04 - Analyzing Multiples (VC)

04 - Analyzing Multiples (VC) - Private Equity and Venture...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Private Equity and Venture Capital Using Multiples to Triangulate Valuation sing Multiples to Triangulate Valuation Using Multiples to Triangulate Valuation Professor David Wessels ©2008 The Wharton School of the University of Pennsylvania 3620 Locust Walk, Philadelphia PA 19104
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Private Equity and Venture Capital Using Multiples to Triangulate Valuation A careful multiples analysis—comparing a company’s multiples versus those of similar companies—can be useful in improving cashflow forecasts and testing the credibility of DCF-based valuations. Multiples address three important issues: ow plausible are forecasted cash flows? 1. How plausible are forecasted cash flows? 2. Is the company strategically positioned to create more value than its peers? 3. Why is one company’s valuation higher or lower on a relative basis versus its competitors? Multiple analysis is only useful when performed accurately. Poorly performed multiple analysis can lead to misleading conclusions. Professor David Wessels The Wharton School of the University of Pennsylvania 2
Background image of page 2
Private Equity and Venture Capital Using Multiples to Triangulate Valuation What are Comparables/Multiples? Multiples such as the Enterprise-Value-to-Revenue and Enterprise-Value-to- EBITDA are used to compare companies. A multiple “size-adjusts” market values using revenues, profits, book values, or nonfinancial statistics. Consider the standard “comps” table: Medical Devices Enterprise Value Comparables Analysis Market Net Enterprise Ticker Company Price Cap Debt Value Revenue EBITDA EBIT One Year Forward Multiples py p MDT NM e d t r o n i c , Incorporated 47.6 53,456.1 3,009.0 56,465.1 4.2 12.5 14.2 BSX NB o s t o n Scientific Corporation 12.4 18,416.8 6,737.0 25,153.8 3.1 10.8 17.5 STJ NS t . Jude Medical, Inc. 41.7 14,345.6 966.5 15,312.1 3.7 12.2 14.6 SYK t r y k e r Corporation 62.7 25,789.4 (2,394.0) 23,395.4 3.4 12.3 15.0 ARTC OA r t h r o c a r e Corporation 42.0 1,117.4 (30.8) 1,086.6 2.8 10.8 14.8 Mean 3.5 11.7 15.2 Median 3.4 12.2 14.8 Std Dev /Mean 15.4% 7.3% 8.7% * All averages exclude BEA, which includes Oracle acquisition premium Professor David Wessels The Wharton School of the University of Pennsylvania 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Private Equity and Venture Capital Using Multiples to Triangulate Valuation Step 1: Computing the Multiple If next year’s Medtronic's EBITDA is forecasted at $4.5 billion, how should we 70,000 Medtronic, Incorporated Intrinsic Equity Valuation Numberof shares oustanding: 1,123. million compute the “enterprise- value” to EBITDA multiple? How is “enterprise-value” 2,832 3,203 6,087 40,000 50,000 60,000 millions defined on Wall Street? Why is definition flawed? h t tit t 53,368 59,403 53,316 10,000 20,000 30,000 USD m What constitutes a “consistent” multiple? 0 Core Operations Excess cash Non operating assets Enterprise value Total debt Intrinsic Equity value Professor David Wessels The Wharton School of the University of Pennsylvania 4
Background image of page 4
Private Equity and Venture Capital Using Multiples to Triangulate Valuation Step 2: Use Multiple to Determine Continuing Value Atricure, Inc.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 29

04 - Analyzing Multiples (VC) - Private Equity and Venture...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online