Valuation Fundamentals

Valuation Fundamentals - BYULBOTraining PRESENTATION...

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BYU LBO Training PRESENTATION October 24, 2011
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PE Deal Types by Stage and Complexity 2 Deal Complexity Higher Lower Target Company Stage Startup (Early Stage) Growth (Mid Stage) Public (Late Stage) Angel Seed Venture Growth  Equity Growth  Buyout Leveraged Buyout Divestiture Take Private Distressed Buyout A minority  investment in a  high growth  potential  company before  it is generating  significant  revenue (typically  done by  individual Angel  investors rather  than PE firm) A minority  investment in  a high growth  potential  company with  less than $5  million in  revenue A minority investment in a  high growth potential  company with at least $5  million in revenue A minority  investment in  a high-growth  private  company A buyout of a private  company, often  involved changes to  company  management A buyout of a  private  company,  involving the  use of leverage A purchase of a division  of a public company,  often involving  the use  of leverage, and a lot of  pro-forma accounting A full buyout of a public  company, often involving  the use of leverage, and  negotiations with various  equity holders A purchase of a  struggling company  or division, often  involving intense  negotiations with  creditors and the  prospect of  bankruptcy
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3 Agenda Valuation Techniques Characteristics of a Strong LBO Candidate Structure  of LBO Financing Primary Exit / Monetization Strategies
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Valuation Techniques Trading Comparables Use metrics of value of comparable companies to establish a value EV / Sales, EV / EBITDA, EV / EBIT, P / E, PEG ratio, P / # of employees, etc. Transaction Comparables Similar concept to trading comparables, only M&A transactions Higher value represents a control premium EV / Sales, EV / EBITDA, EV / EBIT, P / E, PEG ratio, P / # of employees, etc. Discounted Cash Flow Analysis 4
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EV = PV of FCF + PV of TV EV = Common + Preferred + Debt – Cash EV =        Equity Value     +      Net Debt  GOAL: PRICE / SHARE Diluted Shares Equity Value = / Enterprise Value Net Debt [= Debt – Cash] - PV of FCF’s PV of Term. Value (FCFn) x (1+g) ( r – g ) or..  Exit multiple (EV/EBITDA, P/E  ratio, etc.) based on terminal year n = terminal year, r = discount rate + Free Cash Flow =  EBIT x (1-T) + DA – CapEx* –  NWC ------------------------------------------------------ How the pro’s like to see / hear / do it: EBITDA –            DA          EBIT x         1–T          EBIT (tax affected) +          DA –     CapEx* –      NWC    Free Cash Flow ∆ CurrA – ∆ Curr L ∆ NWC x (1-T) x __D__ D + E WACC Weighted Average Cost  of Capital +
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