Business valuation and sales process 17 September 2019 Table of - - PowerPoint PPT Presentation

Business valuation and sales process

17 September 2019

Table of contents

1. IMAP Netherlands / Arend & Markslag 2. Valuation 3. Case study

IMAP Netherlands

CHAPTER 1

Welcome

IMAP Netherlands at a glance

4

€

Valuation

%

Financing M&A China Desk IMAP

3 core services… ... for a range

• f industries…

…with international support

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IMAP Netherlands

Dutch league tables and recent transactions

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Dutch league table Recent transactions

Number of transactions in the Netherlands in 2017 Source: mena.nl

• IMAP Netherlands ranks among the top M&A advisors in the Netherlands

with 19 completed transactions in 2017.

• IMAP Netherlands is one of the largest independent M&A advisory

boutiques.

32 32 24 22 21 21 21 19 17 16 14 12 11 10 9

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Introductie Edmond van der Arend

6

Valuation

CHAPTER 2

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Valuation methods

An overview of various valuation methods Valuation methods

(Improved) earnings capacity / income value (historical or future results) Comparable transactions analysis (CTA) (EV/EBIT(DA), EV/sales) Free Cash Flows (future cash flows, DCF and APV) Comparable company analysis (CCA) of listed companies (P/E, EV/EBIT(DA), EV/sales) Intrinsic value (Equity value +/- hidden reserve) Liquidation value (Value of assets and liabilities based on the net proceeds of liquidation) Replacement value Based on financial results Based on the market Based on the balance sheet Leveraged buy out (LBO) (acquisition of company using large amount of debt)

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How to calculate value

How to calculate value?

• Economic value is based of the present value of future cash flows, as shown by the following formula:

(𝐹𝐶𝐽𝑈𝐸𝐵 − 𝑗𝑜𝑤𝑓𝑡𝑢𝑛𝑓𝑜𝑢𝑡) 𝑋𝐵𝐷𝐷1 + (𝐹𝐶𝐽𝑈𝐸𝐵 − 𝑗𝑜𝑤𝑓𝑡𝑢𝑛𝑓𝑜𝑢𝑡) 𝑋𝐵𝐷𝐷2 + ⋯ + (𝐹𝐶𝐽𝑈𝐸𝐵 − 𝑗𝑜𝑤𝑓𝑡𝑢𝑛𝑓𝑜𝑢𝑡) 𝑋𝐵𝐷𝐷𝑜

• Hence, economic value is a function of:
• 1. Performance of the company (numerator)
• 2. Financing (denominator)

𝑂𝑋𝐷 𝑑𝑏𝑡ℎ 𝑔𝑚𝑝𝑥𝑡 𝐹𝐶𝐽𝑈(𝐸𝐵) = 𝐽𝑛𝑞𝑚𝑗𝑓𝑒 𝑁𝑣𝑚𝑢𝑗𝑞𝑚𝑓

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Adjusted present value method (APV)

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Assets Enterprise Value Equity value

TV FCF Discount rate: Ceu 1 2 3 4 5 ∞ Free cash flow

Operational value Tax shield

TV tax shield Discount rate: Ceu 1 2 3 4 5 ∞ Tax shield

Operational value Value tax shield Enterprise Value = operational value + value tax shield Net debt Liabilities Equity EBIT

• /- adjusted tax

NOPLAT +/+ depreciation and amortization +/- capital expenditures +/- changes in working capital +/- changes in provisions +/- changes in equity Free cash flow Gross interest

• /- tax shield

Net interest Income statement Net sales Costs of goods sold Gross margin Operational expenses EBITDA Depreciation and amortization EBIT Balance sheet

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• The cost of equity leveraged equals the

cost of capital if the company is fully financed with equity.

• When determining the cost of equity

unlevered we have used the ‘build up model’.

• The build up model states that the cost of

equity is build up from the components stated and expressed in the figure on the right side of this page.

Cost of equity unlevered

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Risk free rate 2% Market risk premium 5.5% Small firm premium Illiquidity premium 2% Company specific premium Reputation, spread of activities, barriers of entry and track record. Premium for small scale Dependence of customers, suppliers and management Market risk premium Additional required return for a diversified stock portfolio Cost of equity unlevered Expected inflation rate Compensation for the expected inflation of the currency Real interest rate Compensation for the provision of money

+ = +

Description

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• We determined the small firm premium for according to the BDO

Corporate Finance model as shown below:

• Illiquidity premium

2.00%

 Dependency on customers

1 * 1.57% = 1.57%

 Dependency on suppliers

0.5 * 1.26% = 0.63%

 Dependency on management

0.5 * 1.74% = 0.87%

• Premium for small scale

3.07%

 Spread of activities

1 * 1.26% = 1.26%

 Entry barriers

0.25 * 0.94% = 0.235%

 Track record

1 * 1.37% = 1.37%

 Flexibility

0.5 * 1.05% = 0.53%

• Company specific premium

3.395%

TOTAL SMALL FIRM PREMIUM 8.46%

Calculation cost of equity - Example

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Risk free rate 2% Market risk premium 5.5% Small firm premium 8.465% Illiquidity premium 2% Company specific premium 3.395% Premium for small scale 3.07%

+ = +

Cost of equity unlevered 15.97%

Sources: Financieel Dagblad, ECB, KPMG Market Risk Premium research December 2017

Example calculation

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Value driver “levels”

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Additional value on top of standalone value

Stand alone value Cost of Capital ‘Must win’ mentality Defensive or ‘strategic’ acquisition Forecast / business plan Synergies Premium Maximum value

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Meet the team of IMAP Netherlands

IMAP Netherlands

Contact information

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ROTTERDAM Javastraat 8 3016 CE Rotterdam +31 (0)10 235 88 50 info@imap.nl www.imap.nl www.imap.com AMSTERDAM Gustav Mahlerplein 2 Viñoly Building, 1st floor 1082 MA Amsterdam +31 (0)20 799 73 39 info@imap.nl www.imap.nl www.imap.com

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