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Comparable Company Analysis
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Using publicly available information, an investment banker will compare select financial data of companies engaged in businesses considered comparable to your company The investment banker will determine the current market value of each company in terms of its enterprise value (defined as equity market value plus interest-bearing debt less cash), and then calculate its enterprise value as a multiple of trailing 12 months sales
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PART TWO The Sale and Financing of a Business
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TABLE
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Sample Comparable Company Analysis
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Enterprise Value Multiples Company Indigo NV Imation Corporation Schawh, Inc Xeikon NV Baldwin Technology High Median Mean Low
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*Dollars in thousands
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Enterprise Value* $395,990 $344,055 $283,869 $85,421 $24,656
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LTM Sales 22x 03x 14x 20x 01x 22x 14x 12x 01x
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LTM EBITDA 89x 46x 127x 112x 37x 127x 89x 82x 37x
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LTM EBIT 72x 38x 125x 95x 133x 133x 95x 93x 38x
(LTM Sales); trailing 12 months earnings before interest, taxes, depreciation, and amortization (LTM EBITDA); and of trailing 12 months earnings before interest and taxes (LTM EBIT) These values are then compared to any value proposed in a transaction, such as a proposed purchase price In Table 121, five comparable companies are evaluated relative to these multiples
Comparable Transaction Analysis
The investment banker will also analyze publicly available information on comparable deals and review the multiples paid in these transactions These values are then compared to the multiples proposed by the transaction under consideration The most popular multiples focus on the LTM Sales, EBITDA, and EBIT multiples The range of high and low values is analyzed as well as the mean and median values Table 122 is an example
Discounted Cash Flow Analysis
The investment banker may also perform a Discounted Cash Flow analysis, which requires financial projections These are
CHAPTER 12 An Investment Banker s Perspective
TABLE
Sample Comparable M&A Transactions
Enterprise Value Multiples Date 7/31/01 10/1/99 2/18/99 1/7/99 6/16/95 Target Fargo Elect Multigraphics PTI Inc Trident Int l Imtran Ind Acquirer Zebra Tech Paragon Group MacDermind Illinois Tool Foilmark Inc High Median Mean Low
*Dollars in millions
Enterprise Value* $860 $118 $4493 $1029 $49
LTM Sales 14x 01x 20x 31x 12x 31x 14x 16x 01x
LTM EBITDA 93x 33x 82x 85x 59x 93x 82x 70x 33x
LTM EBIT 112x 77x 106x 94x 63x 112x 94x 90x 63x
prepared by management or others, such as equity research analysts The projections of EBITDA or free cash flow are then discounted to their present value Most commonly, five-year projections are used, but they may be longer or shorter Terminal values are then calculated by applying multiples of EBITDA in the final projected year Ranges of 40 to 80 times are common The cash flow streams and terminal values are then discounted to present values using ranges of appropriate discount rates, usually 10 to 20 percent For example, Table 123 presents a terminal value s net present value where the EBITDA cash flow stream is projected to be $1 million in five years The EBITDA is multiplied here by a number ranging from 60 to 100 to determine the terminal value The terminal value is then discounted back to the present at discount rates ranging from 15 to 20 percent The resulting number is the net present value of the terminal value
Premium Analysis
For mergers and acquisitions, one should analyze the takeover premium paid (in percentage terms) relative to the price the ac-
PART TWO The Sale and Financing of a Business
TABLE
Sample Present Value of Terminal Value
Year Five EBITDA Multiples Discount Rate 150% 160% 170% 180% 190% 200% 60x $2,983,060 $2,856,678 $2,736,667 $2,622,655 $2,514,296 $2,411,265 70x $3,480,237 $3,332,791 $3,192,778 $3,059,765 $2,933,346 $2,813,143 80x $3,977,414 $3,808,904 $3,648,889 $3,496,874 $3,352,395 $3,215,021 90x $4,474,591 $4,285,017 $4,105,000 $3,933,983 $3,771,444 $3,616,898 100x $4,971,767 $4,761,130 $4,561,112 $4,371,092 $4,190,494 $4,018,776
quired company s stock was trading at prior to the announcement of the deal Attention must be paid to what is a comparable transaction and what time period may be relevant Comparable transactions may be constrained by industry, size, or the form of consideration paid Relevant time periods may range from the most recent six months to the past five years or longer Premiums paid relative to the stock price one week, four weeks, three months, and six months prior to the announcement are typically analyzed Table 124 is an example of a sample market premium analysis
TABLE 124
Sample Market Premium Analysis
Premium Paid Transaction Value* $329 $292 $467 $379 $466 One Day Prior 388% 493% 705% 637% 143% One Week Prior 405% 393% 894% 612% 103% Four Weeks Prior 565% 449% 777% 656% 306%
Date 8/22/01 8/14/01 7/19/01 7/16/01 6/25/01
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