SHAREHOLDER VALUE ANALYSIS FOR PRIVATELY HELD CORPORATIONS What is Shareholder Value? Newbury, Piret Value Audits and Evaluation Shareholder value is the fair market value of the equity Newbury, Piret will estimate the current shareholder value investors’ stake in a corporation. For a privately held of your corporation and create a value driver map which corporation, without a readily available market for shares, illustrates the impact of operating performance parameters, shareholder value is estimated via a thorough valuation of specific to your company and industry, on shareholder the company’s activities. value. A clear description of the forecast shareholder returns under the company’s budget and strategy and a What is a Shareholder Value Analysis (SVA) ? forecast strategic shareholder valuation and IPO value A shareholder value analysis estimates the economic value analysis will be provided and communicated to senior of the equity of a corporation by discounting forecast cash management and the board of directors as requested. flows by the cost of capital. The goals of SVA are: to establish a baseline valuation for measuring managerial Methodology performance; to identify valuation drivers; to assist exit The methodology follows the popular SVA and EVA® strategy considerations; and to provide rate of return approaches to value analysis. Newbury, Piret has adapted targets for strategic planning. these methodologies to suit the concerns of privately held corporations. In particular, the following items are Typical Issues Arising in an SVA analyzed: What operating performance levels are necessary for · The company’s cost of debt, equity, and weighted shareholder value creation? average cost of capital or “hurdle rate”; Approach: Establish targets and guidelines for sales · A full financial model of the company and projected volume, incremental operating profits, returns on capital requirements to support growth; capital investments, etc. which result in value creation. · The free cash flow generated by current operations When does an acquisition add value? and potential cash flow; Approach: Evaluate the exploitable synergies from the · The current implied return on investment to acquisition and estimate the maximum acquisition shareholders (Shareholder ROI); premium which leads to value creation. Structure · Financial measures of performance, e.g. ROE, ROA, payments to align with value creation. Forecast value Turnover ratios, etc.; creation for incentive plans and shareholder · Recent trends in value creation, identification of the communications. major drivers of value creation; · Industry trends and public company comparables What is the difference between Shareholder analysis (valuation benchmarks); Value and Strategic Shareholder Value? · Typical industry acquisition premiums and IPO Shareholder value estimates the fair market value of the valuations, with implications for corporate planning. equity in the corporation. This is analogous to the stock market value of a publicly traded corporation. A strategic Insight and Experience shareholder value analysis (SSVA) forecasts the likely An SVA provides insight beyond the static measure of acquisition premium and corresponding acquisition value of value provided by a typical valuation. Of particular interest the company from a strategic acquirer’s point of view. to many companies are the cost of capital analysis and Similarly, an IPO value analysis (IVA) forecasts the value implications for strategic planning, the identification of realizable in a monetization of the equity shareholder’s value drivers and free cash flow sensitivity analysis, and investment through an IPO. As part of the audit and the overview of acquisition and public market activity in evaluation, Newbury, Piret will provide SSVA and IVA the company’s industry. Most significantly, Newbury, Piret information if suitable to the company’s plans. draws upon our Managing Directors’ experiences with corporate financings and mergers and acquisitions to provide insight into important valuation considerations. ® EVA is a trademark of Stern Stewart & Company Newbury, Piret & Co., Inc. is a leading Boston investment bank which provides corporate finance services to technology- based and growth-oriented corporations. Contact John Piret, Executive Vice President, for more information on our shareholder value analysis services. John can be reached at 617 367 7300 or via e-mail at [email protected]..