MA 2011 6 BSBA Public Multiples (3)

# MA 2011 6 BSBA Public Multiples (3) - 1 Mergers...

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1 Prof. David Ravenscraft Kenan-Flagler Business School University of North Carolina Public Multiple Valuation for Adams

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Keys to understanding valuation n Negative ¨ All techniques are very imperfect ¨ Often the range of possible answers is large ¨ Can use valuation to justify almost any price n Positive ¨ Valuation is needed to prepare for negotiation ¨ Experience will help you narrow the range ¨ Valuation will lead you to the right questions 2
Outline of 3 Comparable Classes n Basic review of multiples n Practice calculating multiples using Adams’ case ¨ Public multiple calculations using Hershey & Nestles ¨ Getting the data for comparables n 10K-Q or 10-Q data (e.g. Wrigley 2002 10-K) n Google or Yahoo! Finance (e.g. Hershey 2010) n Interpreting results from multiples n Statistical analysis of large sample comparables n Complexities in computing, interpreting and using multiples 3

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Basics of multiples 4
n Financial Multiple = Firm Value/Financial Accounting Measure n Measures of Firm Value ¨ *Enterprise Value = Mkt Value of Equity + Mkt Value of Net Debt n Net Debt = (All Long Term Debt – (Cash + Short Term Investments) ¨ Market Value of Equity = Stock Price*# of shares ¨ Stock Price (must match with financial accounting measure/# of shares) n Financial Accounting Measures ¨ Earnings (*Free Cash Flow, *EBITDA, EBIT, ^Net Income) ¨ Revenue (necessary if negative earnings) ¨ ^Book Value (Book Value of Equity, Book Value of Assets) n Industry Specific Measures ¨ Receivables-leasing, Portal Activity- Internet, # of Customers-Cable TV, Sales/sq.ft.- retail, premiums-insurance, deposits or loans- banks) *Highly Recommended ^Do not use! 5

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MA 2011 6 BSBA Public Multiples (3) - 1 Mergers...

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