并购整合估价

Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,MBA1 Finance,Valuation,Valuation as a Tool,We encounter valuation in many situations:,Mergers & Acquisitions,Leveraged Buy-outs (LBOs & MBOs),Sell-offs, spin-offs, divestitures,Investors buying a minority interest in company,Initial public offerings,How do we establish value of assets?,Objective today: To preview valuation methods used most commonly in practice,Business Valuation Techniques,Discounted cash flow (DCF) approaches,Dividend discount model,Free cash flows to equity model (direct approach),Free cash flows to the firm model (indirect approach),Relative valuation approaches,P/E (capitalization of earnings),Enterprise Value/EBITDA,Other: P/CF, P/B, P/S,Control transaction based models (e.g. value based on acquisition premia of “similar” transactions),Discounted Cash Flow Valuation,What cash flow to discount?,Investors in stock receive,dividends, or periodic cash distributions from the firm, and,capital gains,on re-sale of stock in future,If investor buys and holds stock forever, all they receive are dividends,In dividend discount model (DDM), analysts forecast future dividends for a company and discount at the required equity return,Problem with dividends: they are “managed”,Dividends: The Stability Factor,Factors that influence dividends:,Desire for stability,Future investment needs,Tax factors,Signaling prerogatives,Dividend changes: Publicly traded U.S. Firms,Source: A. Damodaran, Investment Valuation, Wiley, 1997,Valuation: Back to First Principles,Value of the firm =,value of fixed claims (debt) + value of equity,How do managers add to equity value?,By taking on projects with positive net present value (NPV),Equity value =,equity capital provided + NPV of future projects,Note,: Market to book ratio (or “Tobins Q” ratio) 1 if market expects firm to take on positive NPV projects (i.e. firm has significant “growth opportunities”),Valuation: First Principles,Total value of the firm,= debt capital provided + equity capital provided,+ NPV of all future projects project for the firm,= uninvested capital +,present value of cash flows from all future,projects for the firm,Note,: This recognizes that not all capital may be currently used to invest in projects,The Valuation Process,Identify cash flows available to,all,stakeholders,Compute present value of cash flows,Discount the cash flows at the firms weighted average cost of capital (WACC),The present value of future cash flows is referred to as:,Value of the firms invested capital, or,Value of “operating assets” or “Total Enterprise Value” (TEV),The Valuation Process, continued,Value of all the firms assets (or value of “the firm”),= V,firm,= TEV + the value of uninvested capital,Uninvested capital includes:,assets not required (“redundant assets”),“excess” cash (not needed for day-to-day operations),Value of the firms equity,= V,equity,= V,firm,- V,debt,where V,debt,is value of fixed obligations (primarily debt),Total Enterprise Value (TEV),For most firms, the most significant item of uninvested capital is cash,V,firm,= V,equity,+ V,debt,= TEV + cash,TEV = V,equity,+ V,debt,- cash,TEV = V,equity,+ Net debt,where Net debt is debt - cash (note: this assumes all,cash is “excess”),Measuring Cash Flows,Free Cash Flow to the Firm (FCFF),represents cash flows to which,all,stakeholders make claim,FCFF = EBIT,(1 - tax rate),+ Depreciation and amortization (non cash items),- Capital Expenditures,- Increase in Working Capital,What is working capital?,Non-cash current assets - non-interest bearing current liabilities (e.g. A/P & accrued liab.),Working Capital vs. Permanent Financing,Short-term,assets,Short- term,liabilities,Permanent,Capital,Long-term,assets,Permanent,Capital,Operating,assets,Working,capital,Permanent capital may include “current” items such as bank loans if,debt is likely to remain on the books,Key: Treat items as either working capital permanent capital but not both,Uninvested,capital,FCFF vs. Accounting Cash Flows,Income Statement, Hudsons Bay,($millions, FYE Jan 1999),Sales$7,075,Cost of Goods Sold,$6,719,EBITDA $ 356,Depreciation,$ 169,EBIT$ 187,Interest Expense $ 97,Income Taxes,$ 50,Net Income$ 40,Dividends $ 53,Cash Flow Statement, Hudsons Bay, ($millions, FYE Jan 1999),Cash flow from operations,Net Income $ 40,Non-cash expenses $ 169,Changes in WC ($116),Cash provided (used) by investments,Additions to P,P & E ($719),Cash provided (used) by financing,Additions (reductions) to debt $ 259,Additions (reductions) to equity $ 356,Dividends,($ 53),Overall Net Cash Flows ($ 64),Hudsons Bay FCFF,= 187 * (1- 0.44) + 169 - 719 - 116 = ($ 561),Cash Flow Definition Issues,How is FCFF different than accounting cash flows?,Operating cash flows includes interest paid,We want to identify cash flows,before,they are allocated to claimholders,FCFF also appears to miss tax savings due to debt,Key,: these tax savings are accounted for in WACC,An Example,$1 million capital required to start firm,Capital structure:,20% debt (10% pre-tax required return),10% preferred debt (7% required return),70% equity (15% required return),tax rate is 50%,firm expects to generate 244,000 EBIT in perpetuity,future capital expenditures just offset depreciation,no future additional working capital investments are required,What should be the value of this firm?,An Example, continued,After tax WACC is 12.2% so pre-tax WACC is 24.4%,EBIT / capital is also 24.4%, so NPV of future projects for this firm is zero,Value of firm,should,equal $1 million (invested capital),FCFF = EBIT * (1-t) = $122,000,Value = 122,000 / 0.122 = $1,000,000,Two Stage FCFF Valuation,Impossible to forecast cash flow indefinitely into the future with accuracy,Typical solution: break future into “stages”,Stage 1 : firm experiences high growth,Sources of extraordinary growth:,product segmentation,low cost producer,Period of extraordinary growth:,based on competitive analysis / industry analysis,Stage 2: firm experiences stable growth,Stage 1 Valuation,Forecast annual FCFF as far as firm expects to experience extraordinary growth,generally sales driven forecasts based on historical growth rates or analyst forecasts,EBIT, capital expenditures, working capital given as a percentage of sales,Discount FCFF at the firms WACC (k,c,),FCFF,1,+,FCFF,2 + . . . +,FCFF,t,1+k,c,(1+k,c,),2,(1+k,c,),t,VALUE,1,=,Stage 2 Valuation,Start with last FCFF in Stage 1,Assume that cash flow will grow at constant rate in perpetuity,Initial FCFF of Stage 2 may need adjustment if last cash flow of,Stage 1 is “unusual”,spike in sales or other items,capital expenditures should be close to depreciation,Value 1 year before Stage 2 begins =,FCFF,t,* (1+g),K,c,- g,Stage 2 Valuation,Present value of Stage 2 cash flows (Terminal Value or TV):,Key issue in implementation: Terminal growth (g),rate of “stable” growth in the economy (real rate of return 1-2% plus inflation),TEV =,VALUE,t,+ TV,1,(1+k,c,),t,x,TV =,FCFF,t,* (1+g),K,c,- g,Discounted FCFF Example,Assumptions,Year,EBIT,Dep,Cap Ex,W/C Change,1 40 4 6 2,2 50 5 7 3,3 60 6 8 4,Tax rate = 40%,k,c,= 10%,V,debt,= value of debt = $100,Growth (g) of FCFFs beyond year 3 = 3%,Discounted FCFF Example (contd),FCFF = EBIT*(1-t) + Dep - CapEx - Increase in WC,Year 1 FCFF = 40*(1 - 0.4) + 4 - 6 - 2 = 20,Year 2 FCFF = 50*(1 - 0.4) + 5 - 7 - 3 = 25,Year 3 FCFF = 60*(1 - 0.4) + 6 - 8 - 4 = 30,Discounted FCFF Example (contd),20 25 30 30*(1+g) 30*(1+g),2,| | | | | |,t=0 1 2 3 4 5,P = V,firm,30*(1+g)/(k,c,-g),TEV = 20/(1+k,c,) + 25/(1+k,c,),2,+ 30/(1+k,c,),3,+,30*(1+g)/(k,c,-g)/(1+k,c,),3,Discounted FCFF Example (contd),TEV = 20/(1.10) + 25/(1.10),2,+ 30/(1.10),3,+,30*(1.03)/(0.10 - 0.03)/(1.10),3,= 18.2 + 20.7 + 22.5 + 331.7 = 393.0,TEV + Cash = V,firm,= V,firm,= TEV =393.0,V,firm,= V,debt,+ V,equity,= V,equity,= V,firm,- V,debt,V,equity,= 393.0 - 100.0 = 293.0,Relative Valuation Approaches,Capitalization of Earnings,Compute the ratio of stock price to forecasted earnings for “comparable” firms,determine an appropriate,“P/E multiple”,If EPS,1,is the expected earnings for firm we are valuing, then the price of the firm (P) should be such that:,P / EPS,1,= “P/E multiple”,Rearranging,P = “P/E multiple” x EPS,1,P/E Ratios and the DDM,Recall the constant growth DDM model, but apply it to a firm with 100% payout ratio:,P/E ratios capture the inherent growth prospects of the firm and the risks embedded in discount rate,P/E Motto: Growth is Good, Risk is Rotten,P,= D,1,k,e,- g,P,= EPS,1,k,e,- g,P,= 1,EPS,1,k,e,- g,P/E Ratio Based Valuation,Fundamentally, the “P/E multiple” relates to,growth,and,risk,of underlying cash flows for firm,Key: identification of “comparable” firms,similar industry, growth prospects, risk, leverage,industry average,TEV / EBITDA Approach,TEV = MV,equity,+ MV,debt,- cash,EBITDA: earnings before taxes, interest, depreciation & amortization,Compute the ratio of TEV to forecasted EBITDA for “comparable” firms,determine an appropriate,“TEV/EBITDA multiple”,If EBITDA,1,is the expected earnings for firm we are valuing, then the TEV for the firm should be such that:,TEV / EBITDA,1,= “EV/EBITDA multiple”,TEV / EBITDA Approach,Rearranging:,TEV = “EV/EBITDA multiple” x EBITDA,1,Next solve for equity value using:,MV,equity,= TEV - MV,debt,+ cash,Multiples again determined from “comparable” firms,similar issues as in the application of P/E multiples,leverage less important concern,Other Multiple Based Approaches,Other multiples:,Price to Cash Flow:,P = “P/CF multiple” X CF,1,Price to Revenue:,P = “P/Rev multiple” X REV,1,Multiple again determined from “comparable” firms,Why would you consider price to revenue over, for example, price to earnings?,Merger Methods,Comparable transactions,:,Identify recent transactions that are “similar”,Ratio-based valuation,Look at ratios to price paid in transaction to various target financials (earnings, EBITDA, sales, etc.),Ratio should be similar in this transaction,Premium paid analysis,Look at premiums in recent merger transactions (price paid to recent stock price),Premium should be similar in this transaction,Valuation Case Process,Size-up the firm being valued,do projections seem realistic (look at past growth rates, past ratios to sales, etc.)?,what are the key risks?,Valuation analysis,several approaches + sensitivities (tied to risks),Address case specific issues,e.g. for M&A: what is fit (size-up bidder), any synergies, bidding strategy, structuring the transaction, etc.,e.g. for capital raising: timing, deal structure, etc.,The Valuation “Myths”,Like all analytical disciplines, valuation has developed its,own set of myths over time:,Myth 1. Valuation models are quantitative, so it is objective and precise.,Myth 2. A well-researched, well-done model is timeless.,Myth 3. The more quantitative a model, the better the valuation.,Myth 4. The output, not the process, of the valuation is what counts.,Myth 5. The market is generally wrong.,Applications,We will apply valuation principles in variety of settings:,Private sales,Graphite Mining, Oxford Learning Centres,Mergers & Acquisitions,Husky Energy, United Grain Growers, Empire Company,Capital Raising,Eatons, Huaneng Power),Valuation References,Copeland, Koller and Murrin,1994,Valuation: Measuring and Managing the Value of Companies(,Wiley),Damodaran,1996,Investment Valuation,(Wiley);,http:/www.stern.nyu.edu/adamodar/,Pratt, Reilly and Schweihs, 1996,Valuing a Business: The Analysis and Appraisal of Closely Held Companies,(Irwin),Benninga and Sarig, 1997,Corporate Finance: A Valuation Approach,(McGraw Hill),http:/finance.wharton.upenn.edu/benninga/home.html,Stewart, 1991,The Quest for Value,(Harper Collins),Harvard Business School Notes:,An Introduction to Cash Flow Valuation Methods (9-295-155),A Note on Valuation in Private Settings (9-297-050),Note on Adjusted Present Value (9-293-092),