Casino Valuation Presentation
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Casino Valuation—Business Valuation Concepts and Industry Overview American Society of Appraisers International Appraisal Conference Las Vegas, Nevada October 20, 2015 Raymond Rath, ASA, CFA Globalview Advisors LLC Presenter’s Contact Information Raymond Rath, ASA, CFA Managing Director Globalview Advisors LLC 19900 MacArthur Boulevard, Suite 810 Irvine, CA 92612 949-475-2808 [email protected] 1 Contents 1. Overview of Business and Intangible Asset Valuation a. Introduction - Role of Intangible Assets b. Valuation Theory - Income Approach c. Intangible Asset Valuation d. Important Concepts e. Discount Rates 2. Gaming Industry Overview and Valuation Insights a. Industry Overview b. Public Companies c. Transaction Activity d. Purchase Price Allocations 3. Multi-Discipline Valuation 2 Section 1: Overview of Business and Intangible Asset Valuation Introduction Skills Required of a Business and Intangible Asset Valuation Specialist 5 Business Valuation vs. Asset Valuation RUL = Remaining Useful Life 6 Differences between Real Estate and Businesses • Risk • Typically greater risk for businesses • Broader forms of competition • Management much more important • Intangibles create value • Numerous other considerations • Growth • Greater growth opportunities for businesses • Potentially unlimited scale (Google, eBay, others) •New sites • New businesses • Acquisitions • Implication – Greater difficulty estimating risk and wider range of possible growth rates suggest valuing a business will be more difficult in many cases 7 Increased Emphasis on Intangibles— Relative Values of Tangible and Intangible Assets 8 8 Increased Emphasis on Intangibles —Direct Example of Market Value to Book Value Relationship Importance of Intangible Assets Comparison of Market Cap to Book Value for Selected Companies As of November 17, 2014 $ in billions Market Book Value Ratio of China Business Capitalization of Equity MC to BVE Tencent Holdings, Inc. Internet Software and Services 154.54 9.66 16.0 Baidu Internet Software and Services 85.63 6.30 13.6 Lenovo Computers and Peripherals 14.30 3.02 4.7 Japan Sony Corporation Household Durables 22.16 21.93 1.0 Toyota Motor Corp. Automobiles 188.13 140.50 1.3 NTT Telecommunications 61.83 82.65 0.7 France (EUR $Billion) Compagnie Generale DES Etablissements Michelin SCA Auto Components 13.36 9.26 1.4 LVMH Moet Hennessy Louis Vuitton Textiles, Apparel and Luxury Goods 86.69 38.18 2.3 Danone Food Products 40.76 14.74 2.8 Germany Daimler AG Automobiles 81.99 59.72 1.4 Allianz SE Insurance 59.86 57.81 1.0 Bayer AG Pharmaceuticals 113.25 28.72 3.9 United Kingdom BAE Systems plc Aerospace and Defense 14.65 2.78 5.3 HSBC Holdings plc Commercial Banks 202.03 275.97 0.7 GlaxoSmithKline plc Pharmaceuticals 110.30 11.59 9.5 United States Apple Inc. Computers and Peripherals 668.53 111.55 6.0 The Coca-Cola Company Beverages 187.99 33.43 5.6 McDonald's Corp. Hotels, Restaurants and Leisure 93.40 13.63 6.9 Book value of equity as of latest quarter end. Market cap as of November 2014. Source: Capital IQ 9 Increased Emphasis on Intangibles —Market Value to Book Value at January 2015: Key Industry Sectors Number of Price to Book Market Value / Book Value Return on Industry firms Value Return on Equity of Total Capital Invested Capital Advertising 52 5.52 17.92% 6.35 40.86% Aerospace/Defense 93 3.61 24.54% 4.38 37.18% Air Transport 22 4.00 2.84% 2.02 9.50% Apparel 64 4.55 18.48% 3.53 18.12% Auto & Truck 22 2.14 18.61% 1.18 3.31% Auto Parts 75 2.73 15.84% 2.19 18.16% Bank (Money Center) 13 1.05 8.21% 1.08 ‐0.02% Banks (Regional) 676 1.18 8.87% 1.26 ‐0.08% Beverage (Alcoholic) 22 3.35 13.66% 3.56 15.85% Beverage (Soft) 46 5.93 27.88% 4.41 27.58% Broadcasting 28 2.57 18.80% 2.74 19.98% Brokerage & Investment Banking 46 1.29 10.38% 1.11 0.02% Building Materials 39 3.23 14.81% 2.81 15.41% Business & Consumer Services 177 3.51 12.43% 4.14 23.95% Cable TV 18 5.67 31.43% 3.03 17.33% Chemical (Basic) 46 1.82 14.72% 1.72 18.04% Chemical (Specialty) 103 3.99 19.22% 3.53 22.41% Coal & Related Energy 42 1.32 ‐6.41% 1.12 0.38% Computer Services 119 5.05 32.01% 4.05 37.39% Computers/Peripherals 64 4.50 25.04% 4.15 30.98% Construction Supplies 55 3.04 19.50% 2.12 12.42% Drugs (Biotechnology) 400 8.62 11.94% 4.72 13.63% Drugs (Pharmaceutical) 151 4.02 17.06% 3.31 18.40% Education 42 2.25 3.76% 2.38 9.97% Electrical Equipment 126 3.69 12.61% 4.23 29.56% Electronics (Consumer & Office) 28 5.70 12.81% 4.56 18.29% Electronics (General) 189 2.21 8.67% 2.16 11.35% Engineering/Construction 56 1.58 5.27% 2.40 17.79% Entertainment 84 3.54 17.84% 4.54 30.87% Environmental & Waste Services 103 3.02 5.68% 3.59 19.53% Farming/Agriculture 37 1.90 13.54% 1.43 9.72% Financial Svcs. (Non‐bank & Insurance) 288 1.83 ‐2.23% 1.05 0.19% Food Processing 96 3.53 18.17% 4.09 26.50% Food Wholesalers 14 3.64 16.10% 3.45 21.26% Furn/Home Furnishings 27 2.95 11.62% 2.56 15.30% Green & Renewable Energy 26 1.35 0.31% 1.15 4.36% Healthcare Products 261 3.75 11.23% 3.64 16.05% Healthcare Support Services 138 2.84 12.27% 5.19 37.10% Heathcare Information and Technology 127 4.10 10.39% 4.42 17.56% 10 Increased Emphasis on Intangibles —Market Value to Book Value at January 2015: Key Industry Sectors Number of Price to Book Market Value / Book Value Return on Industry firms Value Return on Equity of Total Capital Invested Capital Homebuilding 35 1.69 14.34% 1.39 9.57% Hospitals/Healthcare Facilities 56 2.77 10.48% 1.85 9.47% Hotel/Gaming 80 3.55 5.77% 2.20 8.61% Household Products 135 4.92 19.31% 5.23 30.38% Information Services 67 5.48 21.66% 7.28 35.97% Insurance (Prop/Cas.) 52 1.30 12.41% 1.31 11.99% Investments & Asset Management 148 1.19 13.45% 1.24 6.55% Machinery 137 3.15 16.66% 3.81 24.16% Metals & Mining 124 1.42 2.15% 1.34 13.24% Office Equipment & Services 25 4.25 27.77% 3.13 21.41% Oil/Gas (Production and Exploration) 392 1.35 6.25% 1.25 11.84% Oil/Gas Distribution 85 2.23 9.57% 1.85 10.27% Oilfield Svcs/Equip. 161 1.74 14.04% 1.82 17.80% Packaging & Container 26 3.58 20.65% 2.68 19.48% Paper/Forest Products 22 3.11 9.94% 2.25 13.55% Power 82 1.85 9.53% 1.48 6.97% Precious Metals 147 0.97 ‐6.90% 0.96 2.60% Publshing & Newspapers 43 1.74 19.97% 2.73 14.43% R.E.I.T. 213 2.11 7.74% 1.42 2.56% Real Estate (Development) 18 1.85 0.50% 1.58 3.28% Real Estate (General/Diversified) 11 1.82 24.65% 1.60 19.42% Real Estate (Operations & Services) 52 2.69 16.36% 2.26 18.12% Recreation 68 3.66 24.83% 2.56 15.60% Restaurant/Dining 79 7.80 32.27% 3.82 15.09% Retail (Automotive) 30 6.27 32.34% 2.59 11.27% Retail (Distributors) 90 3.33 16.79% 2.38 14.87% Retail (General) 23 3.54 17.15% 2.53 12.10% Retail (Grocery and Food) 21 4.20 39.05% 2.23 6.51% Retail (Online) 46 8.20 11.91% 11.80 17.38% Retail (Special Lines) 128 4.01 15.78% 2.71 10.93% Semiconductor 100 3.44 16.11% 2.29 13.75% Semiconductor Equip 47 2.76 5.55% 2.17 9.68% Software (Internet) 327 4.15 13.48% 4.12 15.25% Software (System & Application) 259 4.62 18.77% 4.19 22.64% Steel 40 1.58 ‐13.99% 1.47 8.04% Telecom (Wireless) 21 1.32 ‐4.75% 1.20 0.92% Telecom. Equipment 126 2.86 14.40% 2.41 14.10% Telecom. Services 77 3.20 23.72% 2.50 25.71% Tobacco 20 955.60 ‐54.14% 11.43 100.07% Transportation 21 6.04 24.27% 4.08 19.98% Trucking 30 4.35 19.36% 2.04 9.74% Total Market 7887 2.58 14.49% 1.79 7.36% 11 Five Primary Groups of Intangibles • Various sources have developed listings of intangible assets. US GAAP and International Financial Reporting Standards (IFRS) have been vetted publicly and are presented. • Accounting Standards Codification 805 Business Combinations (“ASC 805”) lists five principal classes of intangible assets: • Contract–based intangibles • Marketing-related intangibles • Customer or supplier-related intangibles • Technology-related intangibles • Artistic-related intangibles • Virtually identical guidance is provided in International Financial Reporting Standard 3 Business Combinations (“IFRS 3”). 12 Identification of Intangibles—Marketing-Related • Marketing-related intangible assets are primarily used in the marketing or promotion of products or services. The non-exhaustive listing includes: • Trademarks, trade names, service marks, collective marks, certification marks • Trade dress (unique color, shape, or package design) • Newspaper mastheads • Internet domain names • Non-competition agreements • Source: ASC 805-20-55-14 and IFRS 3 (non-exhaustive list).