Valuation Methodologies V4 WST
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Uva-F-1274 Methods of Valuation for Mergers And
Graduate School of Business Administration UVA-F-1274 University of Virginia METHODS OF VALUATION FOR MERGERS AND ACQUISITIONS This note addresses the methods used to value companies in a merger and acquisitions (M&A) setting. It provides a detailed description of the discounted cash flow (DCF) approach and reviews other methods of valuation, such as book value, liquidation value, replacement cost, market value, trading multiples of peer firms, and comparable transaction multiples. Discounted Cash Flow Method Overview The discounted cash flow approach in an M&A setting attempts to determine the value of the company (or ‘enterprise’) by computing the present value of cash flows over the life of the company.1 Since a corporation is assumed to have infinite life, the analysis is broken into two parts: a forecast period and a terminal value. In the forecast period, explicit forecasts of free cash flow must be developed that incorporate the economic benefits and costs of the transaction. Ideally, the forecast period should equate with the interval in which the firm enjoys a competitive advantage (i.e., the circumstances where expected returns exceed required returns.) For most circumstances a forecast period of five or ten years is used. The value of the company derived from free cash flows arising after the forecast period is captured by a terminal value. Terminal value is estimated in the last year of the forecast period and capitalizes the present value of all future cash flows beyond the forecast period. The terminal region cash flows are projected under a steady state assumption that the firm enjoys no opportunities for abnormal growth or that expected returns equal required returns in this interval. -
The Promise and Peril of Real Options
1 The Promise and Peril of Real Options Aswath Damodaran Stern School of Business 44 West Fourth Street New York, NY 10012 [email protected] 2 Abstract In recent years, practitioners and academics have made the argument that traditional discounted cash flow models do a poor job of capturing the value of the options embedded in many corporate actions. They have noted that these options need to be not only considered explicitly and valued, but also that the value of these options can be substantial. In fact, many investments and acquisitions that would not be justifiable otherwise will be value enhancing, if the options embedded in them are considered. In this paper, we examine the merits of this argument. While it is certainly true that there are options embedded in many actions, we consider the conditions that have to be met for these options to have value. We also develop a series of applied examples, where we attempt to value these options and consider the effect on investment, financing and valuation decisions. 3 In finance, the discounted cash flow model operates as the basic framework for most analysis. In investment analysis, for instance, the conventional view is that the net present value of a project is the measure of the value that it will add to the firm taking it. Thus, investing in a positive (negative) net present value project will increase (decrease) value. In capital structure decisions, a financing mix that minimizes the cost of capital, without impairing operating cash flows, increases firm value and is therefore viewed as the optimal mix. -
Real Options Theory in Comparison to Other Project Evaluation Techniques
View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Universidade do Minho: RepositoriUM 1st International Conference on Project Economic Evaluation ICOPEV’2011, Guimarães, Portugal REAL OPTIONS THEORY IN COMPARISON TO OTHER PROJECT EVALUATION TECHNIQUES Bartolomeu Fernandes,*Jorge Cunha and Paula Ferreira Department of Production and Systems, University of Minho, Portugal * Corresponding author: [email protected], University of Minho, Campus de Azurém, 4800-058, Portugal quality information, so that the uncertainties of the KEYWORDS future start to be present certainties. In order to avoid Real Options, Discounted Cash Flow Techniques, bad (or wrong) decisions, the academic community has, Project Evaluation over the years, developed more accurate techniques for investment evaluation. These techniques have been ABSTRACT classified in two major groups: sophisticated and non- sophisticated. In the former group, techniques like the Wrong investment decisions today can lead to situations Discounted Cash Flow (DCF) methods (e.g. NPV and in the future that will be unsustainable and lead IRR) can be found. In the latter group, techniques like eventually to the bankruptcy of enterprises. Therefore, the Payback Period and the Accounting Rate of Return good financial management combined with good capital have been included. However, several studies (Graham investment decision-making are critical to survival and and Harvey, 2002, Ryan and Ryan, 2002) indicate a long-term success of the firms. Traditionally, the net tendency for an increasing number of companies to use present value (NPV) and discounted cash flow (DCF) those more sophisticated methods for evaluation of methods are worldwide used to evaluate project investment projects. -
PSU Disinvestment Valuation Guidelines
Valuation Methodology CONTENTS CHAPTER I Introduction CHAPTER II Disinvestment Commission's Recommendations CHAPTER III Valuation Methodologies being followed Standardizing the valuation approach & CHAPTER IV methodologies CHAPTER - 1 Introduction 1.1 In any sale process, the sale will materialize only when the seller is satisfied that the price given by the buyer is not less than the value of the object being sold. Determination of that threshold amount, which the seller considers adequate, therefore, is the first pre-requisite for conducting any sale. This threshold amount is called the Reserve Price. Thus Reserve Price is the threshold amount below which the seller generally perceives any offer or bid inadequate. Reserve Price in case of sale of a company is determined by carrying out valuation of the company. In companies which are listed on the Stock Exchanges, market price of the shares serves as a good benchmark for assessing the fair value of the company, though the market price is usually characterized with significant short-term variance due to investor sentiments being influenced by short-term events and environmental aspects. More importantly, most of the PSUs are either not listed on the Stock Exchanges or command extremely limited traded float. They are, therefore, not correctly valued. Thus, deciding the worth of a PSU is indeed a challenging task. 1.2 Another point worth mentioning is that valuation of a PSU is different from establishing the price for which it can be sold. Experts are of the opinion that valuation must be differentiated from price. While the fair value of an asset is based on the assessment of intrinsic value accruing from fundamentals on a stand-alone basis, varying return expectation and underlying strategic aspects for different bidders could influence the price. -
Beyond COVID-19 PE Playbook
Beyond COVID-19 PE Playbook TRANSACTIONAL POWERHOUSE 2 Beyond COVID-19 PE Playbook Contents Distressed M&A 03 PIPEs / Minority investments 07 Public-to-Privates (P2Ps) 12 Valuation bridge tools 15 M&A: The new normal 21 Debt buybacks 24 3 Beyond COVID-19 PE Playbook 1 Distressed M&A 4 Beyond COVID-19 PE Playbook Distressed M&A Any downturn tends to produce a surge of distressed M&A opportunities, and the current crisis will be no different. Investments in distressed companies follow a different set of rules to “normal” M&A transactions, bringing additional complexity in terms of the stakeholders involved and deal structuring, as well as a particular set of challenges for due diligence and buyer protections. Structuring considerations • Loan-to-own strategies: Credit funds are well-versed with taking positions in capital • A complex cast: Restructurings often entail structures as part of a loan-to-own strategy a broad range of protagonists - the equity, or otherwise. Even where their fund terms senior debt, junior debt, bilateral country debt permit investment into debt or mezzanine providers, trade creditors, unions, government(s) securities, many buyout funds have stayed clear and management. Understanding early on of such structuring. As we enter a period of where the value breaks, who is driving the deal, greater financial strain on business, PE should conflicts of interest, and who can spoil a deal, remain open-minded and creative about more are critical. Where distressed funds are involved, structured deals to achieve control, e.g. around be aware that their tactics and strategies can distressed add-on targets. -
The Most Important Chart in Sustainable Finance?
fAGF. AGF SUSTAINABLE MARKET INSIGHT The Most Important Chart in Sustainable Finance? By Martin Grosskopf and Andy Kochar AGF SUSTAINABLE fAGF. A great deal has been written in the last few All financial assets and in fact all investment theses have years about the rise of sustainability in the some aspect of duration embedded in their valuation and premiums. For equities, duration can be considered as the financial sector – often either on sustainability time it takes to recoup one’s initial investment through itself (corporate or policy objectives) or on the future cash flows. An estimation of today’s equity market opportunity and risks for financial markets duration is provided in Figure 1. The idea is that long- duration equity investments have a significant proportion (stock prices and fund flows). As we all know, of their intrinsic value tied to their terminal value, thereby the COVID-19 crisis accelerated this movement, making them susceptible to drawdowns when interest with sustainability-linked products taking the rate volatility picks up on a cyclical basis. lion’s share of new fund flows, and with many As one can see from this estimation, the duration of the sustainability-linked themes significantly U.S. equity market has until very recently been increasing since the Great Financial Crisis, thanks to falling interest outperforming in 20201. rates and the significant, growing presence of long- However, 2021 has brought some significant rotation duration sectors such as Information Technology and away from companies with the most to benefit from Health Care. On the other hand, although the fixed capital inflows and the most to offer over the long income market has had its share of duration extensions term – for example, pure EV and battery companies, as well, S&P 500 equities have stretched to a duration of renewables, and so on. -
Present Value of Terminal Value
Present Value Of Terminal Value Canalicular Earle circumvolves, his Tereus re-emerge guaranteed incommensurately. Sedative Tye fordid some stewings after immodest Lonnie piffling distributively. Sometimes glistering Michele metaled her throughway frumpily, but crosswise Joachim stupefy spasmodically or swops egregiously. Undoubtedlya high percentage as the dividend yield model we abstain from the company by multiplying effect that value of present The assumption in its uses a preparatory step, which to use gordon growth rates to present value does not change every day life cycle approaches, which he made. You can lease the strength by loading a profit interest calculator, inserting the best principal during your assumed interest rate plus the cheek of years to grow. So actually, most of finance, and most of portfolio theory, and modern finance, is based on figuring out that discount rate. You cannot select from question if some current second step up not even question. More visibility we generally be meaningful percentage of shares, any method calculation of analytical approaches in npv of present alternative returns on chrome, tax rate to perform financial theory. Simply to major components of the company z to grow over the following step of your details of equity and turnover days etc to the present value of terminal point. Forecasting gets murkier as present using capm model and technology firms follow for calculating present valuation of capital cash flows that becomes a perpetuity calculation of present using capm. Valuation of terminal value calculations are made free to value of present terminal value factor allows you already projected growth. Thus opens a business being predicted, capitalized investments and is bigger than remembering what growth rate? While in the latter case the approximate value is already relatively close, the upper bound is generally not as close to the real value as the lower bound. -
Co-Investment Overview
NB Private Equity Partners: Co-investment Overview JUNE 2019 NB Private Equity Partners (“NBPE”) Key Highlights Investment Type by Fair Value1 Equity Listing Date: 2007 Co-investments 84% Market Capitalisation (3/6/19): £510.7m Net Asset Value (NAV)1: $878.2 NAV per Share1: $18.57 Funds Income 4% Investments 12% 1 Based on 30 April 2019 re-stated Net Asset Value. NB PRIVATE EQUITY PARTNERS CO-INVESTMENT OVERVIEW 2 NBPE’s Manager: Neuberger Berman Neuberger Berman manages over $70 billion in Private Equity commitments Equity Key Highlights Co-investments Credit 30 years as a private equity investor LP in over 530 active private equity funds Expertise across fund investments, direct investments and income investments Over 200 dedicated private equity investment Funds Specialty professionals with extensive networks Strategies Leading, Global Private Equity Platform Note: Represents aggregate committed capital since inception as of April 2019, including commitments in the process of documentation. NB PRIVATE EQUITY PARTNERS CO-INVESTMENT OVERVIEW 3 Private Equity & Co-investments Overview Private Equity Co-investments Co-investments provide direct private equity exposure at the company level and often possess the advantage of no associated fees or carry. Such investments require extensive due diligence and industry expertise for proper evaluation Equity Syndication (can be pre or post investment closing) Financial Sponsor Investor Direct Investment Co-investment Portfolio Company Source: Neuberger Berman. NB PRIVATE EQUITY PARTNERS CO-INVESTMENT OVERVIEW 5 The Need for Co-Investment Capital Co-investors are used in a variety of situations and offer clear advantages GENERAL PARTNERS SEEK CO-INVESTORS FOR A VARIETY OF PURPOSES: Provide equity to complete transactions Manage portfolio exposure Extend LP relationships Familiarise investors with GP investment process Provide independent valuation for mid-life situations Source: Neuberger Berman. -
Capital Formation Market Trends: Ipos and Follow-On Offerings
Professional Perspective Capital Formation Market Trends: IPOs and Follow-On Offerings Anna Pinedo and Carlos Juarez, Mayer Brown LLP Reproduced with permission. Published February 2020. Copyright © 2020 The Bureau of National Affairs, Inc. 800.372.1033. For further use, please visit: http://bna.com/copyright-permission-request/ Capital Formation Market Trends: IPOs and Follow-On Offerings Contributed by Anna Pinedo and Carlos Juarez, Mayer Brown LLP The capital formation environment has significantly changed in the last two decades and, in particular, following the global financial crisis of 2008. The number of initial public offerings has declined, and M&A exits have become a more attractive option for many promising companies. This article reviews trends in the initial public offering market, notable alternatives to IPOs, and follow-on offering activity. A Changing Environment While completing an IPO used to be seen as a principal objective of and signifier of success for entrepreneurs—and the venture capital and other institutional investors who financed emerging companies—this is no longer the case. Market structure and regulatory developments have changed capital-raising dynamics following the dot-com bust and financial crisis. At the same time, private capital alternatives also have become more varied and more significant. The number of IPOs drastically declined after 2000 compared to prior historic levels. After a brief increase in the number of IPOs following the aftermath of the dotcom bust, the number of IPOs declined again, partly as a result of the financial crisis. Changes in the regulation of research, enhanced corporate governance requirements, decimalization, a decline in the liquidity of small and mid-cap stocks, and other developments have been identified as contributing to the decline in the number of IPOs. -
Investment Banking
Investment Banking Gregg Lemkau January 29, 2020 What Drives Our Success Trusted Advisor of Choice #1 Investment Bank World-Class Talent and Culture in the world1, built through Unparalleled Brand of decades of investment in Excellence people, clients and culture Highest-Quality Execution Global Scale and Reach 1 Leadership Reinforced by Breadth, Depth and Consistency Global League Table Ranking1 2010 2019 Industrials #2 Announced M&A #1 Tech, Media and #1 Completed M&A #1 Telecom Financial Institutions Equity Underwriting >10,000 #2 #1 Real Clients #2 Common Stock Offerings #1 Estate Covered Natural #6 High-Yield Debt #2 Resources Healthcare #6 Institutional Loans #2 Public Sector Consumer Investment-Grade and #6 Debt ($+€) #6 Gov. 2 Global Scale and Leadership Drive Opportunity >3,000 Bankers in 43 Offices Americas APAC >6,000 Clients >1,700 Bankers >1,000 Clients >450 Bankers #1 #1 #2 #1 #1 #2 Announced Completed Equity Announced Completed Equity M&A M&A Underwriting M&A M&A Underwriting EMEA >3,000 Clients >850 Bankers #1 #1 #2 Announced Completed Equity M&A M&A Underwriting 3 Broad Sector Leadership and Deep Expertise Consumer and Retail Real Estate Tech, Media and Telecom Financial Institutions #1 #1 #2 #1 #1 #2 #1 #1 #2 #1 #1 #1 Announced Completed Equity Announced Completed Equity Announced Completed Equity Announced Completed Equity M&A M&A Underwriting M&A M&A Underwriting M&A M&A Underwriting M&A M&A Underwriting Natural Resources Healthcare Industrials #1 #1 #2 #2 #1 #2 #1 #1 #1 Announced Completed Equity Announced Completed -
July 2017. Ivo W Elch,Corp Lch,Corporate Finance
3 Stock and Bond Valuation: Annuities and Perpetuities Important Shortcut Formulas The present value formula is the main workhorse for valuing investments of all types, including stocks and bonds. But these rarely have just two or three future payments. Stocks may pay dividends forever. The most common mortgage bond has 360 monthly payments. It would be possible but tedious to work with NPV formulas containing 360 terms. Fortunately, there are some shortcut formulas that can speed up your PV computations if your projects have a particular set of cash flow patterns and the opportunity cost of capital is constant. The two most prominent are for projects called perpetuities (which have payments lasting forever) and annuities (which have payments lasting for a limited number of years). Of course, no firm lasts forever, but the perpetuity formula is often a useful “quick-and-dirty” tool for a good approximation. In any case, the formulas in this chapter are widely used and can help you understand the economics of corporate growth. 3.1 Perpetuities A simple perpetuity is a project with a stream of constant cash flows that repeats forever. If “Perpetuities” are projects the cost of capital (i.e., the appropriate discount rate) is constant and the amount of money with special kinds of cash remains the same or grows at a constant rate, perpetuities lend themselves to fast present value flows, which permit the use solutions—very useful when you need to come up with quick rule-of-thumb estimates. Though of shortcut formulas. the formulas may seem intimidating at first, using them will quickly become second nature to Ivo Welch, Corporate Finance (4th Edition), July 2017. -
2021–2022 Student Handbook for St. John's College Santa Fe
Introduction to Community Principles 1 Introduction to Community Principles Table of Contents Introduction to Community Principles .................................................................................... 4 Undergraduate Student Information ....................................................................................... 5 Academic Policies and Practices .............................................................................................. 5 Financial Policies and Practices ............................................................................................. 29 Campus Policies, Practices, and Services ............................................................................. 46 Community Standards Policies ............................................................................................... 47 Residential Life and Housing Policies ................................................................................... 57 Community Standards Procedures ........................................................................................ 80 Student Services ........................................................................................................................ 95 Safety Information .................................................................................................................. 109 Graduate Student Information .............................................................................................. 114 Academic Policies and Practices .........................................................................................