquirer for only one year. After the first year, the transaction will provide a positive
earnings increase for the acquirer.
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business if it were acquired mainly with debt. LBO buyers were so prevalent during the
mid- to late 1980s that any buyer had to prepare for LBO competition on a transaction.
Although LBO and MBO (management buyout) buyers are less active today, they still
exist. Therefore, it is important to know how much such a buyer could afford to pay in
order to plan an appropriate acquisition pricing strategy.
An LBO analysis begins with an initial balance sheet that allows the buyer (management
or an LBO firm in most cases) to alter the forms of consideration used to finance the
transaction. In general, an LBO buyer will attempt to pay for the target's equity using any
excess cash or marketable securities on the target's balance sheet, followed by senior
debt, senior subordinated debt, junior subordinated debt, pay-in-kind preferred stock and,
finally, the least amount of common equity possible. The reason for this sequence of
financing options is that the buyer wants to minimize its future interest expense by using
the least expensive form of consideration first (cash) followed by the least expensive type
of debt, before moving down the balance sheet to more expensive forms of debt or equity
financing.
The projected financial statements are linked to the initial pro forma statements so that
any change made in the forms of consideration can be reflected throughout the projected
period. For example, any change in the expected interest rate on debt or the dividends on
a preferred issue will be carried through the projected income statement and change
earnings per share. In addition, any increases in interest or principal payments on debt or
preferred stock financing will be reflected in the projected balance sheets and cash flow
statements.
The degree of leverage allowed depends on the answers to two questions: 1. Is the senior
debt paid down in five to seven years? 2. Are the interest coverage ratios sufficient to
satisfy the debt covenants? As long as the cash flow projections from the business satisfy
these two requirements, the leveraged structure can be used. Once the maximum price
that could be paid and the levels of debt have been determined, the target's financial
performance is again subjected to a discounted cash flow analysis. However, the WACC
used for the DCF analysis may be different than in the standard pro forma example
because if the leverage reduces the company's debt rating below investment grade, the
cost of capital for the acquirer might be much higher. Or the WACC could be that of the
target (which is financing itself in the case of an MBO), reflecting a greater degree of
leverage than the acquirer has. The results would then be compared to those obtained
from the standard pro forma analysis when designing a pricing strategy.
Pricing M a trix
Finally, most transaction analyses include a pricing matrix. The purpose of a pricing
matrix is to show the range of multiples that will be paid for a given target as the offer
price rises or falls. The buyer can use the matrix to negotiate the price within a
predetermined range of acceptable multiples based on the trading ranges of the target's
peers.
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For example, if comparable acquisitions for the company shown in the "Pricing Matrix"
table had been made for a range of EBIT multiples between 7.5 and 7.7, the buyer would
know from looking at the matrix what the range of offer prices should be. For example,
an offer of USD 40 per share for a particular target would reflect an EBIT multiple of 7.6
and a book value multiple of 2.32.
Pricing M a trix
(a m ou nts inUSD)
Prem iu m Offer
Offer to M a rk et Price/ Offer Price/
Price per Price: Offer Tra ns a ction LTM EPS: LTM EPS: TV/EBIT: TV/Sa les :
Sha re 33.25 Va lu e* Va lu e (TV)** 2.48 2.48 314 4,153
33.25 0% 90 8 2,20 3 13.4x 1.92 7.0 x 0 .53x
38.0 0 14% 1,0 38 2,333 15.3x 2.20 7.4x 0 .56x
38.50 16% 1,0 52 2,347 15.5x 2.23 7.5x 0 .57x
39.0 0 17% 1,0 65 2,360 15.7x 2.26 7.5x 0 .57x
39.50 19% 1,0 79 2,374 15.9x 2.29 7.6x 0 .57x
40 .0 0 20 % 1,0 93 2,388 16.1x 2.32 7.6x 0 .57x
40 .50 22% 1,10 6 2,40 1 16.3x 2.34 7.6x 0 .58x
41.0 0 23% 1,120 2,415 16.5x 2.37 7.7x 0 .58x
41.50 25% 1,134 2,429 16.7x 2.40 7.7x 0 .58x
* nu m ber ofs ha res ou ts ta nding :27.32
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Public
Peer Company Current Market
Analysis Assessment
Acquired
Peer Company Premium for
Analysis Control
Pro Forma
& DCF Value of the
Analysis Business
Leveraged
Buyout Worth with
Analysis Maximum Debt
In general, the price offered for a company is within a range indicated by a composite
(though not necessarily an average) of the results obtained from the quantitative analyses.
The initial offer price within that range depends on the level of competition expected, the
opportunities to increase the initial offer and other negotiating considerations (such as the
ability to warrant, i.e., assign responsibility for, old litigation or environmental liabilities
to the previous owner). In any case, the initial offer is rarely accepted unless a preemptive
bid is proposed.
At times, buyers bid higher than the price indicated by the valuation methods. The buyer
may believe that additional value can be found once access to internal information is
allowed. However, this is a risky strategy. It is better to bid within the indicated range
and then increase the bid after inside information is provided and the additional value
confirmed. Otherwise, the buyer risks paying too much and diluting earnings per share.
This strategy also provides negotiating room to increase the bid due to the qualitative
factors.
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The rationale for using book value is that unless there is a change of control provision in
each indenture of the seller's debt instruments, the debt need not be repaid upon
completion of the transaction. If it must be repaid, it can be repaid at its book (or face)
value, rather than at the prevailing market price. Any required refinancing will be at the
blended WACC of the two companies, not the WACC of either the target or the acquirer.
In addition, if the target has a lower cost of debt on its books, this benefit accrues to the
buyer. Under these circumstances, the buyer has no incentive to refinance, and therefore
maintains the debt on the books at the prevailing interest rate.
For corporate valuation purposes, when WACC is calculated, debt is always assumed to
cost whatever the next incremental piece of debt costs, i.e., the current market rate. In
addition, DCF analysis assumes the market value of debt because one of the purposes of
the analysis is to determine the ongoing value of the equity of the business, assuming
current market rates.
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Su m m a ry
n Quantitative valuation methods provide a range of possible prices for a target.
n There are two forms of peer company analysis: publicly traded comparables and
acquisition comparables.
n There are three steps in a peer company exercise: identifying the target's peers,
calculating the multiples and interpreting the results using rankings.
n A publicly traded peer company analysis uses equity values and corporate values,
whereas an acquired peer company analysis uses offer values and transaction
values.
n The acquired peer company analysis calculates the premiums paid for companies
in the target's peer group.
n A pro forma analysis calculates the performance of the target and acquirer after
the transaction, assuming either pooling or purchase accounting.
n A DCF analysis estimates the value of the business in light of the acquirer's
weighted average cost of capital.
n An LBO valuation determines the maximum price that can be paid for a business
using the least amount of equity and the maximum amount of debt.
n Successful M&A transactions are largely the result of the buyer's strategy when
initiating an offer for a company.
K ey Term s
Acqu ired Peer Com pa ny Ana lys is M a na g em ent Bu you t
Ca pita lAs s et Pricing M odel(CAPM ) Peer Com pa ny Ana lys is
Com pa ra bles Pro Form a Ana lys is
Corpora te Va lu e Pu blicly Tra ded Peer Com pa ny Ana lys is
Ea rning s C ros s -OverAna lys is Term ina lVa lu e
Equ ity Va lu e W a rra nt
Inves tm entG ra de W eig hted-Avera g e Cos t ofCa pita l(W ACC)
Levera g ed Bu you tAna lys is
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Exercis e
1. Which of the following would have a positive impact on the value of a business?
a. outstanding litigation
b. strong existing management
c. potential environmental liabilities
d. obsolete facilities
2. True or False: Publicly-traded peer company analysis establishes the implied current
market valuation for a business, while acquired peer company analysis establishes the
value assuming the control premium required to purchase a company in a given
industry. ____
3. True or False: When performing a pro-forma, analysis is it necessary to project the
individual financial statements of the target only? ____
© G lobecon G roup,Lt d .
24
M &A Valuat ion A n alysis
2. True or False: Publicly-traded peer company analysis establishes the implied current
market valuation for a business, while acquired peer company analysis establishes the
value assuming the control premium required to purchase a company in a given
industry. True
Pu blicly-tra ded peer com pa ny a na lys is es ta blis hes the im plied cu rrent m a rk et va lu a tion
for a bu s ines s , w hile a cqu ired peer com pa ny a na lys is es ta blis hes the va lu e a s s u m ing the
controlprem iu m requ ired to pu rcha s e a com pa ny ina g ivenindu s try.
To indu ce s ha reholders to s ell, the a cqu irer w ou ld ha ve to offer m ore tha n the cu rrent
price of175 pence, bu t w ou ld prefer to pa y les s tha nw ha t the com pa ny believes tha t it is
w orth, w hich is 30 5 pence (G BP32 m illion÷ 10 .5 m illions ha res ).
© G lobecon G roup,Lt d .