mergers and acquisitions PDF

Preview

Summary

Download mergers and acquisitions PDF

Description

M&A I-

working cap = (Inventories + Account receivables + Tax & social receivables) – (Account payables + Tax & social liabilities) Net debt = (Long term debt + bank debt ) – (Long term financial assets + Cash) Accounting view : Net operating assets = Equity + Net debt Financial view: Net operating assets value = Equity value + Net debt value  Enterprise value= equity value + Net debt (Net debt value = Net debt) Enterprise value is the value of the operating assets of the company no matter how they get financed Equity value is the value of shares Book value is the balance sheet view of the equity

II-

-

Entreprise value to equity value

Valuation

Two approaches: o Direct approach = value direct the equity o Indirect approach = Value first the enterprise value Two family of methods: o Relative methods: Peer comparison, analogical method, Multiple method o Intrinsic methods: Valuing a company only based on its own information (DCF) a) Relative methods

- Equity value (=Direct approach)= Multiples on EBT, net income (P/E), Price to book  influenced by financials - Enterprise value (= Indirect approach) = Ebitda and EBIT multiples - Method: o Build a sample of comparable companies: Activity type; Sectors; Profitability & Size; Geography o Select the relevant multiple: Turnover; EBITDA; PE … o Normalized these multiples: Accounting methods; Exceptional items; Tax distortion o Adjust multiples: Size discount; Shares liquidity; Control premium; Geographic and sector diversification - Two types of multiples: o Listed multiples o Transaction multiples b) Intrinsic value methods -

FCF= EBITDA – Theorical income tax on EBIT – CAPEX – WCC  = EBIT – Theorical income tax on EBIT – CAPEX + D&A – ∆WCC Enterprise Value = Somme CF / WAC^n + Terminal value

-

-

Terminal value = CF last year / (WACC – g) Limitation / Going further: o This method tends to consider CF as the end of the year which means that for a company with relatively spread CF over the year it is not that precise. Another option is to discount CF each 6-months o Terminal value can also be computed by an exit multiple (EV/EBITDA or EV/Sales) or by assuming a progressive convergence of company’s ROCE (=Post tax EBIT/ Capital employed) to the WACC over a period called competitive advantage period Other valuation methods: o FCFE (value directly equity ) = Net income – CAPEX + D&A –∆WCC + ∆Net debt  Discounted at cost of equity o DDM = Discounted the future dividend (Used in bank insurance valuation o Net asset value = Looking at the company own asset (Indication) o Sum of the parts = Sum a company Business units if highly diversified

III-

Net debt adjustments impacting valuation

-

We need a normative WCC value, if not we need to adjust the net debt

-

Consolidation impact: - >50% o Value the company including those items at 100% and then correct the Net debt (minority interest as a debt like item), or o Restate the consolidated accounts to cancel minority interest item in DCF - Investment in affiliate (...