Investment Banking Lecture 2

Investment Banking Lecture 2 - FPN 1: INVESTMENT BANKING...

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Unformatted text preview: FPN 1: INVESTMENT BANKING Lecture 2 April 6 th Lakshya Datta 1 Questions? 2 The Book If youve bought it, email us the receipt to our gmail account: ucsdfpn@gmail.com 3 Authors Joshua Rosenbaum Joshua Pearl West Coast Tour Conference Call Email questions to ucsdfpn@gmail.com Put Question for Authors in the subject line Follow with your question(s) in the message 4 Oce Hours Lakshya Wednesdays: 12.30pm to 2.30pm Rady 3S119 Kamron Thursdays: 1.30pm to 3pm SEQ 139 Ross Mondays: 6.30pm to 8pm SEQ 139 5 Mentorship Program Deadline: April 20 th , 2011 (two weeks from today) 6 Exit Opportunities Why do people do 100 hours a week for 2 years? Private Equity Venture Capital Hedge Fund Corporate Development Business School 7 Chapter 1 Comparable Companies Analysis a.k.a. Trading Comps 8 Basic Idea Value a given focus company, division, business, or collection of assets Called the Target BASED on similar companies in its industry Used for: M&A Youre acquiring a company, need to calculate its relative size and value IPO Taking a company public, need to decide what stock price to offer Restructuring Value an asset you own to consider if you should sell it Investment Decisions Investing in a tech start-up, need to evaluate expected value (VC) Taking a company private, need to decide how much to offer or leverage against (PE) 1. Trading Comps 9 1. Trading Comps Reference point for target Share key business and financial statistics Share performance drivers Share risks Market benchmark Private company: establish valuation Public company: analyze value HOW DOES A COMPANY VALUE BASED ON ITS PEERS? Basic Idea 10 How do we compare companies? Based on Equity Value (market cap) Use P/E Ratio: Price per share/earning per share FOR: Mature companies with consistently growing earnings Multiples Used: SHARE PRICE & EQUITY VALUE DILUTED EPS NET INCOME Means how much an investor is willing to pay for a dollar of a companys current (LTM EPS) or future (2, 3 year forward EPS) earnings EXAMPLE: Googles current P/E is 21.88 , what will it be in 2012? 1. Trading Comps 11 Based on Enterprise Value Represents interests of both Debt & Equity Holders If Equity Value is the list price for a house, Enterprise Value is the TOTAL amount it cost you (buy furniture, paint, redo the lawn, etc.) Multiples: ENTERPRISE VALUE ; ENTERPRISE VALUE ; ENTERPRISE VALUE SALES EBITDA EBIT 1. Trading Comps How do we compare companies? 12 GOAL: Use Multiples to derive VALUATION RANGE for TARGET How: Derive multiples for each comparable company Use Means, Medians, Highs & Lows to: Estimate TARGETs Stock Price & Enterprise Value 1. Trading Comps How do we compare companies?...
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This note was uploaded on 09/13/2011 for the course MGT 181 taught by Professor Jordan during the Spring '08 term at UCSD.

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Investment Banking Lecture 2 - FPN 1: INVESTMENT BANKING...

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