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1-26 - 1/26 V Intro to Valuation Public Multiples Readings...

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1/26 V. Intro to Valuation & Public Multiples Readings: Cadbury Schweppes- part A Review o odds are against bidder in a merger o People can beat those odds Ex. Historically-Cisco o Look for firms with core competencies different from your own or some that fit your own and you can do something great with them Define what strategies will work in certain situations o Environmental analysis Tools to evaluate what the market thinks of a merger at the time it gets announced o Synergies Cisco case representative of companies that are really successful at mergers Others: GE, CEMEX This stage should be easy if other stages are done right Stages: Company analysis Environmental analysis industry fit/synergy Deal pipeline o Lots of ways to create value Cost saving Acquiring poorly managed companies Revenue growth Finding undervalued companies Applying bidder competencies Blending target and bidder competencies Only real way to create value because other firms can accomplish all of the other options Luck Vision/game changers o Potential reverse synergies Don’t talk about qualitative costs Can be much larger o Due diligence and post merger integration Cisco o Valuation Can get almost any range with valuation techniques Can justify any price Has to be done to prepare for negotiations Whoever is most prepared wins Other people use them a lot You start gaining experience after doing valuations Helps you figure out which techniques make the most sense Helps to narrow the range of value Leads you to the right questions to ask May not provide answers o Basics of multiples Valuation with financial multiples
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Financial multiple= firm value/financial accounting measure Measures of firm value Enterprise value= mkt value of equity + mkt value of net debt Fully diluted shares (for DCF) Net debt = (all long term debt -(cash + short term investments))
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