AlternativeApproachestoValuation(收购与兼并-

M&A-GuoboHuang1Lecture4,AlternativeApproachestoValuationPartA:ValuationapproachesPartB:CasestudyReading:Chs9,10M&A-GuoboHuang2Chapter9-2PartA,valuationapproachesValuationcriticalinM&AsFrameworkessentialtodisciplinevaluationestimatesM&A-GuoboHuang3Chapter9-31.ComparableCompaniesMethodGroupofcompaniescomparablewithrespectto:–Products–FutureprospectsKeyratiosarecalculatedforeachcompanyKeyratiosareaveragedforgroupAverageratiosappliedtoabsolutedataforcompanyofinterestM&A-GuoboHuang4Chapter9-4IndicatedmarketvaluesobtainedfromeachratioValuationjudgmentsaremadeAdvantagesLimitationsM&A-GuoboHuang5Chapter9-52.ComparableTransactionsMethodMarketvaluereferstotransactionsinacompleteddealMoredirectlyapplicablethancompanycomparisonsMaybedifficulttofindtransactionswithinarelevanttimeframeM&A-GuoboHuang6Chapter9-63.SpreadsheetApproachtoValuationandMergersProcedure–Historicaldataforeachelementofbalancesheet,incomestatement,andcashflowstatementarepresented:7to10years–DetailedfinancialanalysisisperformedtodiscoverfinancialpatternsM&A-GuoboHuang7Chapter9-7–AdditionalanalysisBusinesseconomicsofindustryinwhichcompanyoperatesCompany'scompetitivepositionAssessmentsoffinancialpatterns,strategies,andactionsofcompetitors–Basedonanalysis,relevantcashflowsareprojected–ProceduressimilartocapitalbudgetinganalysisCapitalbudgetingdecisionsSpreadsheetprojections–ProvidegreatflexibilityinprojectionsM&A-GuoboHuang8Chapter9-8–NPVofacquisitionobtainedfromsumoffreecashflowsdiscountedatapplicablecostofcapitalAdvantagesofspreadsheetapproach–Expressedinfinancialstatements–Anydesireddetailofindividualbalancesheetorincomestatementaccounts–FlexibilityinformulatingprojectionsM&A-GuoboHuang9Chapter9-9Disadvantagesofspreadsheetapproach–Numbersusedinprojectionsmaycreateillusionthattheyareactualorcorrectnumbers–Maylacklinkbetweenprojectednumbersandbusinesslogic–Maybecomehighlycomplex–DetailsmayobscureimportantdrivingfactorsM&A-GuoboHuang10Chapter9-104.FormulaApproachNorealdistinctionbetweenspreadsheetapproachandformulaapproach–Bothusediscountedcashflowanalysis–Spreadsheetapproachexpressedinformoffinancialstatementsoverperiodoftime–Formulaapproachsummarizessamedataincompactform–FormulaapproachhelpsfocusonunderlyingdriversofvaluationM&A-GuoboHuang11Chapter9-11Developmentofcompactvaluationformulas–Valuationnecessarilyrequiresforecasts–Usuallyassumessystematicrelationsbetweentimeperiods,variablesKeyvariablesandrelationships–Totalcapital(At)–Investment(It):definedasthechangeintotalcapitaloverthepreviousperiod(At-At-1)M&A-GuoboHuang12Chapter9-12–Netoperatingincome(Xt)definedasafunctionoflastperiod'stotalcapital,i.e.,Xt=aAt-1whereaisaconstant–After-taxnetoperatingincome=Xt(1-T)–Profitabilityrate(Rt):definedintermsofchangeinnetoperatingincomeasaresultoftheinvestmentinthepreviousperiod–After-taxprofitabilityrate=Rt(1-T)=rt:definedintermsofchangeinafter-taxnetoperatingincomeasaresultofinvestmentinthepreviousperiodM&A-GuoboHuang13Chapter9-13–Investmentrequirements,opportunitiesperdollarofafter-taxcashflows(b):definedasratioofinvestmenttoafter-taxnetoperatingincomeGrowthrate(g):definedasrateofchangeinafter-taxcashflowsorinnetoperatingincome–Inthismodel,gisdeterminedbytheproductofothervariables:theinvestmentratetimestheprofitabilityrateM&A-GuoboHuang14Chapter9-14Insightsfromuseofformulaapproach–Whenrisgreaterthank,increasinginvestment(b)resultsinhighergandhighervalues–Valuationisverysensitivetothecostofcapital(k)usedinanalysis–SensitivitytonandTpredictableindirectionandmagnitudeM&A-GuoboHuang15Chapter9-15Limitationsoftheformulaapproach–Lessflexibilityinreflectingforecastsforindividualyears–CalculationsusefinancialstatementdatanotdirectlyshownintheformulasM&A-GuoboHuang16Chapter9-165.CostofCapitalMeasurementStepsinvolvedincalculationofcostofcapital–Calculatecostofequitycapital–Calculatecostofdebt–Formulateapplicablefinancialstructureorfinancialproportions–Applyapplicablefinancialproportionstocostofequityandcostofdebt–FinalresultisweightedcostofcapitalM&A-GuoboHuang17Chapter9-17Costofequity–CapitalAssetPricingModel(CAPM)–BondyieldplusequityriskpremiumCostofequity=Averageyieldtomaturityoffirm'sbond+historicalaverageindustryequityriskpremiumoverdebtyieldFortheindustry,analyzehistoricalreturnstoequityascomparedwithaverageyieldtomaturityonbonds–Investor'saveragerealizedyieldHistoricalreturnoninvestmentintheindustryReturns=Changeinstockprice+dividendyieldM&A-GuoboHuang18Chapter9-18–DividendgrowthmodelRequiredreturnonequityisexpecteddividendyield(D1/S0)plusexpectedgrowthrateindividends(g)–EstimatingthecostofequitycapitalUseinformationgeneratedbyfinancialmarketsEstimatecostofequityusingmultiplemethodsConsiderestimatesforothercompaniesinsameindustryUsejudgmenttoarriveatanestimateM&A-GuoboHuang19Chapter9-19Costofdebt–Costofdebtcalculatedonanafter-taxbasisbecauseinterestpaymentsaretaxdeductibleAfter-taxcostofdebt=kb(1-T)–Before-taxcostofdebt,kbCanbeobtainedfrompromisedyieldstomaturityoffirm'soutstandingpubliclyheldbondsCanbeobtainedfrompub