Pdf investment banking valuation, leveraged buyouts. Methods of valuation for mergers and acquisitions discounted. Vlerick business schools centre for mergers, acquisitions and buyouts develops and disseminates. The workshops are suitable for delegates from quoted companies, companies that are. Valuation methods posted on november 18, 2016 july 23, 2017 by john kennedy generally, when valuing a company, there are two different ways to approach the valuation of the company. Valuation for mergers, buyouts and restructuring presents a comprehensive approach to corporate valuation. This captures the idea that sectors, or entire markets, could be overheated, and thus that. Higgins based on interviews with major investment banks, we report how these leading practitioners apply discounted. Transaction multiples advantages, disadvantages and analysis. Until the welcomed arrival of authors josh rosenbaum and josh pearl, no one had taken the time to properly codify the lifeblood of the corporate financiers worknamely, valuation, through all of the.
Valuation is considered to be an art, not a science. With the release of investment banking, second edition. Over decades he has created and helped shaped the field of valuation. Valuation of ipo the role of the research analyst casestudy. We start by the observation that synergies are often cited by corporates as both a primary. Priceearnings pe ratios and variants ebit multiples, ebitda multiples. Ebit multiples, ebitda multiples, cash flow multiples pricebook pbv ratios qand variants tobins q pricesales ratios lit depends on how they are used and whats behind them. Comfort, chairman, citigroup venture capital enrique arzac has created selection from valuation for mergers, buyouts, and restructuring. It treats in detail the valuation of mergers, acquisitions and leverage buyouts, and the assessment of asset restructuring options and recapitalization plans. In merger and acquisition situations, buyers and sellers frequently base their offers and asking prices on multiples of income typically earnings before inter. In our past trainings with him all our participants were enthusiastic with the motivating and dynamic method of delivery as well as the personal interaction. Valuation for mergers, buyouts and restructuring enrique r.
In this uptodate synthesis of current valuation theory and practice, enrique arzac applies the latest academic thinking to mergers, buyouts, and restructuring, and blends it with his own practical approach to valuation developed over years of consulting. That is why we report for the first time valuation and financing multiples per sector. Valuation for mergers, buyouts, and restructuring, second. Targets are, on average, more expensive today than they were in 1999, at the height of the dotcom bubble, or in 2008, shortly before the collapse of lehman brothers. In this guide, well outline the acquisition process from start to finish, the various types of acquirers strategic vs. It builds on standard methods of business valuation to consider the unique questions arising in a merger or acquisition setting. Comfort, chairman, citigroup venture capital enrique arzac has created selection from valuation for mergers, buyouts, and restructuring, second edition book. It may be felt that the market based method is the most relevant, but all three methods are significant depending upon the situation prevailing during the course of the mergers as well as acquisitions.
The note focuses on valuation using the discounted cash flow dcf approach and the comparablefirmmultiples approach and presupposes an. Traditional valuation multiples pe and newer multiples peg ratios, etc. Valuation of mergers and acquisitions linkedin slideshare. More specifically, potential deals among the following companies. Valuation related to mergers and acquisitions world finance. The chapters that follow consider a variety of valuation methods.
In addition, remuneration committees continue to evaluate management teams on their eps. She has held academic positions at thunderbird, school of global management in the u. Nov 25, 2018 acquisition valuation involves the use of multiple analyses to determine a range of possible prices to pay for an acquisition candidate. In general, mergers of equals are less likely to work than mergers of unequals the political and cultural clashes are much more difficult to resolve. Valuation for mergers and acquisitions ooikokhwa mrr consulting. There are many ways to value a business, which can yield widely varying results, depending upon the basis of each valuation method. The second part of the valuation process involves the proper synergy valuation. Depository institutions have several common characteristics. Outline introduction pricing of mergertakeover rules for valuation pricing estimators book value of the target firm liquidation value of the target firm replacement cost of the target firm current market value of the target firm trading multiples of peer firms transaction. Thus, the reader will find that there are many rules of thumb and few inviolable principles to guide them. Valuation, leveraged buyouts, and financing is an approach towards understanding the musings of the world of mergers and acquisitions.
Transaction multiples are a type of financial metrics used to value a company. However, most analysts admit that they often complement their cash flowbased analysis with a multiplesbased analysis. Acquisition valuation involves the use of multiple analyses to determine a range of possible prices to pay for an acquisition candidate. Valuation methods in mergers and acquisitions initially, it is necessary to distinguish the terms value and price. Valuation for mergers and acquisitions second edition barbara s. Company valuation in mergers and acquisitions 1 1 company valuation in mergers and acquisitions. How is discounted cash flow applied by leading practitioners. Throughout the text, arzac provides illustrative examples and answers many of the valuation problems commonly encountered in professional. Apr 28, 2017 valuation of mergers and acquisitions 1. The metrics used for valuing companies are not welldefined. Issues in acquisition valuation n acquisition valuations are complex, because the valuation often involved issues like synergy and control, which go beyond just valuing. Professor gerry gallery a thesis submitted in fulfilment of the requirements for the degree of master of business research to the school of accountancy.
The synergy estimation may also involve the computation of multiples in order to check the estimations with industry benchmarks using similar past transactions. Independent valuation assessments can play a significant role in helping companies do the deal, structure the deal or account for the deal. It treats in detail the valuation of mergers, acquisitions and leverage buyouts, and the. Yet news releases and public comments from us executives and wall street analysts continue to discuss and assess acquisitions in terms of eps accretion or dilution. In europe, the 2016 average valuation multiple was. Praise for valuation for mergers, buyouts, and restructuring enrique arzac has provided an excellent analytical framework for the lbo business. Valuation for mergers and acquisitions, 2nd edition. The valuation accuracy of multiples in mergers and acquisitions, and their association with firm misvaluation by michel bradley stubbs bachelor of business principal supervisor. Looking at transaction multiples on other acquisitions, you are looking a sample of firms that are likely to have over paid. We use enterprise multiple, evebitda ratio, as measure of firm value and some other financial fundamental ratios as the controls, like price to sale ratio, debt to. Evrevenues, ev ebitda, evebit note that the revenues, ebitda and ebit multiples could be computed for ltm and 1year forward projected numbers transaction comps. Apply the means to the valuation variables for company b to get the. Mar 10, 2020 between the beginning of 2018 and the end of 2019, the average evebitda value of mergers and acquisitions of real estate companies in europe, the middle east and africa emea had a multiple of 21.
Assessing the impact of acquisitions on eps rather than on total net income corrects for the dilutive effect of acquisitions that involve the issuing of shares. The objective of this research paper is to better understand the concept of synergies in the context of mergers and acquisitions. For example, the pb ratio and evsales ratios are rarely used, except to value financial institutions and retailers. Part i contains the main methods used in valuation of companies and their business units, part ii applies these methods to the valuation of mergers, acquisitions and leveraged buyouts and part iii deals. Valuation, leveraged buyouts, and mergers acquisitions, rosenbaum and pearl once again have written the definitive book that they wish had existed when they were trying to break into wall street. Do mergers and acquisitions create shareholder value. Between the beginning of 2018 and the end of 2019, the average evebitda value of mergers and acquisitions of real estate companies in europe, the middle east and africa emea had a. Aswath damodaran is the kerschner family chair professor of finance at the stern school of business at new york university.
The performance of firms after mergers suggests that it is difficult to make mergers work. The goal here is to understand the multiples at which transactions in the targets industry sector have been announced or completed. Several valuation methods are available, depending on a companys industry, its characteristics for example, whether it is a startup or a mature company, and the analysts preference and expertise. It is based on the premise that the value of the company can be estimated by analyzing the price paid by the acquirer companys incomparable acquisitions. Among the different methods, transaction multiples play a very different role, as they make the buyer aware of the value of a particular. As the use of revenue andor ebitda multiples is often misinterpreted, it is. Ey mergers and acquisitions in the retail and consumer products industry. Value the target with the acquisition motive built in. In the telecom sector, for example, the median evebitda multiple for acquisitions exceeded the historical median by 68%. Steps involved in an acquisition valuation n step 1. Decide on the mode of payment cash or stock, and if cash, arrange for financing debt or equity.
Cost saving mergers seem to have better odds of success than growth synergy mergers. Learn how mergers and acquisitions and deals are completed. Concise, realistic, and easy to use, valuation for mergers and acquisitions, second edition has been fully updated to reflect the fields latest and most useful rules of thumb, compare every modern approach to valuation, offering practical solutions for todays most complex and important valuation challenges. Price is the amount of money paid to obtain a good or service, and it may not necessarily reflect the value of that goods or service all the time. Valuation variables company b mean multiple for comparables estimated acquisition price current stock price 31. Arzac 1 abstract valuation for mergers, buyouts and restructuring presents a comprehensive approach to corporate valuation. Pdf investment banking valuation, leveraged buyouts and. The valuation accuracy of multiples in mergers and. The valuation accuracy of multiples in mergers and acquisitions. Viswanathanb,1 acolumbia university, graduate school of business, new york, ny, 10025, usa bduke university, fuqua school of business, durham, nc, 27708, usa abstract to test recent theories suggesting that valuation errors a. The note focuses on valuation using the discounted cash flow dcf approach and the comparablefirm multiples approach and presupposes an understanding of the principles of business valuation. Valuation for mergers, buyouts, and restructuring, second edition. Arzac 7 overview of the book this book is organized in three parts.