Operaciones de Inversión

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Operaciones de Inversión
Operaciones de Inversión
Módulo A: Operaciones Corporativas
Adolfo Castellano
Socio Lener Corporate Finance
[email protected]
Madrid, 5 de octubre de 2015
www.lener.es
1
OPERACIONES DE INVERSIÓN
1
•Las operaciones corporativas: ¿cuándo se plantean?
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2
3
•Breve introducción a la valoración de empresas en el contexto actual
•Los procesos de compra venta de empresas
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4
5
Cambios en el entorno competitivo
Desarrollo corporativo de la compañía
Accionariado y equipo gestor
Circunstancias intrínsecas de la compañía: incorporación de nuevos socios
Subasta agresiva. VDD, VDR, Stapled Finance, Draft SPA
Negociación bilateral
Subasta controlada
El papel del asesor
•Adquisiciones Apalancadas - LBOs
•Caso práctico
2
INDICE
Las operaciones corporativas.
¿Cuándo se plantean?
–
Desarrollo corporativo de la compañía.
–
Entrada en el accionariado del equipo gestor.
–
Incorporación de nuevos socios. Soporte del
crecimiento.
–
Cambios en la estructura accionarial del negocio.
Evento de liquidez.
–
Cuestiones sucesorias.
–
Salida natural de un inversor financiero.
–
Motivaciones estratégicas (escisiones, ventas de
filiales, etc.).
–
Otros (procesos de venta en concurso de acreedores,
liquidaciones, refinanciaciones, etc.).
3
Madrid, 5 de Octubre de 2015
4
Valuation Training
Training & Development
Table of Contents
1. Comparable Valuation Analysis
1.1 Overview of Valuation
1.2 Comparable Analysis
1.2.1 Comparable Company Analysis
1.2.2 Comparable Transaction Analysis
1.2.3 Useful Hints
1.4 Summary of Valuation Methods
2. Discounted Cash Flow Analysis
2.1 Introduction
2.2 Cost of Capital
2.2.1 Determine Target Capital Structure
2.2.2 Determine Cost of Capital
2.2.3 Determine Cost of Equity
2.2.4 Calculate WACC
2.2.4.1 Special Topic: Equity Risk Premium
2.2.4.2 Special Topic: Convertible Debt
2.2.4.3 Special Topic: Iterative WACC Method
2.2.4.4 Special Topic: Pre-tax WACC
2.2.4.5 Special Topic: Venture Capital
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Valuation Training
Training & Development
Table of Contents (cont’d)
2.3
2.4
2.5
2.6
Free Cash Flow Projections
Terminal Value
Growth and Value
Inflation, FX and Cost of Capital
3.
3.1
3.2
3.3
3.4
3.5
3.6
Sum-of-the-Parts Valuation
Value of the Company
Synergies
Risks
Controlling and Minority Investments
Pro Forma Adjustments for Recent Events
Financial and Other Liabilities
Appendix
A. Glossary of Terms
6
1. Comparable Valuation Analysis
1.
Comparable Valuation Analysis
1.1
Overview of Valuation
Valuation Training
Overview of Valuation
Introduction
“Valuation” depends on your perspective
Buyer’s
Perspective
Seller’s
Perspective
What is it WORTH?
What will it COST?
What can I AFFORD?
What is it WORTH?
What will I GET FOR IT?
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Valuation Training
Overview of Valuation
What are “Comps”?
There are two types of “comp”:
“Public comps”
The analysis of the public market valuations of companies comparable (hence the
term “comps”) to the subject of the assignment (“Target”)
“Transaction (or deal or M&A) comps”
The analysis of the values attributed by a [change of control] transaction to
companies that are similarly comparable
“Comps”valuation analysis constitutes a relative, as opposed to absolute, valuation
methodology
Comps provide a sanity check to more detailed valuation tools by illustrating how other
market participants valued similar assets under similar circumstances
The purpose of these materials is to provide you with a framework upon which, with
experience, you will be able to develop a thorough understanding of these two
fundamental strands of valuation
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Valuation Training
Overview of Valuation
How Important Are They?
Almost every single project that becomes involved in requires advice on some aspect of
valuation. Examples include:
Valuing a company/subsidiary for IPO(1)/Sale
Valuing a target for acquisition
Determining a break-up valuation
Delivering a fairness opinion
There are three principal approaches to valuation:
Discounted cash flow (“DCF”)
Transaction comps
Public comps
“Doing the comps” has four stages:
Selecting the right comps
Inputting the correct data
Interpreting the results
Applying the results
COMPS ARE THEREFORE FUNDAMENTAL TO THE WORK OF IBK
____________________
(1)
Initial public offering
11
Valuation Training
Overview of Valuation
Valuation Process
Market
Information
Comparable
Company
Analysis
Comparable
Transaction
Analysis
Current Market
Valuation
In-Depth Analysis
DCF
Analysis
Company Valuation
Action:
• Acquire
• Sell
• Keep
12
Valuation Training
Overview of Valuation
Frequently Used Valuation Methods
Public Market Valuation
Share Price
Market
Perception
Liquidity
Investor
behaviour
Market
Dynamics
Comparable
Companies
Benchmark
with peers
Identifies
company
value on a
stand-alone
basis
Private Market Valuation
Comparable
Transactions
DCF
Implied
strategic
value
Intrinsic
Value of
Concern
Identifies
what buyers
have been
prepared to
pay
Identify key
value drivers
Valuation
sensitivities
Quantify
synergies
May reflect
takeover
battle
Regulatory
Asset Value
Value of
regulatory
assets
(typically
utilities)
Exposure to
regulatory
risks
13
Valuation Training
Overview of Valuation
Alternative Valuation Methodologies
Replacement
Cost Analysis
Estimate
replacement cost
of productive
assets
(buildings,
plants)
Useful in “build
or buy” decision
Ignores
operational
aspects
EVA
APV
Based on same
Based on same
principles as DCF
principles as DCF
valuation
valuation
Essentially aimed Slightly more
at managerial
complex than
performance
DCF
evaluation
Aimed at
separating
operational and
financial value
created
Real Options
Valuation of
“real” assets
using option
theory
Useful when
faced with highly
uncertain
outcomes
Complex
calculation
Alternative approaches may be used to supplement
traditional valuation methodologies
14
1.
Comparable Valuation Analysis
1.2
Comparable Analysis
1.2.1
Comparable Company Analysis
Valuation Training
Overview of Valuation
Key Valuation Methods
Analysis of
Comparable
Companies
Publicly traded
companies
Analysis of
Comparable
Transactions
Discounted Cash-flow
Analysis (DCF)
Comparable operations
and financial structure
Considerations paid in
transactions involving
comparable companies
Valuation based on NPV
of projected Free Cash
Flows
Valuation with
multiples
Valuation with
multiples
WACC used as basis for
discount factor
Multiples show how the
market values the future
outlook of a company
Multiples are a
reflection of the strategic
value of a company
Includes takeover
premium
DCF requires in-depth
analysis of the company
and access to relevant
data
+ MARKET INTELLIGENCE
CONCLUSIONS REGARDING VALUATION
16
Valuation Training
Comparable Company Analysis
Purpose
Valuation method based on
comparing the company being valued
to similar companies
Analysis performed with multiples:
•
•
•
•
•
Enterprise value as a multiple of Sales
Enterprise value as a multiple of EBITDA
Enterprise value as a multiple of EBIT
Enterprise value as a multiple of Customers
Equity value as a multiple of Net Income, etc.
17
Valuation Training
Comparable Company Analysis
Comparable Companies vs Transactions
Aggregate Value
Comparable
Companies
Analysis
Comparable
Transactions
Analysis
Market value of a
standalone company
Consideration paid by an
acquiror for the whole of a
company
Value includes takeover
premium (“premium for
control”)
Reference Date
Value of a company’s
shares today
Multiples are expressed
relative to current or future
expected performance
Value paid in transactions
in the past
Multiples are expressed
relative to historical
financials of target
company
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Valuation Training
Comparable Company Analysis
Getting the Right Results ...
… requires the right input
Time of Valuation
Accuracy of Data
Quality of Data
Appropriateness of Data
– Current valuation for comparable
companies
– Announcement date for
comparable transactions
Reflecting business prospects
– Research analysts estimate for
comparable companies
On a normalised Basis
Alternatively
Garbage In ...
… Garbage Out
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Valuation Training
Comparable Company Analysis
Comparable Company Analysis
Identification of
Comparable companies which trade publicly
Appropriate valuation benchmarks
Appropriate multiple range
Comparability
Companies should have similar operating and financial characteristics and be of
similar size (e.g. Pharma companies)
Preferably companies in same industry or with similar characteristics in related
industries, and geography.
But:
Companies are rarely directly comparable
Historical data can be misleading or unavailable
20
Valuation Training
Comparable Company Analysis
Comparability of Companies
Similar companies with respect to
operating and financial characteristics
Operating
Industry and business
economics
Sales volume
Earnings growth/margin
Profitability
Cash flow pattern
Cyclicality
Regulatory environment
Financial
Gearing
Capital structure
Accounting policies
Dividend policy
Liquidity of stock
Very suitable
Direct Competitors
Size of public float
Controlling shareholders
Less suitable
Similar business
Suppliers/Customers
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Valuation Training
Comparable Company Analysis
Multiple Analysis
Calculation:
Value= Appropriate Multiple x Metric
Example: Comps analysis results in average multiple of 10x EBITDA for sector. Example
company can now be valued based on the sector
Example company EBITDA
x Multiple
= Enterprise Value
- Net Debt of Case Company
= Equity Value
Shares Issued & Outstanding
Price per Share per Comps Analysis
1,500
x 10
15,000
2,000
13,000
1,000
13
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Valuation Training
Comparable Company Analysis
Multiple Analysis
Example 1
EBITDA Multiple
EBITDA
EV
EBITDA
Earnings before interest, taxes, depreciation and
amortisation
Example 2
P/E Multiple
Equity Value
Share Price
=
Net Income
EPS
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Valuation Training
Comparable Company Analysis
Relevant Multiples for Selected Industries
Airline
:
EV/EBITDA, EV/Sales
Banks
:
P/Book
Chemicals
:
EV/EBITDA
Cement
:
EV/EBITDA, P/E
Drinks
:
EV/Sales, EV/EBITDA
Healthcare
:
P/E, PEG
Insurance
:
P/Embedded Value
Mobile Communications
:
EV/Sales, R&D/Assets
Semiconductors
:
EV/EBITDA
Engineering
:
P/E, EV/EBITDA
Retailing
:
EV/Sales, EV/EBIT, EV/EBITDAR
Oil
:
EV/CF, EV/EBITDA
Utility
:
Div. Yield, EV/EBITDA
24
Valuation Training
Comparable Company Analysis
Enterprise and Equity Value
Enterprise Value (EV)
= Equity Value + Net Debt
ND
Market Value of Equity
= Share Price x Number of Shares in issue, for each
class of share (including preference if deemed to be
equity)
EV
EqV
Enterprise Value
- Net Debt
= Equity Value
Net Debt
= Short and Long-Term Debt
+ Finance Leases
+ Other Interest Bearing Liabilities
+ Preferred shares (if deemed to be debt)
+ Minority Interest
- Cash
- Liquid Short Term Investments
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Introduction to Multiples
Comparable Company Analysis
Book Concepts
Market Concepts
Equity
Fixed Assets
Market value of
equity
(eg. market cap)
Minority
Interest
Market value
of minority interests
Net Debt
Market value of net debt
Enterprise
Value
Working
Capital
Capital
Employed
=
Financing
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Valuation Training
Comparable Company Analysis
Enterprise and Equity Value
Revenue
EBITDA
EBIT
Enterprise Value
(available to
all stakeholders)
Interest
Taxes
Equity Value
(available
to shareholders)
Net Income
Debtholders
Shareholders
Government
27
Valuation Training
Comparable Company Analysis
The Mathematics of Valuation Multiples
Profit & Loss
Valuation
Balance Sheet
Enterprise
Value
(“EV”)
Capital
Employed
=
=
Debt, net of cash, at
market value(1)
Debt, net of cash, at
book value
+
+
Minority interests at
market value(1)
Minority interests at
book value
+
+
Preference shares at
market value(1)
Preference shares
at book value
+
+
Market value of
ordinary shares
Ordinary
shareholders’ funds
Sales
EV/Sales
EBITDA
EV/EBITDA
EV/EBIT
EBIT
Interest
Minority interests
Preference
dividends
Ordinary earnings
PER
____________________
(1)
Where market value is not available, estimated market value should be used if the item is material, otherwise book value may be used
28
Valuation Training
Comparable Company Analysis
Price Earnings Ratio (P/E)
Most widely quoted valuation multiple in the equity markets
P/E measures the price and prospects for growth which investors attach to a company’s
earnings
Implications of a P/E higher than the market or sector average
How P/Es evolve over time
Share Price
=
EPS x P/E
P/E
=
Share Price
EPS
P/E
=
Market Capitalisation
Net Earnings
29
Valuation Training
Comparable Company Analysis
Earnings per Share (“EPS”)
Used in P/E calculation
Yardstick for acquisition/valuation decisions
EPS =
Net Earnings
Weighted Average Number of Shares
Outstanding During the Period
Diluted EPS
Cash EPS
“Net” = after interest and taxes
“Operating Earnings” = earnings from continuing operations
Exceptional/non-recurring items to be excluded
Historic and prospective
30
Valuation Training
Comparable Company Analysis
Review of Share Capital
Shares authorised
Shares issued
Shares issued minus Treasury Stock = Shares Issued and Outstanding
Shares listed
Public/Free Float
Diluted shares
31
Valuation Training
Comparable Company Analysis
Exceptional/Non-Recurring Items
As Reported
Restated
EBIT
100
Restructuring
Charge
(50)
Pre tax Profit
50
Tax (50%)
Net Income
(25)
EBIT
100
Pre tax Profit
100
Tax (50%)
(50)
Net Income
50
25
32
Valuation Training
Comparable Company Analysis
Factors Which Influence P/E Multiples
Growth prospects
Cost of capital
Leverage
Accounting periods
Cross-border differences
Drawback of P/E Analysis
Accounting treatment
Non-cash items
Non-allowance for capital risk/time value of money
33
Valuation Training
Comparable Company Analysis
Drawback of P/E Analysis
2014
2015
€5,000,000
€3,000,000
60%
75%
Operating Profits
2,000,000
750,000
(Provision)/Writeback
(900,000)
450,000
PBT
1,100,000
1,200,000
30%
30%
770,000
840,000
Turnover
Cost of Sales
Tax Rate
PAT
34
Valuation Training
Comparable Company Analysis
PE/G Ratio: Adjusting for Growth
Analyse company’s P/E in relation to earnings growth prospect
PE/G
=
P/E
LT Growth Rate
The higher the PEG, the more you pay for growth
Company A:
P/E = 25
growth 17%
PEG: 1.47
Company B:
P/E = 16
growth 10%
PEG: 1.60
35
1.
Comparable Valuation Analysis
1.2
Comparable Analysis
1.2.2
Comparable Transaction Analysis
Valuation Training
Comparable Transaction Analysis
Key Valuation Methods
Analysis of
Comparable
Companies
Analysis of
Comparable
Transactions
Publicly traded
companies
Comparable operations
and financial structure
Valuation with
multiples
Multiples show how the
market values the future
outlook of a company
Considerations paid in
transactions involving
comparable companies
Valuation with multiples
Multiples are a reflection
of the strategic value of a
company
Discounted Cash-flow
Analysis (DCF)
Valuation based on NPV
of projected Free Cash
Flows
WACC used as basis for
discount factor
DCF requires in-depth
analysis of the company
and access to relevant
data
Includes takeover
premium
+ MARKET INTELLIGENCE
CONCLUSIONS REGARDING VALUATION
37
Valuation Training
Comparable Transaction Analysis
Purpose
Valuation method based on comparing
value of a company
to prices paid for similar companies
Analysis performed with multiples:
• Transaction value as a multiple of Sales
• Transaction value as a multiple of EBITDA
• Transaction value as a multiple of EBIT
• Transaction value as a multiple of Customers
• etc.
38
Valuation Training
Comparable Transaction Analysis
Comparable Companies vs Transactions
Aggregate Value
Comparable
Companies
Analysis
Comparable
Transactions
Analysis
Market value of a
standalone company
Consideration paid by an
acquiror for the whole of a
company
Value includes takeover
premium (“premium for
control”)
Reference Date
Value of a company’s
shares today
Multiples are expressed
relative to current or future
expected performance
Value paid in transactions
in the past
Multiples are expressed
relative to historical
financials of target
company
39
Valuation Training
Comparable Transaction Analysis
Comparable Transactions
Rationale
Determine value of transaction
Determine multiples compared to target’s financial performance and pre-announcement
market value
Determine control premium of specific industries
Comparability
Companies involved in transactions should have similar operating and financial
characteristics and be of similar size
Recent transactions more accurate than transactions completed in the distant past
But:
Transactions are rarely directly comparable
Transactions may include different synergy rationale
Public data can be misleading or unavailable
Acquisition multiples can vary widely
No current P/E or multiple benchmark
Misleading interpretation of same financial figures and paid
consideration.
40
Valuation Training
Comparable Transaction Analysis
Comparable Transactions
Analysis is performed on announcement date
Valuation of Consideration
If cash offer, equity value is calculated as amount offered per share times the target’s diluted
shares outstanding at the time of the transaction
If share offer equity value equals the exchange ratio multiplied by acquirer’s share price one
day prior to announcement multiplied by target’s diluted shares outstanding at time of
transaction
Structural Differences
Hostile/friendly, stock/cash, on/off-balance sheet debt.
Acquisition Multiples
Based on LTM
Availability?
41
Valuation Training
Comparable Transaction Analysis
Key Elements
Announcement date (analysis is performed on announcement date data)
Acquirer
Target name and business description (for comps table. Easy to confuse companies)
Transaction summary
Acquisition vs merger
Bid currency - shares vs cash
% of company acquired
Hostile/friendly
Equity value
Gross up if acquisition < 100%
Based on fully diluted
42
Valuation Training
Comparable Transaction Analysis
Key Elements (cont’d)
Aggregate value - take net debt from latest financial statement of target
Acquisition multiples
Based on Latest Twelve Months (“LTM”)
Forward multiples based on research published around time of transaction
Premium to unaffected share price
1 day/4 weeks prior to announcement, but check share price development
Check when rumors first appeared in press
43
Valuation Training
Comparable Transaction Analysis
Key Calculations
Shares Outstanding: For Acquisition Comparables, shares outstanding consist of the
following
Shares outstanding (as of the latest financials available); plus,
Options outstanding (if in-the-money); plus
Shares pursuant to convertible securities (if in-the-money)
Convertible debt
Convertible preferred
Offer Price Per Share = price per share offered by the acquirer. In the case of an offer that
includes stock, use the acquirer's stock price one day prior to the announcement times the
exchange ratio
Offer Value = offer price per share x shares outstanding (as calculated above) – cash
proceeds from options
Transaction Value = offer value + non-convertible debt + non-convertible preferred +
minority interest – cash and marketable securities
44
1.
Comparable Valuation Analysis
1.2
Comparable Analysis
1.2.3
Useful Hints
Valuation Training
Useful Hints
Useful Hints
As companies usually grow, forward multiples should decrease. Any increase of forward
multiples should be double-checked
Sales multiples < EBITDA multiples < EBIT multiples < PE Multiples
The last historical aggregates (EBITDA, EBIT, NI, Net Debt) should be checked against
Research Report used. Any discrepancy should be understood before inputting numbers
Exclude extraordinary/exceptional/non-recurring items
Some companies have more than one class of share capital, review notes in annual reports
Check for recent stock splits, rights issues
Check for recent acquisitions/disposals
Bid premium in the share price
Any out of the range company should be double-checked
Any re-treatment of information should be footnoted
Check for cyclicality when comparing companies in different markets
46
Valuation Training
Useful Hints
Outliers and Averages
Outliers can significantly affect the result
Check median vs mean
Exclude outliers if justified
Use industry sector subgroups
Consider using weighted averages
Depressed or negative financials
Exclude extraordinaries/exceptionals
Normalize financials
Certain outliers are meaningful and should not be excluded
47
Valuation Training
Useful Hints
Normalize for Non-recurring Items
Adjust for one-time items that are not expected to be part of the normal course of business
in the future
Goal = evaluate the on-going business, earnings and cash flows
Common examples
Restructuring charge
Gain/(Loss) on sale of assets
Legal settlements
Where to find non-recurring items
Separate line item in IS
Contained in other line items
– Other income/expenses
– SG&A, COGS
MD&A Section, footnotes and company press releases for detailed discussion
48
Valuation Training
Useful Hints
Potential Pitfalls of Comparable Company Analysis
Negative Earnings
Loss-making
Risk of bankruptcy
Use DCF
Absence of Historical Information
Recent business transformation
Recent IPO, privatisation
Absence of comparable companies
Use DCF
Use DCF
49
1.
Comparable Valuation Analysis
1.4
Summary of Valuation Methods
Valuation Training
Summary of Valuation Methods
Overview of Valuation
What is a company worth?
Analyse all available valuation methods
Weight the results appropriately
Use judgement
Reasonable, defensible numbers and approach
Exclude outliers
Calculate ranges, not specific values
Perform sensitivities
Calculate implied valuation and multiples
51
Valuation Training
Summary of Valuation Methods
Example of a Valuation Summary
Methodology
■
Current
■
Pre-leak
■
12 months low-high pre leak
Analysts’ price target
■
Range of available analysts’ price targets
Comparable company valuations
■
EV/EBITDA - EV/EBIT
Comparable acquisition
■
EV/EBITDA
Sum-of-the-Parts
■
DCF scenario 1
■
DCF scenario 2
Transaction
Trading
Share price
Commentary
Implied Value
52
Valuation Training
Summary of Valuation Methods
Standardized Model: Example of a Summary Output
Public Trading Comparables
(1)
Mkt
Public Acquisition Comparables
DCF
LBO
8,665
7,000
(2)
Enterprise Value
Current EV
6,240
6,853
5,408
4,362
3,900
3,616
3,380
4,576
3,339
5,000
3,616
3,680
3,380
3,328
2,712
2,712
2,658
2,080
Market Valuation
Revenue
EBITDA
EBIT
PE
Revenue
EBITDA
EBIT
PE
DCF
LBO
n.m.
2015
Basis
Selected Multiple Range
Value per Share
(3)
#Calc - #Calc
2,600x
416x
181x
68x
2,600x
416x
181x
68x
9.0% - 11.0%
0.80x - 1.30x
8.0x - 13.0x
15.0x - 20.0x
25.0x - 35.0x
1.30x - 1.50x
11.0x - 15.0x
15.0x - 20.0x
40.0x - 50.0x
8.0x - 10.0x
n.m.
10.43 - 22.47
21.98 - 41.24
16.28 - 24.65
15.78 - 22.09
22.47 - 27.28
33.54 - 48.95
16.28 - 24.65
25.24 - 31.55
54.62 - 71.40
37.47 - 55.98
Source: Company
(1) Market Valuation reflects the 52 week high/low closing share price range of #Calc to #Calc
(2) Current Enterprise Value is based on a closing price of 50.00 as at March 6, 2015
(3) Value per Share is based on 108.0 million shares and net debt of $953.8 million
53
Valuation Training
Summary of Valuation Methods
Valuation Expertise
Company
Market
Investors
Management
Track
Record
Competitors
Valuation
=
Theory
+
Industry Knowledge
Core
Business
Focus
Regulator
Growth &
Margins
Industry
Cycle
Capitalisation
Timing
54
2. Discounted Cash Flow Analysis
2.
Discounted Cash Flow Analysis
2.1
Introduction
Valuation Training
Overview of Valuation
Key Valuation Methods
Analysis of
Comparable
Companies
Analysis of
Comparable
Transactions
Publicly traded
companies
Comparable operations
and financial structure
Valuation with
multiples
Multiples show how the
market values the future
outlook of a company
Considerations paid in
transactions involving
comparable companies
Valuation with multiples
Multiples are a reflection
of the strategic value of a
company
Discounted Cash-flow
Analysis (DCF)
Valuation based on NPV
of projected Free Cash
Flows
WACC used as basis for
discount factor
DCF requires in-depth
analysis of the company
and access to relevant
data
Includes takeover
premium
+ MARKET INTELLIGENCE
CONCLUSIONS REGARDING VALUATION
57
Valuation Training
Overview of DCF Analysis
Discounted Cash Flow Analysis (DCF)
DCF is the only means of coming close to determine the true value of a company
Comparable valuation analysis provides an indication of what buyers may be prepared to
pay
To do so, the DCF model must be a realistic economic model of the subject company
Need to have a good understanding of the company, and, in particular, of the relationship
between
Sales and earnings
Cash flow and profit and loss
Balance sheet and profit and loss
A properly thought through DCF model will give you
a thorough understanding of the company
58
Valuation Training
Overview of DCF Analysis
Discounted Cash Flow Analysis (DCF)
DCF valuation equals the intrinsic value of a company
DCF value equals the sum of the net present value (NPV) of:
Projected free cash flows (FCF)
Projected Terminal Value
NPV is calculated using a weighted average cost of capital (WACC)
59
Valuation Training
Overview of DCF Analysis
Discounted Cash Flow Analysis (DCF)
Theoretical valuation based on projected free cash flows (FCF)
Subjective forecasts based on assumptions
Potential bias (run sensitivities)
Requires scrutiny of key value drivers
Flexible analysis
Analysis of synergies, growth scenarios, margin improvements
Incremental effects
Highly sensitive to changes in:
Growth rates and margin assumptions
Terminal value estimate
Assumed discount rate (beta, market conditions)
DCF results should always be presented as a range of estimated values
60
Valuation Training
Overview of DCF Analysis
Methodology
1.
Forecast of unlevered FCFs
2.
Calculate Terminal Value
3.
Determine discount rate
4.
Discount FCFs and terminal value
5.
Arrive at Aggregate Value
6.
Add equity investments if appropriate
7.
Take off net debt and minorities
8.
Equity Value
61
2.
Discounted Cash Flow Analysis
2.2
Cost of Capital
Valuation Training
Cost of Capital
Cost of Capital - Overview
A significant assumption in the DCF analysis is the choice of a discount rate
The cost of capital represents the required rate of return given
The risks inherent in the business
The industry
The uncertainty regarding the company’s future cash flows (volatility)
The assumed capital structure of the business
Cost of capital is always forward-looking
An investor contributes capital with the expectation that the riskiness of cash flows will be
offset by an appropriate return
Cost of capital based on comparable companies
The cost of capital is typically estimated by studying capital costs of existing investment
opportunities which are similar in nature and risk to the one being analysed
The cost of capital is related to the risk of the investment,
not the risk of the investor
and therefore, is always a function of the investment
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Valuation Training
Cost of Capital
Cost of Capital - Overview
DCF valuation requires accurate calculation of the cost of capital
– WACC is one of the most important value drivers
WACC is a company’s cost of capital
– Based on the risks inherent in the business
– Based on an assumed capital structure of the business
– Based on comparable companies
– Based on theory of risk and return correlation (CAPM)
AND
– Always forward looking, not historical
– Always a function of the investment, not the investor
– Always based on market values, not book values
Statistical reliability, data and information issues
64
Valuation Training
Cost of Capital
Academic Theory: WACC without Tax
Cost of Capital %
ke
WACC
kd
0% Debt
Gearing
65
Valuation Training
Cost of Capital
Academic Theory: WACC with Tax Advantage of Debt
Cost of Capital %
re
WACC
rd (1-t)
0% Debt
Gearing
66
Valuation Training
Cost of Capital
Academic Theory: WACC with Tax Advantage and Default Risk
Cost of Capital %
re
WACC
Net rd
0% Debt
Gearing
67
Valuation Training
Cost of Capital
WACC Formula
The cost of capital is equal to the weighted average of the cost of debt and the cost of
equity
Weighted Average Cost of Capital (WACC ) = rd × (1 − t )
D = Market Value of Debt
E = Market Value of Equity
t = Marginal Tax Rate
rd = Return on Debt
re = Return on Equity
D
E
+ re ×
D+E
D+E
68
Valuation Training
Cost of Capital
WACC Methodology
1. Determine target capital structure
Debt portion
Equity portion
Other
2. Determine cost of debt
Riskfree rate
Bond spread
Marginal tax rate
3. Determine cost of equity according to CAPM
Riskfree rate
Beta
Equity risk premium
4. Calculate weighted average of the cost of debt and the cost of equity
69
Valuation Training
Cost of Capital
1. Determine Target Capital Structure
Calculating WACC requires estimating the target market value weights for the capital
structure of the company
Consider historical and actual capital structure
Consider how company may finance itself in the future
Analyse industry average capital structure
Capital structure decision will be affected by
Business risk
Asset type
Costs of financial distress
Taxes
Dividend flexibility
Regulatory restrictions
Rating requirements
70
Valuation Training
Cost of Capital
1. Determine Target Capital Structure (cont’d)
Components of capital
Spontaneous
Finance
Trade creditors
and Accruals
Short Term
debt
Debt
Capital
Long Term
debt
Hybrid
Instruments
Equity
Debt or Equity
Equity
71
Valuation Training
Cost of Capital
1. Determine Target Capital Structure (cont’d)
Market Value
PV of financial
distress
PV Tax
Shield
Value if all-equity
financed
Optimal Debt Ratio
72
Valuation Training
Cost of Capital
2. Determine Cost of Debt
Risk free rate
kd
=
(rf + bond spread)
Determine the long term cost of debt for the target company
Obtain market quotes for current long term debt funding
Determine cost of debt for companies with comparable risk profile
The cost of debt will be higher with
Business risk (cash flow characteristics)
Level of gearing in a business
The required return on debt “rd” is directly observable in the market
Yield-to-maturity on the applicable debt
Typically expressed as a spread on top of the riskfree rate
Yield represents the market’s expectation of future returns
73
Valuation Training
Cost of Capital
2. Determine Cost of Debt (cont’d)
Straight Investment Grade Debt
Yield-to-maturity reflects market expectations of future returns
After tax cost of debt assurance, company can use tax shield
Below Investment Grade Debt
Yield spread over risk free rate reflects assessment of default risk
High yield market not liquid
Use rating and sector comparables (where available) as a proxy
High yield spreads extremely volatile
The tax benefit of debt financing is included in the cost of capital, not in the Free Cash
Flow (unlevered FCF)
Assumes that target company is profitable and has enough pre-tax profit to shield with
interest expense
It is usually assumed that the beta of debt is close to zero, which is generally true
74
Valuation Training
Cost of Capital
2. Determine Cost of Debt (cont’d)
Case Study - Which Cost of Debt?
The company has a ten year bond outstanding with a coupon of 7% that matures in 2 years
and yields 6%
The company has a long-term S&P rating of BBB, which in today’s environment would
imply a spread over government bonds of 230bp
The company treasurer has told you that he has a short term line of credit from his local
commercial bank that provides most of his financing and currently costs the company
4.5%
From the annual report you can calculate that the average interest rate is 5.5%
The company has just issued a ten year convertible bond that yields 5.0%
75
Valuation Training
Cost of Capital
3. Determine Cost of Equity: CAPM and Risk
Equity investors expect a higher return for accepting higher risk
Cost of Equity
Risk
76
Valuation Training
Cost of Capital
3. Determine Cost of Equity: CAPM and Risk (cont’d)
There are two types of risk, specific risk and market risk:
Specific risk of company
Good or bad management decisions
Loss or gain of major customers
Development/failure of a new technology
Introduction/failure of major products
Also called unsystematic risk
77
Valuation Training
Cost of Capital
3. Determine Cost of Equity: CAPM and Risk (cont’d)
Market risk - economic factors
Interest rate changes
Growth in economy
Unanticipated inflation
Government policy
Also called systematic risk
Some shares/investments are more affected by market risk than others,
this is what Beta measures
78
Valuation Training
Cost of Capital
3. Determine Cost of Equity: CAPM and Risk (cont’d)
Market risk is unavoidable
Specific risk can be avoided through diversification
The CAPM concludes that the assumption of systematic risk is rewarded with a risk
premium
Risk of
Portfolio
Specific risk
Market risk
Number of Shares in Portfolio
79
Valuation Training
Cost of Capital
3. Determine Cost of Equity: CAPM
The equity cost of capital is equal to the expected rate of return for a firm’s equity
Cost of equity can be estimated using the Capital Asset Pricing Model (CAPM)
Investors expect risk free rate as minimum return
Higher risk will result in higher return
ERP
Equity investment has exposure to market risk
Beta
Cost of Equity (which has no tax advantage):
rf
re = rf + βx ERP
80
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Methodology
Estimating WACC...
3. Determine cost of equity according to CAPM
3.1
Establish levered betas for comparable companies
3.2
Unlever betas for comparable companies
3.3
Choose an average unlevered beta based on comparables
3.4
Lever this average beta based on target capital structure
3.5
Calculate levered cost of equity according to re = rf + β * ERP
81
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Beta
Beta is measured with a linear regression between past returns on the stock in question
and past returns on a broad market index
Use Bloomberg, this allows you to change assumptions if needed
– Use standard 2 year historical time period
– Broad market index that is related to investment (S&P500, DAX100)
Always use adjusted beta (now raw beta), there are statistical reasons for this
Always calculate betas based on a range of comparable companies
82
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Beta (cont’d)
Checks
– Check correlation coefficient (R2)
e.g. an R2 of 31% implies that 31% is market risk, 69% is diversifiable risk (not rewarded)
– Check alpha (intercept of regression line, should be zero)
– Check impact of historical time period
– Check for unusual events during time period
Historical betas may not be a good indicator of future risk
Consider using Barra’s Predicted Betas if historical betas are deemed irrelevant
83
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Beta (cont’d)
The overall market has β = 1, most large companies have betas in the range 0.5 - 1.5
Beta is higher in firms with
High financing gearing
High operational gearing, i.e. a high ratio of fixed to variable costs
Cyclical firms
84
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Beta (cont’d)
Market Risk
β=1
Beta
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1.00
1.0
0.6
to
r
y
nc
ia
ls
Se
c
lo
g
Fi
na
ch
no
Te
tri
al
s
er
al
In
d
Se
yc
on
-C
C
yc
l
N
G
en
lic
al
SE
FT
us
rv
ic
e
s
re
ll
S
A
G
lC
on
ic
a
B
ha
oo
ds
s
su
R
m
er
es
o
ur
ce
st
rie
as
i
c
In
du
er
v
lS
ic
a
yc
l
s
s
ic
e
s
ci
al
ds
N
on
-F
i
G
oo
na
n
C
C
on
su
m
er
U
til
it
ie
s
0.4
lic
al
yc
on
-C
N
1.00
0.9
0.9
0.8
1.00
1.3
1.3
1.1
Sector
Source: London Business School Risk Measurement Survey: Based on UK FTSE All Share Index
85
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Beta (cont’d)
Company and sector betas reflect existing gearing levels - they are inherently levered betas
For the cost of equity calculation, we need can a beta that reflects our chosen target capital
structure
Establish levered betas for comparable companies
Unlever these betas based on the current capital structure of each comparable company
Choose an average unlevered beta based on comparables
Lever this unlevered beta based on the target capital structure
This beta gives us a levered cost of equity that is then used in the CAPM formula to
determine the cost of capital
86
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Unlevered Beta
Levered beta obtained from comparable companies:
gearing ratio
βlev
u
x (1 +
D
(1-t) )
E
To calculate unlevered beta for each company:
βu
=
=
lev
1 + (D/E)(1-t)
D = Debt
E = Equity
t = Marginal tax rate
This assumes that the beta of debt is equal to zero, which is generally true
87
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Unlevered Beta (cont’d)
To calculate unlevered beta, we need to calculate the gearing ratio (D/E) and marginal tax
rate of all comparable companies
Always use market values of equity (and where deemed appropriate, of debt)
Market vs Book Value of Debt
Weighting is always based on market value, not book value
Market value of equity (= market capitalisation)
Market value of debt is usually close to book value
In most cases, book values are a good approximation of the market value of debt
Market value may be substantially different if
Riskfree interest rates have shifted substantially
Credit profile of the company has changed
88
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Unlevered Beta (cont’d)
When calculating gearing ratios, use net debt
Cash &
Equivalents
Debt
Net
Debt
Total
Capital
Equity
89
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Unlevered Beta (cont’d)
Net Debt method for unlevering betas is most appropriate
Gross Debt Method
■
Method
Description
■
The market or book value of interest bearing debt is
used to unlever(1) the company Equity Beta
Net Debt Method
■
The Gross Debt Method does not net out Cash
■
■
■
Rationale
■
The Gross Debt method assumes that any cash
balance is operating cash or restricted in some way,
and cannot be used to net down debt
Therefore, under this method, we assume that the
observed Equity Beta fully takes into account the
balance sheet leverage (and the associated interest
payments the firm must make)
■
■
The effect of this leverage will lead to a higher
Levered Beta
■
Net Debt is used to establish the Current Debt
Level which is used in unlevering(1) the observed
Equity Beta
Net Debt includes Interest Bearing Debt less Cash
The Net Debt Method implicitly assumes that the
market considers a company’s cash position in
determining the relative movements of a
company’s stock versus the market
For example, If you have two identical companies
with the same amount of debt, the one with a cash
balance should have a lower observed Equity Beta
(even though both companies have the same
underlying unlevered beta)
This is because the market gives the company with
cash “credit” for having lower financial risk than the
one without
90
____________________
(1)
Unlevering Beta neutralises the effect of financial leverage from the observed Equity Beta
Unlevered Beta = (Levered Beta/(1 + ((1 - Tax Rate) * Debt/Equity)). Assumes Beta of debt equals zero
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Unlevered Beta (cont’d)
Additional Issues
Hybrid instruments
Decide if instrument is equity or debt-like
Count as debt if interest is tax-deductible
Operating leases
Include leases as part of debt in the capital structure
Determine market value (or book, if unavailable) and cost of debt (interest)
Minority interest
Determine market value and cost of equity of minority interest
Approximate with book value if no other information available
If the minority interest has the same risk as the company, add minority interest to the value
of equity
91
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Unlevered Beta (cont’d)
Data sources for Betas:
Source
Comment
Bloomberg Adjusted Beta
Barra –
Historical/Local/ Global Predicted Beta
The adjusted Beta is derived by the following formula: adjusted ß = 0.33 + 0.66 x raw (unadjusted) ß
Regression of historical weekly return (2 years) of shares and the corresponding market index
Various assumptions can be customized on screen (duration, index, interval)
Historical Betas typically based on 60 month returns
Forecasted beta derived from Barra risk model, with 13 fundamental/ financial risk factors
Risk factors include attributes such as size, yield, P/E ratio
Risk factors reestimated on a monthly basis to reflect changes in company’s underlying risk structure
Better forecast of market sensitivity as fundamental changes in the company’s operations and
specific events are captured
Difficult to judge outcome of risk model
Merrill Lynch Beta Book
Regression of historical monthly returns (52 weeks) of shares and corresponding returns of the market index
(S&P 500) over a five year period
LBS Beta
Regression of historical monthly returns of shares and corresponding returns of the market index over a five
year period; betas updated quarterly
Bloomberg’s Adjusted beta provides the most transparent and widely used Beta measure
92
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Equity Risk Premium
The higher the risk of an investment, the higher the expected return
Equity Risk Premium (ERP) is differential between the return of the stock market and the
risk free rate
ERP = Return of Market - Risk Free Rate
Return of Market = Dividend Payments + Capital Gains and Losses
93
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Equity Risk Premium (cont’d)
Within the financial community, there is no clear consensus over what number should be
used for the equity risk premium in the calculation of the cost of capital
We recommend the use of an equity risk premium of 6.0% based on
Evidence from historical record of equity returns in the United States and Europe
However, the entire record of market returns is not large enough to measure the ERP
with sufficient statistical precision
A broad range of studies that are consistent with an ERP significantly less than the historical
averages
Recommended Equity Risk Premium (globally): 6%
94
Valuation Training
Cost of Capital
3. Determine Cost of Equity: Riskfree Rate
The riskfree rate is represented by a long term government bond yield (ideally swap rate)
German Federal Government 10-year Bund yield
UK Treasury 10-year Bond yield
The horizon of the risk-free rate must correspond to the horizon of the equity risk
premium
95
Valuation Training
Cost of Capital
4. Calculate WACC: Bringing it All Together
WACC = rd × (1 − t )
D
E
+ (rf + β u ⋅ ERP ) ×
D+E
D+E
Example
Assumptions
Risk-free Rate
Cost of Equity
Cost of Debt
WACC
Risk-free Rate
rf
4.50%
10-year German Government Bond yield
Target Capital Structure
E/D
60% / 40%
Equity Risk Premium
ERP
6.00%
Unlevered Beta
βu
0.60
Average unlevered beta of Comparable
Copmanies
Tax Rate
t
40%
Marginal tax rate
Levered Beta
βlev
0.84
At target capital structure
Levered Cost of Equity (after-tax)
rE
9.54%
Cost of Debt (pre tax)
rD
5.40%
Cost of Debt (after-tax)
rD *(1- t)
3.24%
Weighted Average Cost of Capital
WACC
7.02%
Long term target capital structure
EURIBOR + 50bp (cost of debt for
comparable investment)
After-tax
96
Valuation Training
Cost of Capital
Don’t forget
If the target business or project is in a different country or sector than the bidder, the
appropriate discount rate is that of the target not the bidder
Always use market values of equity (and where deemed appropriate, of debt)
Focus on long term cost of applicable debt securities
Always calculate on an after-tax basis (tax shield of debt)
The discount rate should be a true WACC, not some sort of hurdle rate
Always use the same currency as the cash flows
Always perform sensitivities on target capital structure
WACC sensitivity analysis must not replace FCF scenarios
97
Valuation Training
Cost of Capital
Multi-business WACC
Consider estimating separate WACCs for each business unit and geographic segment
WACC may be substantially different if
Different tax rates
Different capital structures
Different universe of comparable companies
Different business risk
Regulated vs. non-regulated business
Incorporate multi-business concept into DCF
Calculate separate DCFs with separate WACCs for all business units
Calculate weighted-averages of all business unit WACCs for use in one DCF
Division 1
Division 2
Division 3
Division 4
WACC 1
WACC 2
WACC 3
WACC 4
98
Valuation Training
Cost of Capital
Changes in WACC over Time
There may be reasons why WACC could change during the forecast period
– Anticipated changes in capital structure
Initial restrictions on leverage
– Anticipated changes in fundamental business risk
Fundamental change in business strategy (Start-up companies)
Fundamental change in economic, regulatory environment (deregulation)
– Term structure of yield curve is inverted (short term interest higher than long term)
In such cases, apply a different WACC for different time periods in the DCF analysis
99
2.
Discounted Cash Flow Analysis
2.3
Free Cash Flow Projections
Valuation Training
Discounted Cash Flow Analysis
1. Project Unlevered Free Cash Flows
DCF is based on the net present value of unlevered free cash flows
EBITDA
Less: Depreciation and tax deductible amortisation
Equals: EBITA
Less: Taxes (at the marginal tax rate)
Equals: Tax-Effected EBITA
Less: Increase in working capital
Plus (less): Deferred Taxes
Plus: Depreciation and tax deductible amortisation
Less: Capital expenditures
Less: Changes in other assets and liabilities
Equals: Unlevered Free Cash Flows
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Valuation Training
Discounted Cash Flow Analysis
2. Calculate Present Value of Unlevered Free Cash Flows
Present value of cash flow stream
Present Value =
in Excel =
FCF1
+
FCF2
+
FCF3
(1 + r )1 (1 + r )2 (1 + r )3
NPV (r, FCF1 : FCFN )
+ ... +
FCFN
(1 + r )N
Mid-year convention
Assumes that cash flows occur in the middle of the period
Often better approximates the time the cash is actually received
Discount cash flows by a period of one-half year less
Present Value =
in Excel =
FCF1
+
FCF2
+
FCF3
(1 + r )0.5 (1 + r )1.5 (1 + r )2.5
0.5
NPV (r,FCF1 : FCFN ) * (1 + r )
+ ... +
FCFN
(1 + r )N −0.5
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Valuation Training
Discounted Cash Flow Analysis
Free Cash Flow Projections - Methodology
Develop an integrated historic perspective of the company’s performance
Understand the industry sector and competitive position of the company
Analyse last 3-5 years’ financial statements
Focus on key value drivers
Understand sustainability of company’s rate of return
“Top down” better than “bottom up” approach
Develop financial forecasts and analyse relevant scenarios (sensitivity analyses)
Step back and interpret the numbers: do they seem to make sense?
103
Valuation Training
Discounted Cash Flow Analysis
Free Cash Flow Projections - Specific Factors
Length of Forecast Period
Theoretical period until company’s growth equals economy’s growth, and company’s ROC
driven by competition down to level of COC
Up to 10 year period common in practice
Shorter periods sometimes less desirable because of terminal value influence on overall
value
Longer periods suitable
Finite life projects (contracts, agreements)
Long asset lives (pipelines, nuclear plants)
Early negative cash flow
104
Valuation Training
Discounted Cash Flow Analysis
Free Cash Flow Projections - Specific Factors
Associates
Where income from associate(s) is a significant component of profits
Estimate separately the true value of the investment
Add value back to total value of company as part of sum-of-the-parts analysis
Exclude income from associate from FCF
Dividends received from such associate(s) should not be included in FCF
105
Valuation Training
Discounted Cash Flow Analysis
Free Cash Flow Projections - Specific Factors
Cyclicality
Cash flows should reflect
Business cycle of company
Commodity price cycle etc.
In practice cycles hard to forecast...
... therefore, some use mid-point of price cycle after first projection years
Beware of timing differences of FCFs with this approach
Scenario analysis
106
Valuation Training
Discounted Cash Flow Analysis
Free Cash Flow Projections - Uncertainty
How to model risky situations?
Investment in an untested business strategy
Risk of technological failure
Adjust expected cash flows, not discount rate
Use probability weighted scenario analysis
Examples
Multiply NPV with the probability of success
Use real options approach
Decision tree analysis
Calculate probability based on measure of volatility
Multiply NPV with probability of success
107
Valuation Training
Discounted Cash Flow Analysis
Free Cash Flow Projections - Step back from the numbers
“Sanity Check” on the main components of FCF
Compare sales growth assumptions
Underlying market industry dynamics
Long term economic growth (inflation)
Check reasonableness of Gross and EBIT margins
Avoid “hockey sticks”
Pay special attention to Capex requirements
“Please my Lord keep me as I am” analysis
108
2.
Discounted Cash Flow Analysis
2.4
Terminal Value
Valuation Training
Discounted Cash Flow Analysis
Terminal Value
The present value of the free cash flow of the company after the explicit forecast period
Methods of estimation
Perpetuity formula
usually used
Exit multiples
Regulatory asset value
Liquidation value
Break-up value
Replacement cost
used in regulatory models
rarely used
110
Valuation Training
Discounted Cash Flow Analysis
Terminal Value - Perpetuity Formula
Theoretically most correct method
Capitalises FCF after forecast period as a growing perpetuity
Estimated Terminal Value then discounted to present day at company’s cost of capital
Terminal Value =
FCFN ⋅ (1 + g )
(WACC − g )
111
Valuation Training
Discounted Cash Flow Analysis
Terminal Value - Perpetuity Formula
FCF
Normalised to allow sufficient Capex and change in Working Capital to permit projected
growth to occur
Capex often (sometimes always) underestimated when modelling
Rate at which FCF is estimated to keep growing
Normal minimum: g = 0
Normal maximum: assumed rate of nominal GDP/industry growth
Run sensitivities on g
g
112
Valuation Training
Discounted Cash Flow Analysis
Terminal Value - Adjustments
Terminal value year in a DCF reflects the steady-state perpetual cash flows
Terminal Value =
FCFN ⋅ (1 + g )
(WACC − g )
If the free cash flow in year N does not represent a steady state for the future (i.e., a
normalized cash flow), then adjustments must be made
Typically, these adjustments include revising the relationship between revenues, EBIT
and capital spending to correspond with the perpetual growth rate:
Sustainable revenue growth
Sustainable EBIT margin
Sustainable working capital needs
Sustainable capital expenditure and corresponding depreciation
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Valuation Training
Discounted Cash Flow Analysis
Terminal Value – Adjustments to Working Capital
Funding requirements for working capital in the terminal year of a DCF need to reflect
growth of working capital at the perpetual growth rate
Illustrative example
Constant growth at 5%
Change in net working capital in terminal year reflects growth at 5%
Growth
Income Statement
Revenues
Opex
Working Capital Schedule
Working Capital Assets
Working Capital Liabilities
Net Working Capital
1
2
Year
3
5%
5%
5%
4
5
5N
5%
5%
5%
CAGR
100.0
(50.0)
105.0
(52.5)
110.3
(55.1)
115.8
(57.9)
121.6
(60.8)
121.6
(60.8)
5.0%
5.0%
60.0
15.0
45.0
63.0
15.8
47.3
66.2
16.5
49.6
69.5
17.4
52.1
72.9
18.2
54.7
72.9
18.2
54.7
5.0%
5.0%
5.0%
(2.1)
(2.3)
(2.4)
(2.5)
(2.6)
(2.6)
5.0%
(1)
Change in Net Working Capital
(1) For illustrative purposes, working capital assets equal 60% of revenues, working capital liabilities equal 30% of Opex
114
Valuation Training
Discounted Cash Flow Analysis
Terminal Value – Adjustments to Working Capital (cont’d)
Illustrative example
Growth is changing year-on-year
Change in net working capital in terminal year needs to be adjusted (manually) to reflect
perpetual growth at 5%
Growth
Income Statement
Revenues
Opex
Working Capital Schedule
Working Capital Assets
Working Capital Liabilities
Net Working Capital
1
2
Year
3
4
5
5N
5%
5%
8%
4%
3%
5%
CAGR
100.0
(50.0)
105.0
(52.5)
113.4
(56.7)
117.9
(59.0)
121.5
(60.7)
121.5
(60.7)
5.0%
5.0%
60.0
15.0
45.0
63.0
15.8
47.3
68.0
17.0
51.0
70.8
17.7
53.1
72.9
18.2
54.7
72.9
18.2
54.7
5.0%
5.0%
5.0%
(2.1)
(2.3)
(3.8)
(2.0)
(1.6)
(2.6)
(7.2%)
(1)
Change in Net Working Capital
(1) For illustrative purposes, working capital assets equal 60% of revenues, working capital liabilities equal 30% of Opex
115
Valuation Training
Discounted Cash Flow Analysis
Terminal Value – Adjustments: Depreciation to Capex Ratio
Capex requirements in the terminal year of a DCF need to reflect capital needs to grow
business at the perpetual growth rate
Capex often underestimated
In addition, depreciation is typically not reflecting steady state growth, because it
reflects capex fluctuations over the useful life cycle
Therefore, always adjust relationship of depreciation to capex in terminal year to reflect
perpetual growth
Determine the level of capex in the terminal year, which supports perpetual growth of the
business
Adjust depreciation to reflect steady-state depreciation corresponding to perpetual growth
116
Valuation Training
Discounted Cash Flow Analysis
Terminal Value – Adjustments: Depreciation to Capex Ratio (cont’d)
Illustrative example
Constant growth at 5%
Capex and depreciation in terminal year reflect growth at 5%
Growth
1
2
Year
3
4
5
5N
5%
5%
5%
5%
5%
5%
Asset Schedule
Beginning Assets
Depreciation
Capex
Ending Assets
100.0
(10.0)
15.0
105.0
105.0
(10.5)
15.8
110.3
110.3
(11.0)
16.5
115.8
115.8
(11.6)
17.4
121.6
121.6
(12.2)
18.2
127.6
(12.2)
18.2
Capex / Assets
Depreciation-to-Capex
15.0%
66.7%
15.0%
66.7%
15.0%
66.7%
15.0%
66.7%
15.0%
66.7%
15.0%
66.7%
CAGR
5.0%
5.0%
5.0%
5.0%
117
Valuation Training
Discounted Cash Flow Analysis
Terminal Value – Adjustments: Depreciation to Capex Ratio (cont’d)
Illustrative example
Capex growth is changing year-on-year
Capex in terminal year needs to be adjusted (manually) to reflect capital needs at perpetual
growth of 5%
Depreciation needs to be adjusted (manually) to reflect steady state depreciation
corresponding to perpetual growth
Growth
1
2
Year
3
5%
5%
2%
4
5
5N
0%
0%
5%
Asset Schedule
Beginning Assets
Depreciation
Capex
Ending Assets
100.0
(10.0)
15.0
105.0
105.0
(10.5)
15.8
110.3
110.3
(11.0)
16.1
115.3
115.3
(11.5)
16.1
119.8
119.8
(12.0)
16.1
123.9
(12.0)
18.0
Capex / Assets
Depreciation-to-Capex
15.0%
66.7%
15.0%
66.7%
14.6%
68.6%
13.9%
71.8%
13.4%
74.6%
15.0%
66.7%
CAGR
4.6%
4.6%
1.7%
4.2%
118
Valuation Training
Discounted Cash Flow Analysis
Terminal Value – Adjustments: Depreciation to Capex Ratio (cont’d)
100%
Illustrative example
Capex growing at a
constant rate
Useful life of 40 years
The Depreciation to Capex ratio
reaches a constant percentage
only after 40 years
90%
80%
Depreciation/CapEx
70%
60%
50%
40%
30%
20%
10%
0%
0
10
20
30
40
50
Period (years)
CapEx Growth = 0%
CapEx Growth = 2%
CapEx Growth = 4%
CapEx Growth = 1%
CapEx Growth = 3%
CapEx Growth = 5%
119
Valuation Training
Discounted Cash Flow Analysis
Terminal Value – Alternative Method: Value Driver Approach
Instead of the perpetuity formula, growing free cash flow is expressed in terms of its value
drivers
ROIC
Growth
The value driver approach expresses the fact that firms need to reinvest an adequate
amount of net capital expenditures to sustain growth over time
g 

FCFN +1 ⋅ 1 −

ROIC 

Terminal Value =
(WACC − g )
The expression g/ROIC represents the proportion of free cash flows invested in new capital
The relationship of WACC and ROIC determines the potential for value creation
If WACC = ROIC, terminal growth will add no additional value, because the return
associated with growth equals the cost of capital
If WACC < ROIC, terminal growth adds value
If WACC > ROIC, terminal growth destroys additional value
Under the same assumptions, this method leads to the same result as the perpetuity
formula
120
Valuation Training
Discounted Cash Flow Analysis
Terminal Value - Exit Multiples
Exit Multiples capture the continuing value of a business past “terminal point” of analysis
Commonly used method that is intuitive and easy to calculate
Use multiples that produce an aggregate enterprise value
Sales
EBITDA
EBIT
Be realistic on multiples
At time of exit, company assumed to have reached steady state: no dramatic growth
anticipated
Difficulties in using current multiples in predicting future values
Use range of multiples
121
Valuation Training
Discounted Cash Flow Analysis
Terminal Value - Checks
If TV more than 50% of overall value, check assumptions
The shorter the forecast period, the greater the proportion of value from TV
Fast-growth companies may have negative FCF during forecast period, offset by positive
TV
Cross-check the relationship of capex to depreciation in TV
Cross-check TV calculation by linking multiple and perpetuity methods at different
discount rates
Don’t forget to discount back the TV!
The Terminal Value is often a significant proportion of the total value.
Think through the assumptions carefully
122
2.
Discounted Cash Flow Analysis
2.5
Growth and Value
Valuation Training
Growth and Value
Determinants of Growth
Size of the firm
Smaller firms typically grow faster
As firms grow larger, it becomes more difficult to maintain high growth
Current growth
Current growth gives an indication of the
Market dynamics
Market size and opportunities determine growth
Length of high growth period depends on market barriers to entry, competitive
advantages
Growth rates of comparable companies give an indication of average growth in the sector
Regulated industries
Growth in a regulated system may be limited by the regulator
(RPI - X) regulation
124
Valuation Training
Growth and Value
Growth Characteristics
Stable Growth
2-stage Growth
3-Stage Growth
High Growth Firms
Stable Growth Firms
Risk
High risk (beta > 1)
Low risk (beta < 1)
Return on Capital
High ROC
ROC close to WACC
Leverage
Little or no debt
Medium to high leverage (A to BB rating)
Capital Expenditure
Generally high capex
Generally low capex
Dividend Payout
Little or no dividends
High dividends
Cash Flow Characteristics
High growth, high risk
Stable growth
125
Valuation Training
Growth and Value
Where does Value come from?
Illustrative example of a simplified company model
Beginning Assets
100
Useful life of assets
10 y
Opex (% of revenues)
50%
Tax
30%
Base Case:
Growth
Return on investment (ROIC) (1)
10%
WACC
10%
0%
126
(1) Defined as EBIT / Total Assets
Valuation Training
Growth and Value
WACC = ROIC ,
Growth = 0%
At zero growth and with WACC = ROIC, NPV is equal to current value of assets (=100)
Simplified Growth Model (nominal)
WACC
ROIC
Growth
Pre-tax
Post-tax
10%
7%
10%
0%
Year
1
2
3
4
5
6
7
8
9
10
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
0.0%
0.0%
0.0%
Pre-tax Return
Post-tax Return
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
0.0%
0.0%
Cash Flows
Depreciation
Capex
Free Cash Flow
Terminal Value
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
100.0
0.0%
0.0%
0.0%
NPV of FCF
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
P&L
Revenues
Opex
Depreciation
Asset Schedule
Beginning Assets
Depreciation
Capex
Ending Assets
100.0
(10.0)
10.0
100.0
10N
CAGR
0.0%
0.0%
0.0%
0.0%
127
Valuation Training
Growth and Value
WACC = ROIC ,
Growth = 3%
At WACC = ROIC, growth does not impact valuation
Simplified Growth Model (nominal)
WACC
ROIC
Growth
Pre-tax
Post-tax
10%
7%
10%
3%
Year
1
2
3
4
5
6
7
8
9
10
40.0
(20.0)
(10.0)
41.2
(20.6)
(10.3)
42.4
(21.2)
(10.6)
43.7
(21.9)
(10.9)
45.0
(22.5)
(11.3)
46.4
(23.2)
(11.6)
47.8
(23.9)
(11.9)
49.2
(24.6)
(12.3)
50.7
(25.3)
(12.7)
52.2
(26.1)
(13.0)
52.2
(26.1)
(13.0)
3.0%
3.0%
3.0%
Pre-tax Return
Post-tax Return
10.0
7.0
10.3
7.2
10.6
7.4
10.9
7.6
11.3
7.9
11.6
8.1
11.9
8.4
12.3
8.6
12.7
8.9
13.0
9.1
13.0
9.1
3.0%
3.0%
Cash Flows
Depreciation
Capex
Free Cash Flow
Terminal Value
10.0
(13.0)
4.0
10.3
(13.4)
4.1
10.6
(13.8)
4.2
10.9
(14.2)
4.4
11.3
(14.6)
4.5
11.6
(15.1)
4.6
11.9
(15.5)
4.8
12.3
(16.0)
4.9
12.7
(16.5)
5.1
13.0
(17.0)
5.2
13.0
(17.0)
5.2
134.4
3.0%
3.0%
3.0%
NPV of FCF
100.0
103.0
(10.3)
13.4
106.1
106.1
(10.6)
13.8
109.3
109.3
(10.9)
14.2
112.6
112.6
(11.3)
14.6
115.9
115.9
(11.6)
15.1
119.4
119.4
(11.9)
15.5
123.0
123.0
(12.3)
16.0
126.7
126.7
(12.7)
16.5
130.5
130.5
(13.0)
17.0
134.4
P&L
Revenues
Opex
Depreciation
Asset Schedule
Beginning Assets
Depreciation
Capex
Ending Assets
100.0
(10.0)
13.0
103.0
10N
CAGR
3.0%
3.0%
3.0%
3.0%
128
Valuation Training
Growth and Value
WACC < ROIC ,
Growth = 0%
WACC < ROIC increases valuation
Simplified Growth Model (nominal)
Pre-tax
WACC
ROIC
Growth
8%
10%
0%
Year
1
Post-tax
6%
2
3
4
5
6
7
8
9
10
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
0.0%
0.0%
0.0%
Pre-tax Return
Post-tax Return
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
0.0%
0.0%
Cash Flows
Depreciation
Capex
Free Cash Flow
Terminal Value
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
125.0
0.0%
0.0%
0.0%
NPV of FCF
125.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
P&L
Revenues
Opex
Depreciation
Asset Schedule
Beginning Assets
Depreciation
Capex
Ending Assets
100.0
(10.0)
10.0
100.0
10N
CAGR
0.0%
0.0%
0.0%
0.0%
129
Valuation Training
Growth and Value
WACC < ROIC ,
Growth = 3%
WACC < ROIC increases valuation, growth magnifies the effect
Simplified Growth Model (nominal)
Pre-tax
WACC
ROIC
Growth
8%
10%
3%
Year
1
Post-tax
6%
2
3
4
5
6
7
8
9
10
40.0
(20.0)
(10.0)
41.2
(20.6)
(10.3)
42.4
(21.2)
(10.6)
43.7
(21.9)
(10.9)
45.0
(22.5)
(11.3)
46.4
(23.2)
(11.6)
47.8
(23.9)
(11.9)
49.2
(24.6)
(12.3)
50.7
(25.3)
(12.7)
52.2
(26.1)
(13.0)
52.2
(26.1)
(13.0)
3.0%
3.0%
3.0%
Pre-tax Return
Post-tax Return
10.0
7.0
10.3
7.2
10.6
7.4
10.9
7.6
11.3
7.9
11.6
8.1
11.9
8.4
12.3
8.6
12.7
8.9
13.0
9.1
13.0
9.1
3.0%
3.0%
Cash Flows
Depreciation
Capex
Free Cash Flow
Terminal Value
10.0
(13.0)
4.0
10.3
(13.4)
4.1
10.6
(13.8)
4.2
10.9
(14.2)
4.4
11.3
(14.6)
4.5
11.6
(15.1)
4.6
11.9
(15.5)
4.8
12.3
(16.0)
4.9
12.7
(16.5)
5.1
13.0
(17.0)
5.2
13.0
(17.0)
5.2
206.8
3.0%
3.0%
3.0%
NPV of FCF
153.8
103.0
(10.3)
13.4
106.1
106.1
(10.6)
13.8
109.3
109.3
(10.9)
14.2
112.6
112.6
(11.3)
14.6
115.9
115.9
(11.6)
15.1
119.4
119.4
(11.9)
15.5
123.0
123.0
(12.3)
16.0
126.7
126.7
(12.7)
16.5
130.5
130.5
(13.0)
17.0
134.4
P&L
Revenues
Opex
Depreciation
Asset Schedule
Beginning Assets
Depreciation
Capex
Ending Assets
100.0
(10.0)
13.0
103.0
10N
CAGR
3.0%
3.0%
3.0%
3.0%
130
Valuation Training
Growth and Value
WACC > ROIC ,
Growth = 0%
WACC > ROIC decreases valuation
Simplified Growth Model (nominal)
WACC
ROIC
Growth
Pre-tax
Post-tax
12%
8%
10%
0%
Year
1
2
3
4
5
6
7
8
9
10
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
40.0
(20.0)
(10.0)
0.0%
0.0%
0.0%
Pre-tax Return
Post-tax Return
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
10.0
7.0
0.0%
0.0%
Cash Flows
Depreciation
Capex
Free Cash Flow
Terminal Value
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
10.0
(10.0)
7.0
83.3
0.0%
0.0%
0.0%
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
100.0
(10.0)
10.0
100.0
P&L
Revenues
Opex
Depreciation
NPV of FCF
Asset Schedule
Beginning Assets
Depreciation
Capex
Ending Assets
10N
CAGR
83.3
100.0
(10.0)
10.0
100.0
0.0%
0.0%
0.0%
0.0%
131
Valuation Training
Growth and Value
WACC > ROIC ,
Growth = 3%
WACC < ROIC decreases valuation, growth magnifies the effect
Simplified Growth Model (nominal)
WACC
ROIC
Growth
Pre-tax
Post-tax
12%
8%
10%
3%
Year
1
2
3
4
5
6
7
8
9
10
40.0
(20.0)
(10.0)
41.2
(20.6)
(10.3)
42.4
(21.2)
(10.6)
43.7
(21.9)
(10.9)
45.0
(22.5)
(11.3)
46.4
(23.2)
(11.6)
47.8
(23.9)
(11.9)
49.2
(24.6)
(12.3)
50.7
(25.3)
(12.7)
52.2
(26.1)
(13.0)
52.2
(26.1)
(13.0)
3.0%
3.0%
3.0%
Pre-tax Return
Post-tax Return
10.0
7.0
10.3
7.2
10.6
7.4
10.9
7.6
11.3
7.9
11.6
8.1
11.9
8.4
12.3
8.6
12.7
8.9
13.0
9.1
13.0
9.1
3.0%
3.0%
Cash Flows
Depreciation
Capex
Free Cash Flow
Terminal Value
10.0
(13.0)
4.0
10.3
(13.4)
4.1
10.6
(13.8)
4.2
10.9
(14.2)
4.4
11.3
(14.6)
4.5
11.6
(15.1)
4.6
11.9
(15.5)
4.8
12.3
(16.0)
4.9
12.7
(16.5)
5.1
13.0
(17.0)
5.2
13.0
(17.0)
5.2
99.5
3.0%
3.0%
3.0%
103.0
(10.3)
13.4
106.1
106.1
(10.6)
13.8
109.3
109.3
(10.9)
14.2
112.6
112.6
(11.3)
14.6
115.9
115.9
(11.6)
15.1
119.4
119.4
(11.9)
15.5
123.0
123.0
(12.3)
16.0
126.7
126.7
(12.7)
16.5
130.5
130.5
(13.0)
17.0
134.4
P&L
Revenues
Opex
Depreciation
NPV of FCF
Asset Schedule
Beginning Assets
Depreciation
Capex
Ending Assets
10N
CAGR
74.1
100.0
(10.0)
13.0
103.0
3.0%
3.0%
3.0%
3.0%
132
Valuation Training
Growth and Value
NPV Summary
At a growth of 0.0%
83.3
WACC
8%
9%
10%
11%
12%
8%
100
89
80
73
67
9%
113
100
90
82
75
ROIC
10%
125
111
100
91
83
11%
138
122
110
100
92
12%
150
133
120
109
100
8%
100
79
65
55
48
9%
127
100
82
70
61
ROIC
10%
154
121
100
85
74
11%
181
142
118
100
87
12%
208
164
135
115
100
At a growth of 3.0%
74.1
WACC
8%
9%
10%
11%
12%
133
Valuation Training
Growth and Value
Summary
A simple model with constant return and growth illustrates the sources of value in a
business
At zero growth and WACC = ROIC, value of a business is equal to current (fair) value of
assets
WACC < ROIC increases valuation
WACC > ROIC decreases valuation
Growth magnifies the valuation effect
But, growth does not impact valuation if WACC = ROIC
The above simple relationships can be used as a check in every DCF model
134
2.
Discounted Cash Flow Analysis
2.6
Inflation, FX and Cost of Capital
Valuation Training
Inflation, FX and Cost of Capital
DCF Analysis with FX, Inflation Effect
Project cash flows in nominal foreign currency
Use consistent relationship between interest, inflation, FX rates and WACC
Understand foreign accounting principles
Rules for inflation adjustments
FX adjustments
Check for re-valuations
Understand taxation principles
Effective taxation
Tax credits
Use appropriate transfer pricing
136
Valuation Training
Inflation, FX and Cost of Capital
Inflation
Be consistent in handling inflation
Discount nominal cash flows at nominal WACC
(Discount real cash flows at real WACC)
1 + Nominal Interest Rate
1 + Real Interest Rate =
1 + Inflation Rate
Be consistent between interest, inflation, FX rates and WACC
Use interest-rate parity to forecast FX rates
Use inflation assumptions based on interest-rate parity
Use WACC based on interest-rate parity
137
Valuation Training
Inflation, FX and Cost of Capital
Important Note on Risk
Should political and “additional” risk be part of WACC or part of cash flow projections?
No, should not be part of WACC, instead consider reflecting “additional” risk in cash flow
projections
• Cash flow scenarios require careful thought and provide better insights into the problem
– Know the reasons, effects, and timing of the risk
• “Fudge” factors in the WACC distort otherwise careful analysis
– Investors can diversify most of the risks
– Many risks in a country are idiosyncratic, they don’t apply equally to all industries
Incorporating risks in cash flows helps to achieve a much better
understanding of explicit risks and their effects on cash flows
than does a simple “premium” added to WACC
138
Valuation Training
Discounted Cash Flow Analysis
Remember
Value creating actions
Increase in free cash flows
Increase in expected growth rate in earnings
Length of high growth period
Reduced cost of capital
Value neutral actions
Stock dividends
Accounting changes that are cash-neutral
Acquisitions at full value
139
3. Sum-of-the-Parts Valuation
3.
Sum-of-the-Parts Valuation
3.1
Value of the Company
Valuation Training
Sum-of-the-Parts Valuation
Company Valuation
NPV of Market Value of
Total
Free Cash Non-operating Enterprise
Flows
Assets and
Value
Investments
Less
Less
Net Debt Provisions
Equity
Value
Standalone
Net
Synergies
Equity
Value
to Acquiror
142
Valuation Training
Sum-of-the-Parts Valuation
Enterprise and Equity Values
PV of FCF yields Enterprise Value of company before adjustments for non-operating
assets and investments
Non-operating assets include
Discontinued operations
Investments in unconsolidated/unrelated subsidiaries
Unrealised capital gains in investment portfolio
Provisions include
Extraordinary items e.g. restructuring provisions
Pension provisions minus plan assets (net liabilities)
Environmental provisions, litigation expenses and other contingent liabilities likely to
materialise
Always check to avoid double-counting:
Is the item included in NPV of operating cash flows?
OR: Is the item included in non-operating assets or provisions?
143
Valuation Training
Sum-of-the-Parts Valuation
Enterprise and Equity Values
Value of non-operating assets should be estimated by
Their own cash flows and discount rates
Reference to market values e.g. real estate, investment trusts
Independent appraisal e.g. pension fund, environmental liability
Addition/subtraction of non-operating items will give a total Enterprise Value for the
company i.e. overall value of claims on company from all holders of its securities
144
Valuation Training
Sum-of-the-Parts Valuation
Enterprise and Equity Values
Enterprise Value (adjusted for non-operational items)
minus Short-term debt
minus Long term debt
minus Capital leases
minus Pension and other provisions
minus Minority interests
minus Other non-working capital interest bearing liabilities
minus Preference shares
minus Options, warrants and convertibles (or treat on a fully diluted basis)
plus Surplus cash and equivalents and liquid short-term investments
= Equity Value
145
Valuation Training
Sum-of-the-Parts Valuation
Company Valuation
Value creating actions
Increase in free cash flows
Increase in expected growth rate in earnings
Length of high growth period
Reduced cost of capital
Acquisitions at less than full value
Value neutral actions
Stock dividends
Accounting changes that are cash-neutral
Acquisitions at fair value
146
3.
Sum-of-the-Parts Analysis
3.2
Synergies
Valuation Training
Sum-of-the-Parts Valuation
Synergies
Synergies are one of the main reasons for justifying acquisitions ...
… but over-estimation of synergies is a major reason for under-performing acquisitions
Synergies should be
Separately and clearly identified
Justified very specifically
Include investments and costs to achieve synergies
Understand management’s synergy projections
What is the source of the synergies
How reliable are synergy assumptions
What are the implementation plans
Sensitivities
148
Valuation Training
Sum-of-the-Parts Valuation
Synergies Sources
Volume synergies
Enlarged customer base
Use of overcapacity
Critical size
Cross-selling
…
Cost synergies
Reduced overhead costs (headquarters, controlling, treasury, IT, customer services)
Reduced purchasing costs (energy, raw materials)
…
149
Valuation Training
Sum-of-the-Parts Valuation
Synergies Sources (cont’d)
Investment synergies
Reduced capex needs through shared plants
Insurance needs
Financial synergies
Enhanced access to capital and favorable financing terms (“lower WACC”)
Tax efficiency
Hedging of cash flows
Other synergies
Regulatory reviews
Working capital efficiency improvements
150
Valuation Training
Sum-of-the-Parts Valuation
Modelling Synergies
Use DCF or relative ratios to determine synergies
Size and duration of synergies
Analyze ratios (% cost savings; % of sales)
Perform sensitivities
Include costs and investments for achieving synergies
Transaction costs (always treat separately)
Restructuring costs, severance pay
Plant shutdown
Additional capex requirements
Include tax effects
Timing of synergies
Upfront investment needs
Phase-in of benefits
Possible delays
151
3.
Sum-of-the-Parts Analysis
3.3
Risks
Valuation Training
Sum-of-the-Parts Valuation
Risks
Risks are different from sensitivity scenarios
Events that change the market environment
Events with lasting effect on business operations
Events that change the company does business
Risks should be
Separately and clearly identified
Specific to the valuation target (generic risks should not be part of valuation)
Risks are negative, chances are positive
Understanding risks
What is the source of the risk?
How likely are the risks?
What are mitigating factors?
153
Valuation Training
Sum-of-the-Parts Valuation
Risks (cont’d)
Evaluating risks
Estimate effects on value (magnitude)
Estimate probability of occurring
Calculate the probability-weighted average effect on value
How reliable are estimates of the effects and probabilities?
A useful analogy to evaluating risks is to ask:
What would it cost to insure the risk?
Business Value including Risk Assessment =
NPVBaseCase + ∆NPVRisk 1 ⋅ Probability Risk 1 + ∆NPVRisk 2 ⋅ Probability Risk 2 + ...
154
Valuation Training
Sum-of-the-Parts Valuation
Examples of Risks
Market risks
External risks
Technological failure, obsolescence
Uninsured accidents, catastrophic events
Legal/litigation risks
Supply risks
Loss/gain of customer groups
Drop/jump in prices
Increase/decrease in competition
Change in regulations
Paradigm shift in the market
Drop/jump in purchasing costs
Supply disruptions
Financial risks
Hidden assets/liabilities
Financial distress, risk of bankruptcy
FX
155
3.
Sum-of-the-Parts Valuation
3.4
Controlling and Minority
Investments
Valuation Training
Sum-of-the-Parts Valuation
Valuing Control
Achieving control over a company provides additional value to the acquiror
Control premium
Value of the control premium in a valuation is inherent in the assumptions
Business projections
Synergies
Value of gaining control
Changes in the way the company is managed and run
Benefits and perquisites of being in control (decision making)
Replacement of management, key personnel
Implementation and extraction of synergies
Quality of business
A company that is well managed and well run provides less increase in value from gaining
control of the company
A badly managed company might provide more opportunities for value creation
157
Valuation Training
Sum-of-the-Parts Valuation
Key Ownership Thresholds
Parent Ownership of Subsidiary
50 - 100%
Greater than 80%
50%
20 - 49%
Financial Accounting Methods (IAS / US GAAP)
Consolidation
Consolidate for tax and book purposes (US GAAP)
Proportionate consolidation
Equity method accounting in most cases
Pro rata share of earnings reporting on one line of the income statement
Under 20%
Typically cost accounting
Only dividends received included in income
158
Valuation Training
Sum-of-the-Parts Valuation
Accounting for Investments
Equity method
Investment is recorded in the balance sheet as the share of net assets plus un-amortised
goodwill
– US GAAP: Share of net assets plus unimpaired goodwill
Line item in P&L (usually between operating profit and profit before tax)
– Income from associates = Share of profit after tax less goodwill amortisation
Cost method
Cost of the investment is recorded in the balance sheet under “Investments”
Dividend income is included in P&L as and when received
A write down of the asset value may occur if necessary
Proportionate consolidation
Used for joint ventures in some countries
Each line item is incorporated into group accounts at the ownership percentage
Goodwill is recorded in the balance sheet and amortised through the P&L
159
Valuation Training
Sum-of-the-Parts Valuation
Minority Interests
Wholly Owned
Majority Owned
Majority and Minority
Owned
HoldCo
HoldCo
HoldCo
100%
Sub A
100%
100%
Sub B
Sub A
51%
Sub B
All lines for both Sub A
and Sub B are consolidated
No minority interest
All multiples meaningful
However, consolidated
results include only 51% of
Sub B’s earnings
Only earnings multiples
are meaningful, therefore,
unless:
All lines for both Sub A
and Sub B are consolidated
100%
Market/book value of
minorities is added to
Enterprise Value
Sub A
49%
Assoc B
Only Sub A is consolidated
49% of Assoc B’s PBT and
tax charge (only) will be
included in consolidated
results
Ensure Assoc B’s
contribution is included in
EBITDA, EBIT for
calculation purposes
Turnover multiples are not
meaningful
160
3.
Sum-of-the-Parts Valuation
3.5
Pro Forma Adjustment
for Recent Events
Valuation Training
Sum-of-the-Parts Valuation
Recent Events
Events may not yet be reflected in a valuation if they occurred after the last financial
information of a target company was published
Acquisitions and disposals
Investments, large capital expenditures
Restructuring
Write-up/down of assets
Changes in liquidity (net debt)
What is the effect of these changes on valuation?
Value enhancing: gains over fair value
Value neutral: at fair value
Value reducing: loss over fair value
Note: dividend payout between last reported net debt and the date of valuation is not a
value-neutral effect, if these dividends go to the seller instead of the acquiror
Events are value-neutral if they occur at fair value
162
Valuation Training
Sum-of-the-Parts Valuation
Case Study: Recent Events
Your company has agreed to buy a target company for EUR 2.0 billion. Between agreement
and closing, the target company has made the following announcement:
The target company agrees to buy a company for EUR 100 million
The target company agrees to sell two businesses to a competitor for E50m
The target company announces a restructuring program with investments of EUR 40 million
and expected annual benefits of EUR 10 million over the next five years
The target company announces that its capex has been higher by EUR 50 million due to an
exceptional investment
What is the impact on the valuation of the target company?
163
3.
Sum-of-the-Parts Valuation
3.6
Financial and Other Liabilities
Valuation Training
Sum-of-the-Parts Valuation
Financial and Other Liabilities
All financial and other cash-relevant liabilities and provisions have to be reflected in a
valuation
Equity value = Enterprise value - Net Debt (including all cash-relevant liabilities and
provisions)
Use market value whenever possible
Use special methods to determine NPV of liability where market value is not available (e.g.
operating leases)
Avoid double-counting
Only include items that are not yet reflected in the operating cash flows of the valuation
Financial investment in subsidiaries
Only include cash-relevant liabilities in a valuation
Unfunded pension liabilities
Nuclear liabilities
Environmental liabilities
165
Valuation Training
Sum-of-the-Parts Valuation
Financial and Other Liabilities (cont’d)
Do not include non-cash provisions
Deferred taxes
Do not include liabilities that are part of the going concern of the business or that are
typically balanced items, or already included in the cash flows
Working capital
Tax assets and liabilities
Funded pension plan (if no over/underfunding)
166
Valuation Training
Sum-of-the-Parts Valuation
Financial and Other Liabilities
Cash-relevant financial liabilities
Short term debt
Long term debt
Hybrid financing instruments
Leases
Pension liabilities
Environmental liabilities
Contingent liabilities
Contractual obligations
Cash-relevant financial assets
Cash & equivalent
Marketable securities
Long term financial investments
Real estate and land (only if non-operating, i.e. monetizable)
167
Valuation Training
Sum-of-the-Parts Valuation
Leases
Leases are financial obligations for future payments and can therefore be treated like debt
There are two classes of leases
Operating leases are short term, cancelable contracts
– Do not appear on the balance sheet (off-balance sheet financing)
– Lease payments are included with other operating costs
Capital leases are long term leases over most of the estimated economic life of the asset
– Accounted for as if the lessee had purchased the asset and borrowed the funds
– Present value of lease payments is on both assets and liabilities side of balance sheet
168
Valuation Training
Sum-of-the-Parts Valuation
Leases (cont’d)
Operating Leases
Lease Payment
Lessee (User)
Lessor (Owner)
Right to use Asset
Rent expense on
operating leases
PV of future
payments on
operating leases
Capital Leases
Lease Payment
Lessee (User)
Lessor (Owner)
Right to use Asset
Balance sheet
liability of capital
lease
Book value of
capital lease asset
169
Valuation Training
Sum-of-the-Parts Valuation
Leases (cont’d)
Accounting for leases in valuation
Look for leases on balance sheet and in footnotes
Capital leases
– Treat balance sheet liability as debt
Operating leases
– Look for footnote describing present value of operating leases, or
– Estimate market value of lease, i.e. the net present value of future lease payments
Make sure leases are not double-counted as part of free cash flows and as part of net debt
170
Valuation Training
Sum-of-the-Parts Valuation
Off-balance Sheet Liabilities
Off-balance sheet financing provides company with an opportunity to
Releasing value from capital generating assets and reallocating resources within existing or
new businesses
Strengthening companies’ balance sheet by applying off-balance sheet treatment to such
financing
Transferring or re-allocating structure risks to parties willing or best able to support or
manage these risks
Inappropriate and undisclosed off-balance sheet financing can also lead to corporate
problems
Enron collapse
Abengoa?
The impact and value of off-balance sheet liabilities on valuation has to be analysed on a
case-by-case basis
171
Valuation Training
Sum-of-the-Parts Valuation
Off-balance Sheet Liabilities: Example Equity Securitisation
ParentCo
Proceed
Dividend
NewCo
(SPV)
Using untapped debt capacity at the
operating asset level
Monetise tied-up equity
Free up resources that can be re-allocated to
other ventures
Debt
Service
Notes
Proceed
Participation
Equity securitisation consists in monetising
future dividend streams generated by
participation in single or portfolio of projects
Dividend
OpCo 1
OpCo 2
OpCo 3
Fundamentally, all equity securitisation have
common features
The investment are already funded through a
mix of (structured) debt and equity and are
substantially generating cash flows
The shareholding and dividend streams are
re-assigned to a newly created SPV
Debt investors rely solely on the dividend
stream of the investments to repay debt
172
Appendix
A.
Glossary of Terms
Valuation Training
Glossary of Terms
Beta
Reflects the correlation of a stock with the overall market
Used to determine the cost of capital according to CAPM
CAPM
Capital Asset Pricing Model
DCF
Discounted Cash Flow Analysis
EBIT
Earnings before Interest and Taxes
EBITDA
Earnings before Interest, Taxes, Depreciation and Amortisation
Enterprise Value
Reflects the overall value of an enterprise to its stakeholders (shareholders and bondholders)
Enterprise Value = Equity Value + Net Debt
ERP
Equity Risk Premium
EPS
Earnings per Share
Equity Value
Equity Value = Enterprise Value - Net Debt
Value of a company to its shareholders
FCF
Free Cash Flows
Cash Flows before Financing (before serving debt and equity)
174
Valuation Training
Glossary of Terms
FFO
Funds from Operations (or Cash Flow from Operations)
NAV
Net Asset Value
NPV
Net Present Value
PE
Price-Earnings Ratio
PE = Share Price / Earnings per Share
PEG
PE Growth Ratio
PEG = PE / Earnings growth
RAB
Regulatory Asset Base
TV
Terminal Value in Discounted Cash Flow analysis
WACC
Weighted Average Cost of Capital
Discount rate used in discounted cash flow analysis
175
Madrid, 5 de Octubre de 2015
176
Sell-Side Transactions
177
Introduction
A seller has three means of effecting a disposal:
Sale
Theoretically, and generally, the value maximising route due to the synergies that a
trade buyer may achieve
In recent years, financial buyers have been prepared to pay high prices reflecting
their financing advantages (increase in leverage) and, often, part of the synergy
benefits that would arise from combining the business with a similar business in
their portfolio
IPO
Usually chosen due to the absence of premium paying buyers due, for example, to:
Scale of the business
Anti-trust issues
Financial predicament of buyers (i.e. the industry)
Spin-off
Generally used when the seller has no use for the proceeds.
Breakdown of conglomerates. May anticipate future sale.
Potential sale by shareholders in the future (i.e. stock sales), after lock up period
178
Objectives, Means and Requirements
Objectives
Maximise disposal value
Minimise impact of non-disposal (failure)
Disclosure of commercially sensitive information to competitors
Impact on employee morale
Means
Competitive sale process
Competition may or may not be real: the perception is key
“Dual track”: running a sale and IPO process in parallel
Requirements
Attractive asset; and/or
Credible business strategy (e.g. turnaround story)
At least one (keen) buyer
179
Options
Broad Auction
Description
Pros
Cons
Accelerated Auction
Negotiated Sale
Two-stage process with
broad universe of strategic
and financial buyers
Accelerated one-stage
auction with small group of
strategic buyers
One-to-one negotiation with
preferred buyer
Broad solicitation ensures
value maximisation if no
"obvious" buyers
Competition between key
buyers ensures value
maximisation
May extract a premium
price for exclusivity
Specified timetable
Speed/specified timetable
Maximum confidentiality
Limited disruption to
business
High degree of
confidentiality
Delay/price erosion if
interest from potential
buyers over-estimated
May not achieve full value
given lack of competitive
pressure
Difficult to control timetable
Slow timetable
Potentially disruptive to
business/management
Difficult to maintain
confidentiality
THE TWO-STAGE PROCESS IS USUALLY THE MOST APPROPRIATE
180
Overview of Typical Two-Stage Process
Strategic
Assessment
Valuation
Identification of
potential buyers
Determine strategy to
maximise shareholder
value
Preparation
“Round 1”
“Round 2”
Information
memorandum
Confirm interest of
potential buyers
Management
presentation
Data room
Sign confidentiality
agreements
Data room visits
Legal documentation
Contact potential
buyers re: interest
Circulate information
memorandum
Circulate contract
documentation
Final
Negotiations
Finalise and sign sale
and purchase
agreement
Finalise and sign other
agreements
Announcement
and
Completion
Announce transaction
Regulatory filing
Shareholder approval
(if applicable)
Completion
Generate definitive
Generate indicative
proposals (“second
proposals (“first round
round bids”)
bids”)
Selection of preferred
buyer(s)
181
The Lawyers’ Perspective
Seller’s Objective:
Minimise legal
commitments given
Data Room
Sale & Purchase Agreement
Warranties
Buyer’s Objective:
Legal
Documentation
Maximise legal
protection received
Seller discloses information
Buyer
Confirms information provided by seller
Discovers new information (which may be material)
Seller asked to confirm
Conventional matters
True and fair accounts
No other material liabilities
Good title to assets
No abnormal/onerous contracts
Information disclosed is materially accurate (except as disclosed in Disclosure Letter)
Confirmation that disclosures are accurate
Seller discloses exceptions to the warranties
[Blanket] disclosure of Data Room (highly contentious)
Indemnities
Seller commits to meet future claims arising out of specific (identified) matters
Covenants
Seller/buyer commits to some future undertaking, for example
File regulatory submission
Manage business in normal course
Obtain third party consents
Disclosure Letter
182
Stage I - Strategic Assessment
Objective
Mechanics
Identify the strategy most likely to maximise value
Review the business:
Internal presentation/discussion
Review of business plan
Valuation:
To seller
To potential buyers (including potential synergies and/or LBO capital structure)
Identification of potentially interested parties
Assessment of likely level and nature of potential interest
Timing
Weeks
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Stage I
Stage II
Stage III
Stage IV
Stage V
Stage VI
183
Stage II - Preparation
Overview
Ensure that the data required for the process is:
Objective
Sufficient in scope for potential buyers to make meaningful proposals
Clear in the form in which it is presented
Mechanics
Prepare documentation
Set up data rooms
Collate and copy information
Create comprehensive index
Timing
Weeks
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Stage I
Stage II
Stage III
Stage IV
Stage V
Stage VI
184
Stage II - Preparation
Summary of Documentation
Document
Objectives/Contents
Prepared by
Confidentiality Agreement
Maintain confidentiality of process; standstill; no
poaching
Round 1 Letter
Sets out how Round 1 will be run and the
form/content of indicative proposal required.
Accompanies Information Memorandum
Information Memorandum
Basis for submitting meaningful proposals
Bank/Seller
Round 2 Letter
Sets out how Round 2 will be run and the
form/contents of final proposal required
Bank
Data Room Rules
How to arrange a data room visit; what you
can/can’t copy
Data Room Contents
Full index of the contents of the data room
Lawyers
Bank
Bank/Lawyers
Lawyers
185
Stage II - Preparation
Summary of Documentation (cont’d)
Document
Objectives/Contents
Prepared by
Management Presentation
Brings the information memorandum to life; puts
management in the spotlight
Bank/Seller
Vendor’s Due Diligence Report
(“Long Form” Report)
Business report prepared by seller’s accountants
for assignment to successful purchaser
Accountants
Sale and Purchase Agreement
The terms of the sale
Lawyers
Disclosure Letter
Seller discloses exceptions to the warranties
Lawyers
[Shareholders’ Agreement
Sets out the relationship between the
shareholders
Lawyers]
[Subscription Agreement
Sets out the terms for the issue of new capital by
the business
Lawyers]
186
Stage II - Preparation
Confidentiality Agreement
Objective
Process
Establish legal obligations regarding the maintenance of confidentiality
Lawyers produce draft
Seller and lawyers finalise
Bank/seller sends out to potential purchasers
Signed
Covering letter requesting sign and return
Contents
Potential purchasers mark up
Bank/lawyers agree response with seller/lawyers
Finalise and sign
See next page for discussion
CONFIDENTIALITY AGREEMENTS ARE DIFFICULT TO POLICE
FULLY IN PRACTICE
187
Stage II - Preparation
Confidentiality Agreement (cont’d)
Contents
Typical Negotiation Issues
Definition of confidential information
Standard wording
Restrictions on to whom information may be disclosed
Require party to maintain log of those who receive information
Use of information
Any restriction on use requires careful consideration to avoid
constituting a standstill
Obligations to destroy/return information
Standstill
No poaching
Exceptions
Require a certificate of compliance
Certain advisers require one copy of any internally produced
analysis to be kept as back-up to any advice given
Destruction
of electronically stored info may not be practically
possible
Carve out for third party offer
Time limitation
Level down to which “no poaching” applies
Time limitation
Standard wording
No obligations to proceed with discussions
Standard wording
Term
Governing law
Purchasers may attempt to limit to e.g. 12 months/2 years
Seller requires no term, i.e. shelf life of confidentiality
Standard wording
Rights and remedies
Standard wording
188
Stage II - Preparation
Information Memorandum
Objectives
Contents
Provide sufficient information (descriptive and quantitative) to enable potential buyers to
submit meaningful non-binding proposals (first round bids)
Maximise the attractions of the business
Disclaimer
Executive summary
Key selling points
Business overview
Organisation, management and employees
Legal and regulatory
Future prospects
Upside potential
Financial information
Appendices:
Product catalogues
Site layout plans, etc.
Detailed information
189
Stage II - Preparation
Data Room
Objective
Contents
Organisation
Minimise warranties provided by seller through fullest possible disclosure of
documentation
General
Corporate
Subsidiaries
Transactions at undervalue
Licences and consents
Litigation
Environmental
Consequences of proposed transaction
Accounts and financial
VDR vs. “traditional” Data Room
Data compiled/organised by seller/lawyers
At least two rooms
Usually provided and staffed by the lawyers/accountants
Identical documentation in each
Standard process (i.e. forms) for photocopy and additional information requests, as well as
register of attendance
Commercial
Taxation
Properties
Employees
Pensions
Insurance
Intellectual property
190
Stage II - Preparation
Sale and Purchase Agreement
Objective
Contents
Mechanics
Set out clearly the terms and conditions of the transaction
Minimise the potential for misunderstanding
Provide an agreed mechanism for settling subsequent events
See overleaf (TBP)
The first draft is usually provided by the seller’s lawyers (in auction processes)
The buyer’s lawyers review the first draft
A meeting is typically then held to discuss/agree differences of opinion regarding
matters of principle
The draft is revised and recirculated
Markups of the draft circulate until the document is agreed
It is then signed by the principals
This is often the trigger point for disclosure by publicly quoted companies
191
Stage II - Preparation
Sale and Purchase Agreement
Contents
Interpretation
Conditions
Sale and purchase of shares
Consideration
Pre-completion conduct
Termination rights
Guarantees and indemnities
Pensions
Name and use of marks
Reorganisation
Transitional services
General
Confidential information
Governing law and jurisdiction
Completion net asset adjustment
Completion
Warranties
Limitation of claims
Comment
Standard wording
Anti-trust approvals
Listing of any consideration shares
Shareholder approval
Mechanical
May include deferred consideration
Earn-out
Completion accounts
Escrow security for warranty claims
Carry on business in ordinary course
Don’t strip out value
Breach of warranty discovered prior to completion
Completion accounts to determine price adjustment
Transfer of shares/assets, payment of consideration, satisfaction of inter-company accounts
See previous discussion
Overall liability cap
Consideration received
Different caps for different aspects
De minimis threshold per claim
Threshold for initial claim
Payment of excess or aggregate amount
Set-offs, for example:
Insurance claims (compulsory to claim)
Tax reclaims
No liability if results from purchaser’s actions
See previous discussion
Agree valuation and apportionment mechanics in detail
Governs right of use and records any transfer/licences
Any agreed steps required to effect transaction
Nature of services, term and remuneration
Other matters
Refreshes confidentiality agreement
Seller’s domicile
192
Stage II - Preparation
Sale and Purchase Agreement
Schedules
Comment
The subject(s) of the transaction
Factual determination of the entities/assets being sold
Definitions
Standard wording
Warranties
See previous discussion
Completion balance sheet
Accountants input key
Warranties
See previous discussion
Details of properties
Factual details
Pension arrangements
See previous discussion
Transitional services
See previous discussion
Tax covenant and warranties
Risk of secondary tax liabilities remains with seller
193
Stage III - Round 1
Summary
Objectives
Mechanics
Timing
Determine bona fide interest of potential buyers
Elicit meaningful proposals from such parties
Ensure process is seen as a “level playing field” for all parties
Select preferred buyers for further consideration
Contact potential buyers
Negotiation of confidentiality agreements
Distribution of Round 1 letter accompanied by information memorandum
Interface with interested parties, including responding to requests for further information
Comparison, clarification and evaluation of proposals
Selection of candidate(s) for Round 2
Weeks
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Stage I & II
Stage III
Stage IV
Stage V
Stage VI
THE KEY CHALLENGE IS TO KEEP POTENTIAL BUYERS TO THE TIMETABLE
194
Stage IV - Round 2
Summary
Objectives
Mechanics
Elicit negotiable proposals from preferred buyers
Select chosen buyer(s) for final negotiation:
Price
Conditions (contract mark-up)
Timing
Round 2 letter setting out procedures for arriving at final offers
Distribution of sale and purchase agreement and other legal agreements
Data room management
Respond to requests for further information
Management presentations
Site visits
Comparison, clarification and evaluation of Round 2 proposal
Preliminary assessment of any non-cash consideration proposed
Selection of chosen preferred bidder(s)
Timing
Weeks
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Stage III
Stage IV
Stage V
Stage VI
MAINTAINING MOMENTUM AND, PARTICULARLY, THE IMPRESSION OF
A COMPETITIVE PROCESS IS KEY
195
Stage V - Final Negotiations
Summary
Objective
Mechanics
Timing
Complete transaction subject to third party approvals (Stage VI)
[Final due diligence on commercially sensitive information]
Negotiation of documentation:
Sale and purchase agreement
Disclosure letter
Tax indemnity
[Shareholders’ agreement]
[Subscription agreement]
Weeks
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Stage IV
Stage V
Stage VI
FINAL NEGOTIATIONS MUST BE COMPLETED AS SOON AS POSSIBLE - SELLER’S
NEGOTIATING POSITION VIS-À-VIS OTHER BUYERS WEAKENS RAPIDLY
196
Stage VI - Announcement and Closing
Objective
Requirements
Mechanics
Timing
Complete transaction
Obtain regulatory/other clearances as necessary
[Obtain shareholders’ approval for transaction]
File regulatory/other submissions
Preparation and release of:
Formal announcement
[Presentation to analysts/press]
[Circular to shareholders]
[EGM results announcement]
Weeks
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Stage V
Stage VI
MINIMISE THE RISKS OF NON-COMPLETION
197
EL PROCESO DE INVERSION Y DESINVERSION EN OPERACIONES DE PRIVATE EQUITY
Madrid, 5 de octubre de 2015
198
Aspectos Preliminares
Principales Acuerdos en Operaciones de Private Equity
Aspectos Relevantes en la Negociación de la Inversión
Valoración de la Inversión en Cartera – Parámetros Generales
Estrategias de Salida
El Proceso de Desinversión – Mecanismos y Estrategias
199
Agenda
Aspectos Preliminares
Principales Acuerdos en Operaciones de Private Equity
Aspectos Relevantes en la Negociación de la Inversión
Valoración de la Inversión en Cartera – Parámetros Generales
Estrategias de Salida
El Proceso de Desinversión – Mecanismos y Estrategias
200
Aspectos preliminares de una operación – Principales características de
una compañía target
Fases de una inversión:
SEMILLA – Aportación de recursos en una fase anterior al inicio de las operaciones de la
compañía
ARRANQUE (“Start-up”) – Financiación inicial que abarca desde la primera puesta en
marcha del negocio hasta el punto de equilibrio (i.e. los ingresos cubren los costes
operativos)
EXPANSIÓN – Financiación del crecimiento de una empresa que ya genera beneficios
ADQUISICIONES APALANCADAS (“Leveraged Buy Out” o “LBO”) – Adquisición de
empresas mediante su apalancamiento financiero y contribución adicional de capital por
parte del inversor (LBO, MBO, MBI, etc.)
Si bien parte de la presente exposición resulta aplicable a los 4 supuestos anteriormente
indicados, la misma se centrará en la adquisición de compañías maduras mediante operaciones
de LBO
Generación de Caja
(+)
LBO
(-)
201
Vida de una empresa
Aspectos preliminares de una operación – Principales características de
una compañía target
A la hora de considerar una compañía como
objetivo para un LBO, deben considerarse
de manera principal los siguientes factores:
1.
2.
Factores Operativos:
a.
Posición de
mercado
liderazgo
en
b.
Equipo directivo sólido y con un
buen track record
c.
Consideraciones de la industria
(fragmentación, capacidad de
crecimiento, plataforma para
futuras adquisiciones, etc.)
d.
Instalaciones / Patrimonio
inmobiliario
e.
Resistencia a los ciclos
Deuda
f.
Existencia de áreas palpables de
mejora (ahorros, sinergias, etc.)
Capital
Características financieras
a.
Precio
b.
Capacidad de generación de
caja, y por ende de
apalancamiento
c.
Cash Flows estables
d.
Bajas necesidades de inversión
(CAPEX) y apalancamiento
operativo (Circulante)
e.
Visibilidad en la salida
el
Cash Flow – Inversión en entidad generadora de
caja
Salida
Operación
Estructura – Utilización de caja para amortizar
deuda
Valoración – Generación de valor y salida
Mult. Salida
X
X
X
Valor
FFPP
Entrada
Purchase
MúltIplo
Compra
X
X
X
25%
TIR
Valor
FFPP
Salida
Exit
202
Aspectos preliminares de una operación – Generación de valor en la
compra
Creación de Valor por parte del Inversor Financiero
Valor
La creación de valor para
el inversor se genera por:
1. Crecimiento en
ingresos y
rentabilidad
3. Desapalancamiento
4. Expansión de
múltiplo entre la
entrada y la salida
Apalancamiento Incicial 66%/33%
2. Gestión de las
inversiones (CAPEX)
y fondo de maniobra
Valor de la Inversión
Tiempo
203
Aspectos preliminares de una operación – El problema de la asistencia
financiera
Artículo 81 LSA. Asistencia financiera para la adquisición de acciones propias.
“La sociedad no podrá anticipar fondos, conceder préstamos, prestar garantías ni facilitar ningún tipo de
asistencia financiera para la adquisición de sus acciones o de acciones de su sociedad dominante por
un tercero.” …
Artículo 150 LSC. Asistencia financiera para la adquisición de acciones propias y de participaciones o
acciones de la sociedad dominante.
1.
La sociedad anónima no podrá anticipar fondos, conceder préstamos, prestar garantías ni facilitar
ningún tipo de asistencia financiera para la adquisición de sus acciones o de participaciones o
acciones de su sociedad dominante por un tercero.
La prohibición de la asistencia financiera en el Ordenamiento español dificulta a priori las operaciones
de LBO, si bien existen diversas estructuras habitualmente utilizadas para circunvalar dicha
prohibición
Pronunciamientos recientes: Sección 28ª de la Audiencia Provincial de Madrid: Interpretación
restrictiva del artículo 81 de la LSA. “… Esta situación tampoco aparece comprendida en la prohibición
del Artículo 81 del TRLSA, precepto que debe ser interpretado restrictivamente y que requiere que se
preste específicamente para la adquisición de acciones, como motivo determinante de la operación. Si
la finalidad financiera no existe o no es esencial, y prevalece otra, ya no puede afirmarse que se
incurra en tal prohibición…”
Estructuras habitualmente empleada:
1.
2.
Vehículo constituido por el comprador adquiere la compañía objetivo. La deuda permanece en el
vehículo que utiliza los dividendos de la entidad adquirida para repagar intereses y amortizar el
capital
a.
Distribución de reservas / amortización de capital / prima de emisión
b.
Consolidación fiscal
c.
Deducibilidad fiscal del fondo de comercio
Posterior fusión del vehículo con la compañía adquirida
a.
Mecanismos (operativos y financieros) para evitar la impugnación de la fusión
204
Aspectos preliminares de una operación – Principales fases y
características de un proceso de adquisición
Dependiendo del tipo de operación, las fases de un proceso pueden variar, si bien todas
las transacciones siguen un esquema similar:
1. Identificación de la compañía objetivo
2. Contactos preliminares
3. Due diligence inicial
4. Presentación de una propuesta inicial / Firma de un Acuerdo de Intenciones
5. Due
Diligence
adicional
medioambiente, etc.)
(asesores,
auditores,
abogados,
comercial,
6. Negociaciones con accionistas / equipo directivo
7. Preparación de la financiación de la operación
8. Acuerdo, firma y cierre de la transacción
205
9. El día después – Plan Estratégico
Aspectos preliminares de una operación – Los Consorcios de Fondos
Cada vez se observa de manera más habitual que dos o más fondos acudan conjuntamente
a procesos de compra, o analicen de forma combinada oportunidades de adquisición
Permiten a los fondos abarcar su espectro de cobertura y llegar a operaciones más
grandes; mega deals
Permiten asimismo compartir la experiencia, los ángulos y conocimientos de los
diversos participantes
Reduce el número de competidores
Diversifican el riesgo
No obstante lo anterior:
Ralentizan la gestión y disminuyen la capacidad de maniobra (movimiento al
ritmo del más lento de los socios)
En operaciones de tamaño mediano resulta más complicado
En los casos de minorías, la falta de control implica una hipótesis de precio más
bajo (en la salida), generalmente un apalancamiento menor, y por tanto un
impacto negativo en la valoración ofrecida al vendedor
Ejemplos relevantes en España: Amadeus (Cinven – BC Partners), Itevelesa (Apax –
Vista Capital), Holmes Place (Mercapital – Dinamia), Iberostar (Carlyle – Vista
Capital), Cortefiel (CVC-Permira-PAI), etc.
206
El Proceso de Adquisición – La financiación de la operación
La financiación de la operación se lleva a cabo mediante el empleo de deuda financiera y
capital del fondo adquirente
Fuentes tradicionales de capital para operaciones lideradas por fondos de capital riesgo
Componentes del capital
Deuda Senior
• A plazo
• Líneas de Crédito
•
•
•
•
30%-60% de los fondos totales
EURIBOR + 200-400 bps
6-8 años
Sin tramos PIK, warrants, etc.
Deuda Subordinada
10%-25% de los fondos totales
T + 350-650
7-10 años
Si son bonos, a partir de €100 mm
• Senior/Sub notes
• Second lien
•
•
•
•
• Mezzanine Tradicional
• Hasta €200 mm
• 9-10 años
• PIK y/o Warrants
Preferred stock/Mezzanine securities
•
•
•
•
Deuda Sub. (con.)
Acciones preferentes
PIK
Warrants / Equity
Kickers
•
•
•
•
0%-35% del capital
Retornos entre el 10-20%
7–10+ años
Paquetes menores
Acciones Ordinarias
• Capital Social
• Préstamo Participativo
•
•
•
•
•
20%-40% del total capital
TIR 25%+ en operaciones estándar
3-7 años
Estrategia de salida
Importe depende de cada operación
• Totalmente subordinada a tramos anteriores
• 7 años. Se prepaga siempre con Capital en
salida
Principales características
Normalmente con garantías y cláusulas más restrictivas
Periodo de amortización del principal de 6-8 años
Prioridad en quiebra, liquidación, concurso, etc.
Cupón más bajo: ~ EURIBOR +200-400 bps
Mayor riesgo / sin garantías específicas
Estructuras bullet (e.g. 10 NC/5)
Plazo superior a 7 años
Cupón más alto ~ actualmente 10%-12%, con PIK y
Warrants
Gran variedad de estructuras: Obligaciones
convertibles, canjeables, preferentes, sólo PIK,
PIK+Warrants, etc.
TIR esperada superiores al 12-13%
Subordinación legal y estructural
Riesgo más elevado
Préstamos participativos minoran ligeramente el riesgo y
conllevan ventajas/escudos fiscales
TIR 25%+
207
Case Study: Avanza Agrupación para el Transporte
Descripción de la Compañía y las Partes
• Avanza Agrupación para el Transporte, S.A. (“Avanza”) es uno de los
principales operadores del sector de transporte de pasajeros en
autobús en España, y líder en gestión de estaciones de autobús.
Cuenta con más de 3.000 empleados y una flota de más de 1.100
vehículos. Antes de la transacción estaba controlada por 5 grupos
familiares
Principales Magnitudes Financieras
(€ mm)
Ventas
EBITDA
Margen
217,0
193,9
183,3
20,9%
• Doughty Hanson es una de las firmas de capital riesgo
independientes más importantes de Europa con oficinas en Londres,
Frankfurt, Munich, Milán, París y Estocolmo, además de Madrid,
donde está presente desde septiembre de 2006. Doughty Hanson
fue fundada en 1985 y desde entonces ha realizado inversiones en
más de 100 empresas por un importe total de €23.000 mm
Descripción de la Operación
•
El proceso de venta se inició en septiembre, mediante el contacto
con un amplio abanico de inversores, que quedaron reducidos a 4
en la fase final del proceso
•
Análisis complejo del activo, dadas sus peculiaridades estructurales
y la relación especial con las Administraciones Públicas
•
Los accionistas de Avanza llegaron a un acuerdo para la venta del
100% de sus acciones a la firma de capital riesgo europea Doughty
Hanson el pasado 12 de diciembre, por un importe superior a los
€600 mm1
•
La financiación de la operación fue facilitada por HVB y Mizuho,
bancos sin presencia física en España en sus divisiones de
adquisiciones apalancadas, con una estructura innovadora de
amortización de la deuda
Fuente: Factiva, Mergermarket, Capital IQ
1 Fuente: Expansión
(%)
240,0
20,9%
38,0
2003
Noticias
25,0%
17,7%
34,3
2004
45,4
2005
60,0
2006E
“El fondo británico Doughty Hanson conducirá los autobuses de Auto
Res. La firma cierra su primera operación en España por cerca de
€600 mm. Tras una dura subasta, la entidad de capital riesgo ha
logrado hacerse con el control de Avanza, segundo operador de
transporte de viajeros por carretera”.
Expansión, 13 de diciembre de 2006
“La firma de capital riesgo Doughty Hanson, anunció ayer que cerró un
acuerdo con los accionistas de Avanza para hacerse con el control de la
operadora con mayor presencia en el sector de los autobuses urbanos,
la segunda en importancia en operaciones de largo recorrido y la mayor
operadora de estaciones de autobuses.
Aunque no trascendió la cifra oficial por la que se cerró la venta, fuentes
cercanas a la operación señalaron que el acuerdo rondaría los 650
millones de euros”.
Gaceta de los Negocios, 13 de diciembre de 2006
208
Agenda
Aspectos Preliminares
Principales Acuerdos en Operaciones de Private Equity
Aspectos Relevantes en la Negociación de la Inversión
Valoración de la Inversión en Cartera – Parámetros Generales
Estrategias de Salida
El Proceso de Desinversión – Mecanismos y Estrategias
209
Principales Acuerdos en Operaciones de Private Equity – Acuerdo
de Accionistas
Si los directivos
son accionistas,
la relación queda
recogida en el
Acuerdo de
Accionistas. En
caso contrario se
negocian
acuerdos
específicos de
manera
independiente
El Acuerdo de Accionistas cubre las relaciones entre todos los partícipes en el capital
de la compañía una vez concluya la compra. Incluye por tanto al inversor financiero,
equipo directivo y accionistas salientes que invierten / reinvierten y, en ocasiones, a las
entidades financieras que participan en la operación, y que recientemente están
aportando de manera puntual o permanente parte de los fondos propios de las
operaciones
De manera general, el Acuerdo de Accionistas comprende los siguientes aspectos:
1. Estructura del capital y división del mismo
2. Modalidades de acciones
3. Nombramiento del equipo directivo y del Consejo de Administración de la entidad
4. Derechos y obligaciones de los accionistas y directivos, y remuneración de las
acciones / participaciones
5. Toma de decisiones accionariales, mayorías, bloqueos, resolución de conflictos
entre accionistas, etc.
6. Sujeción de las acciones a la permanencia en la compañía (para el equipo
directivo)
7. Derechos de venta, recompra, adquisición preferente, valoración/precio,
restricciones y penalizaciones a la transmisión, casos de muerte o incapacidad, etc.
8. Derechos de arrastre (drag along) y acompañamiento (tag along)
9. Protección de accionistas minoritarios
210
Principales Acuerdos en Operaciones de Private Equity – Contratos de
Financiación
Acuerdo de Financiación (Contrato de préstamo)
1. Importe concedido (habitualmente al vehículo), propósito y disposición de fondos
2. Tipo de interés, devengo de intereses y periodos
3. Amortización ordinaria, anticipada y obligatoria
4. Duración y vencimiento
5. Impuestos
6. Variación de circunstancias y declaraciones formales
7. Obligaciones del prestatario
8. Indemnizaciones, pagos (proporcionalidad e imputación), comisiones, costes y
gastos
9. Cesión del préstamo
10. Agente, comunicaciones, plazos, ley y jurisdicción aplicable
11. Garantías del prestatario (en el mismo documento o en otro contrato)
Contrato entre Prestamistas (intercreditor agreement)
1. Acuerdo entre todas las entidades financieras que participan en la operación
2. Orden de prelación de los créditos, subordinaciones legales y estructurales,
prioridad en la amortización, y control de la compañía en casos de insolvencia
211
3. Excepciones a las obligaciones generales, al orden habitual de pago establecido,
amortizaciones anticipadas en caso de exceso de caja, etc.
Principales Acuerdos en Operaciones de Private Equity – Contrato de
Compraventa
Acuerdo formalizado habitualmente entre el vehículo de los inversores (un vehículo
canaliza las inversiones de diversos accionistas) y los vendedores
Principales cláusulas de un Contrato de Compraventa:
1. Compraventa – Objeto
2. Precio y pago del mismo
3. Acciones simultáneas a la compraventa
4. Declaraciones y garantías de los vendedores
5. Declaraciones y garantías del comprador
6. Responsabilidad de los vendedores (indemnizaciones, límites cuantitativos y
temporales)
7. Procedimientos
8. Otros pactos (notificaciones, confidencialidad, gastos, anuncios, invalidez, etc.)
9. Legislación aplicable y jurisdicción
10. Anexos y otros
212
Agenda
Aspectos Preliminares
Principales Acuerdos en Operaciones de Private Equity
Aspectos Relevantes en la Negociación de la Inversión
Valoración de la Inversión en Cartera – Parámetros Generales
Estrategias de Salida
El Proceso de Desinversión – Mecanismos y Estrategias
213
Aspectos relevantes en la negociación de la inversión – Protección de la
entidad de private equity
Manifestaciones y Garantías del vendedor – Cobertura, plazos, límites, ajustes al precio y
escrow / retención de precio
Obligación de reinversión de los vendedores
Obligación de no competencia
Seguros de cobertura de riesgos específicos (fiscales, medioambientales, contingencias
laborales, etc.)
“Protección” de las entidades que financien la operación en el contrato de financiación –
Límites de la capacidad de involucración en la actividad de la compañía – Conflicto cuando
el banco es inversor y financia simultáneamente una operación
Protección de los accionistas minoritarios – Derecho de arrastre (drag along), Bloqueo de
decisiones, ventas forzosas, etc.
Protección del equipo directivo – Obligación de vender, bajo rendimiento, conflictos de
interés en la salida, incumplimiento del Plan de Negocio, etc.
214
Aspectos relevantes en la negociación de la inversión – Protección de
los accionistas minoritarios
Pactadas y reflejadas en el Acuerdo de Accionistas
Derecho de acompañamiento (tag along), derechos de tanteo, etc.
Limitación de las manifestaciones y garantías, en función de capacidad de influencia en la
gestión
Entrega de información periódica
Derecho de Separación y capacidad de bloquear determinadas decisiones críticas
Régimen de la transmisión de las participaciones / acciones (ejecución forzosa, adquisición
preferente, opciones de compra, de venta, cruzadas, salida del accionista principal del
capital, etc.)
Permanencia, confidencialidad y no competencia del equipo directivo
215
Aspectos relevantes en la negociación de la inversión – Protección y
acuerdos con el equipo directivo
Pactadas y reflejadas en el Acuerdo de Accionistas
Garantías otorgadas por los directivos en su faceta de tales (vs. accionistas), tanto en la
inversión como en el momento de la desinversión
Obligación de inversión en el proyecto: Envy Ratio – Ratchets – Retribución variable
(acciones liberadas o con cargo a beneficios futuros) por rendimiento (cumplimiento del
Plan de Negocio) y retornos del fondo en la operación
Régimen de la transmisión de las participaciones / acciones (ejecución forzosa, adquisición
preferente, opciones de compra, de venta, cruzadas, salida del accionista principal del
capital, etc.)
Permanencia, prestaciones accesorias (p.ej. confidencialidad) y no competencia (todas
ellas durante la inversión y a posteriori)
Good leaver / bad leaver (Venta forzosa participaciones, precio, etc.)
216
Aspectos relevantes en la negociación de la inversión – Acuerdos con
los accionistas salientes
Manifestaciones y Garantías – Cobertura, plazos, límites, ajustes al precio y escrow /
retención de precio
Colaboración y permanencia
Obligaciones de reinversión
Obligación de efectuar inversiones adicionales en la compañía
Otras obligaciones (alquiler de locales, permanencia en el Consejo, relaciones comerciales
con clientes y/o proveedores, etc.
No competencia
Confidencialidad
217
Case Study - The Colomer Group (Revlon Professional Products)
Descripción de la Compañía
Descripción de la Transacción
• The Colomer Group (“TCG”) se crea tras la escisión de Revlon
Professional Products del Grupo Revlon, siendo adquirida por CVC y la
familia Colomer
• TCG, con sede en Barcelona, produce y comercializa un amplio abanico
de productos de belleza, tanto para el sector profesional, como para el
sector del gran consumo
• Sus productos están enfocados al cuidado del cabello y de las uñas bajo
diversas marcas, entre las que se encuentran Revlon, Llongueras,
Intercosmo o American Crew
• El grupo se estructura en tres divisiones:
– Profesional: productos enfocados al sector profesional
– Gran consumo: productos destinados al mercado minorista,
distribuidos en droguerías o pequeñas peluquerías
– Étnicos: productos capilares para el mercado afro-americano
• Sus productos se distribuyen en más de 40 países funcionando a través
de dos divisiones geográficas:
– EEUU: con 3 centros de producción en el país
– Resto del mundo: con centros de producción en España, Italia y
Méjico, desde las cuales se distribuye al Norte y Sur de Europa,
Norte de África y Suramérica
• En febrero del año 2000, la familia Colomer junto a CVC adquirieron Revlon
Professional Products, posteriormente TCG, división de productos
profesionales del Grupo Revlon
Presencia Geográfica
• El grupo fue adquirido por Revlon en 1978 a la familia Colomer, incorporando
las distintas adquisiciones realizadas durante la década de los 90, destacando
Creative Nail Design (1995), American Crew (1996) y African Pride (1999)
• El valor de la transacción ascendió a $325 mm, incluyendo el paquete de
deuda. En 2002 los accionistas refinanciaron la compañía con un préstamo de
$305 mm financiado por un consorcio de bancos liderados por Societe
Generale y BBVA
Estructura Accionarial
Carlos Colomer
y otros
25%
CVC
75%
Múltiplos de la Transacción
Múltiplos Entrada
CVC (feb. 2000)
($ mm)
1999
Valor Compañía
325,0
Ventas
353,0
0,9x
EBITDA
52,8
6,2x
EBIT
45,9
7,1x
Presencia de TCG
Fuentes: Información pública obtenida de Factiva, Mergermarket, información de sus páginas web, Registro Mercantil
218
Agenda
Aspectos Preliminares
Principales Acuerdos en Operaciones de Private Equity
Aspectos Relevantes en la Negociación de la Inversión
Valoración de la Inversión en Cartera – Parámetros
Generales
Estrategias de Salida
El Proceso de Desinversión – Mecanismos y Estrategias
219
Valoración de la inversión en cartera – Principales parámetros
Desde el momento de la compra de una entidad hasta la desinversión en la compañía
adquirida, los gestores de un fondo de capital riesgo utilizan diversos sistemas de
valoración de su cartera de participadas
Mediante estos sistemas los partícipes en el fondo (“limited partners”) deben ser capaces
de evaluar el comportamiento de las compañías y su situación en un momento dado en el
tiempo, sin tener que esperar por tanto a la desinversión, lo cual otorgaría poca claridad y
visibilidad a los inversores durante la vida de un fondo, que puede prolongarse durante
periodos de más de 10 años
A continuación repasamos brevemente los principales
habitualmente utilizados por las entidades de private equity:
sistemas
y
parámetros
1. Valor de la inversión
a. Especialmente para inversiones recientes
b. Pierde valor a medida que transcurre tiempo desde la inversión, ya que
únicamente refleja el precio y condiciones de mercado existentes en el
momento en el que se realizó la inversión
c.
Actualización si se da entrada a un nuevo inversor (este sistema puede
ocasionar errores, en función de las características particulares y
condicionantes del nuevo inversor: prima de control, inversión estratégica, etc.)
d. La no actualización del valor puede llevar a pensar que se ha producido un
deterioro del activo no adecuadamente reflejado por el fondo
220
Valoración de la inversión en cartera – Principales parámetros (Cont.)
2. Múltiplos sobre beneficios u otro parámetro contable
a. Aplicación de un múltiplo sobre ventas, EBITDA, EBIT(A), FCF, EBITDACAPEX, Beneficio Neto, etc.
b. Premisa de un negocio que genera beneficios recurrentes a futuro
c.
Múltiplos de compañías cotizadas comparables, o …
d. Múltiplos de transacciones comparables
e. Requiere identificación de beneficios “normalizados”.
extraordinarios, ventas u operaciones puntuales, etc.
f.
Exclusión
de
Inclusión de activos periféricos no generadores de caja
g. Aplicación de comparables apropiados, algo no siempre fácil de determinar
h. Aplicación de posibles descuentos y ajustes al múltiplo (mercado, iliquidez,
dependencias puntuales, calidad de los beneficios, alto apalancamiento, etc.)
i.
Determinación del valor de los fondos propios, una vez sustraído todo el coste
y valor del endeudamiento neto financiero
j.
Otros factores
221
Valoración de la inversión en cartera – Principales parámetros (Cont.)
3. Valor de los Activos Netos
a. Valor de un negocio como valor de los activos netos del mismo
b. Empleado en compañías cuyo valor deriva principalmente del valor de sus
activos, más que en la capacidad para generar beneficios a futuro
(inmobiliarias, entidades de inversión, patrimoniales, etc.)
c.
Posibilidad para compañías en liquidación, o en pérdidas
d. Valor de activos periféricos, bases imponibles negativas y otros
e. Raramente utilizado por los fondos
222
Valoración de la inversión en cartera – Principales parámetros (Cont.)
4. Descuento de Flujos de Caja
a. Valor presente de los flujos de caja (o beneficios) que la entidad generará a
futuro
b. Técnica comúnmente utilizada, tanto por fondos como por asesores financieros
c.
Este sistema conlleva la utilización de una serie de hipótesis para determinar
las proyecciones futuras del negocio, el valor terminal del mismo, tipo de
descuento a aplicar a los flujos de caja futuros, etc.
d. Como consecuencia de lo anterior, el resultando obtenido puede verse influido
sensiblemente por pequeñas modificaciones en las hipótesis iniciales
e. Empleado en negocios maduros. Para negocios en crecimiento, expansión, en
fase de reestructuración o en pérdidas es poco utilizado
223
Valoración de la inversión en cartera – Principales parámetros (Cont.)
5.
Otros
a.
b.
Criterios específicos de valoración del sector
i.
Utilizados en sectores específicos (Hostelería, negocios de suscripción,
medios, etc.)
ii.
Contratos a largo plazo o con características especiales para su
valoración de forma independiente del resto del negocio
iii.
Concesiones (duración, condiciones, etc.)
Disponibilidad de precios de mercado
i.
Participaciones en compañías cotizadas valoradas a valor de mercado,
salvo que existan situaciones especiales que incidan sobre el mismo
(bajo free float, prima de control, intervención pública, etc.)
224
Agenda
Aspectos Preliminares
Principales Acuerdos en Operaciones de Private Equity
Aspectos Relevantes en la Negociación de la Inversión
Valoración de la Inversión en Cartera – Parámetros Generales
Estrategias de Salida
El Proceso de Desinversión – Mecanismos y Estrategias
225
Principales estrategias de desinversión – El proceso de desinversión:
Consideraciones generales preliminares
Planteamientos iniciales y finales de la salida
Preparación de la empresa para la desinversión
Alineamiento con el resto de accionistas
TIR
DESINVERSIÓN
Preparación del equipo directivo para la venta y el
proceso
Consecución del Plan de Negocio – Recorrido /
Oportunidad para el nuevo inversor
Modalidades
compradores
de
proceso
–
selección
de
Momento del mercado – apetito por el activo,
interés por el sector
Acercamientos no solicitados – Oportunidades
puntuales
Plazos estándar de desinversión del Fondo
226
Principales estrategias de desinversión – Buy-backs (recompra por
parte de otros accionistas)
El inversor financiero se desprende de su participación mediante la venta a otros
accionistas de la compañía
Habitual en la venta de participaciones minoritarias, si bien se dan supuestos de venta de
mayorías
Diversas posibilidades: Venta al equipo directivo (inversor y normalmente accionistas
originales o traídos por el fondo de capital riesgo), a otro inversor financiero, accionistas
minoritarios, etc.
En ocasiones se combina con una ampliación de capital y entrada de un nuevo accionista
que apoya a los existentes no desinversores
Existe asimismo la posibilidad de venta de la participación a la compañía en los casos en
los que el apalancamiento financiero es bajo, el equipo directivo está involucrado, etc.
Supuestos de procesos de venta en marcha con resultados no satisfactorios para alguno de
los socios
Derechos de adquisición preferente previsto en los Estatutos / Acuerdo de Socios que
limiten otras alternativas
227
Protección en la venta (cláusula anti-embarassment)
Ejemplos: TCB, Bodybell, Hospitén
Principales estrategias de desinversión – Secondary Buyouts
Venta de una compañía participada a otro inversor financiero. El proceso de desinversión puede ser una
simple sustitución del inversor financiero, venta del 100% del capital, incorporación al capital de directivos
que no participaban en el mismo, salida e incorporación de nuevos directivos, etc.
Ventajas
COMPRADOR
VENDEDOR
Adquisición de una compañía ordenada y
estructurada
Proceso de Due Diligence ya realizado
Compañía habituada a la titularidad de un fondo, y
al apalancamiento financiero
Continuidad del equipo directivo (normalmente
habitual)
Posibilidad de continuar con el desarrollo y
crecimiento de la compañía, y llevarla a una
siguiente fase de su expansión (fondos de mayor
tamaño)
Alternativa cada vez más habitual de salida, y más
empleada sobre el IPO, y fuente de liquidez para
casas de menor tamaño
Seguridad sobre la reputación y delivery del
comprador
Incremento de la competitividad y, a priori, de la
valoración obtenida en la venta
Desventajas
Peor valor estratégico que una compra a un industrial
Percepción de pago de sobreprecio
Titularidad anterior puede haber “cortado toda la grasa” y
hacer potenciales mejoras difíciles de obtener
Riesgo de única alternativa para una inversión poco exitosa
para el vendedor
Los inversores pueden percibir la compra como un “cambio
de cromos” entre firmas de capital riesgo, con el único
objeto de percibir comisiones
Problemas de valoración del activo (sólo basado en LBO)
La evolución de la compañía puede sufrir como
consecuencia de una visión estratégica a corto/medio plazo
Disminución de la posibilidad de obtener retornos elevados
La valoración puede sufrir en las últimas fases de los
procesos
Venta vs. Recapitalización financiera
Inexistencia de “strategic premium” del comprador
Posible percepción de falta de capacidad del fondo para
vender activos fuera de procesos abiertos o a inversores
industriales en procesos restringidos
Ejemplos: Parques Reunidos, Svenson, Mivisa, Dorna, Itevelesa, Saprogal, etc.
228
Principales estrategias de desinversión – Venta a un Industrial
Las sinergias operativas deben tener su reflejo en la obtención de un precio superior al
vendedor
No obstante el comprador puede sufrir restricciones que le impidan alcanzar el precio
exigido/deseado por el fondo desinversor (apalancamiento, múltiplos propios de cotización,
percepción del mercado de sobrepago, etc.)
Menor preocupación por la calidad del equipo directivo
Due Diligence enfocado más a aspectos de integración y sinergias que a la detección de
contingencias
No necesitan conocimiento ni entendimiento de la industria, lo cual les otorga una ventaja
frente a competidores puramente financieros
Posibles problemas de competencia
Procesos internos de decisión más lentos que los de un inversor financiero
No preocupados por una salida a futuro, dado que esto se ve como una situación poco
probable en el momento de la compra
229
Ejemplos: Cervezas Alhambra, Integral Press, CESA, Panzani
Principales estrategias de desinversión – Mercados Cotizados
Venta en Bolsa
1. Venta de participaciones en compañías cotizadas
2. Infrecuente en LBOs, dada su habitual exclusión de los mercados cotizados una
vez concluida la operación
3. Sí se da en la toma de participaciones minoritarias en compañías cotizadas por
fondos especializados en este tipo de operaciones, y Hedge Funds
OPV (Salidas a Bolsa)
1. Preparación previa intensa de la compañía para el proceso
2. Baja liquidez y apetito del mercado español hacen que esta vía no sea la habitual
en procesos de desinversión
3. Proceso: Folleto, Valoración Inicial, Roadshow, Ofertas indicativas, Fijación final del
precio, Inicio de cotización
Desinversiones Post OPV
1. Ofertas secundarias
2. Incremento del free float de la entidad que facilita operación, salvo que la
desinversión incluya personas “clave” para la compañía
3. Precio influido por OPV, si el plazo temporal no es lo suficientemente amplio
Ejemplos: Clínica Baviera, GAM, Vueling, Yell, William Hill, etc.
230
Principales estrategias de desinversión – Recapitalizaciones
Una recapitalización o refinanciación del pasivo financiero de una entidad adquirida por
un fondo consiste en el reapalancamiento de dicha entidad mediante el aumento de la
deuda soportada, directa o indirectamente, por la compañía
Los fondos obtenidos son utilizados para el pago de un dividendo extraordinario a los
accionistas
Esta operación puede realizarse:
1.
En el momento de la adquisición (finalizado el cierre), una vez el comprador se
familiarice con la compañía objetivo y descubra nuevas fuentes adicionales de
financiación (p.ej. Sale & Leaseback de activos), o
2.
Con posterioridad, como consecuencia de:
i.
La amortización progresiva de la deuda de adquisición
ii.
La mejora de los resultados operativos y generación de caja de la compañía
adquirida
iii.
La mejora de las condiciones ofrecidas por las entidades financieras, que
permitan el incremento de la deuda de la compañía
Procedimiento cada vez utilizado con mayor frecuencia y antelación por parte de los
231
inversores financieros como alternativa a la desinversión, y sistema de mejora de la TIR
de la inversión
Ejemplos: Mivisa, Ahold, Zena, Cortefiel, Itevelesa, Parques Reunidos, Dorna, etc.
Principales estrategias de desinversión – Reconocimiento de
Minusvalías y Reembolso de Préstamos
Uno de los primeros síntomas de que una inversión no evoluciona de forma favorable:
Incumplimiento de covenants del contrato de financiación, con la consiguiente solicitud de
waivers
Cuando suceden estos hechos, y dependiendo de la gravedad del incumplimiento, las
entidades financieras pueden adoptar diversas medidas, que van desde la concesión del
waiver sin más, hasta la venta de su participación en el préstamo / bonos afectados, a un
valor inferior al nominal (a descuento)
En ocasiones se procederá simultáneamente a realizar una ampliación de capital cuyos
fondos se emplearán para amortizar deuda, reduciendo la presión financiera de la
compañía
Resulta extremadamente infrecuente que un inversor financiero reconozca una minusvalía
en una compañía de su cartera de participadas, manteniendo el valor en libros de la misma
hasta que la situación se haya deteriorado hasta tal punto (quiebra, suspensión de pagos,
etc.) que deba proceder a reconocer una minusvalía o un write off (eliminación) de la
inversión
El resultado final es la pérdida económica de todas las partes involucradas: El fondo pierde
todo o parte de su inversión, los bancos todo o parte de la financiación, y el equipo directivo
no ve cumplidas sus expectativas
Ejemplos: Paconsa, Grupo Labiana, Vanyera, Fairchild Dornier, Kierkert
232
Case Study – Svenson I y II
Descripción de la Compañía
Descripción de la Adquisición
Svenson es líder en el sector de tratamientos y servicios capilares
especializados en España y Alemania
Nazca Capital adquirió el 100% del capital de Svenson a través de una
operación de LBO¹ en marzo de 2002
Su gama de productos y servicios incluye tanto soluciones preventivas
como soluciones de integración, diferenciando cuatro líneas de negocio:
Tratamientos capilares con supervisión médica
Productos cosméticos especializados como complemento a los
tratamientos
Sistemas de integración sin cirugía
Microinjertos realizados en clínicas concertadas
Svenson cuenta con una red de 55 centros, todos ellos en propiedad, en
tres países (España, Alemania y Portugal), estando presentes en las
principales ciudades de España y Alemania y ampliando recientemente
sus actividades a Portugal
Desde 2003 la compañía ha realizado 17 aperturas en España, todas ellas
con éxito
Actualmente, la compañía cuenta con más de 500 empleados y una base
de 15.000 clientes
Ventas estimadas en 2006 de ~ €50 mm, y EBITDA superior a los €11 mm
Presencia Geográfica
Red de Centros en España y Portugal
Coruña
Vigo
Gijón
Santander
Bilbao
Oviedo
Hamburgo
Pamplona
ZaragozaSabadell
Badalona
Castellón
Badajoz
Palma
Valencia (2)
Córdoba
Sevilla (2)
Alicante
Murcia
Granada
Málaga Almería
Hannover
Dortmund
Dusseldorf
Köln
Frankfurt
Elche
Las Palmas
Jerez
Berlín
Barcelona (4)
Madrid (6)
Lisboa
En el periodo de inversión, y tras la entrada de un nuevo equipo gestor, la
compañía realizó con gran éxito 17 nuevas aperturas en España
Apoyado por el gran crecimiento en España, en marzo de 2004 adquiere
Svenson Haar Studios, compañía gemela en Alemania. Contaba con 11
centros
En octubre 2004 dieron entrada en el capital de la compañía a un Family
Office español
En 2005, siguiendo con el plan de expansión previsto, Svenson amplió su
presencia geográfica con la entrada en Portugal, abriendo un centro en
Lisboa y adquiriendo un centro en Alemania
Descripción de la Desinversión
A comienzos de 2005, Nazca comienza un proceso de análisis de
refinanciación de la compañía, que finalmente derivó en un proceso de
venta dadas las excelentes perspectivas que existían para la venta, y el
interés que el sector generaba en potenciales compradores
S. Sebastián
Vitoria
Logroño
Valladolid
Red de Centros en Alemania
En ese momento la compañía contaba con 25 centros en España con
unas ventas de €12,5 mm
Tenerife
Mannheim
Stuttgart
Leipzig
Tras una subasta restringida extremadamente competitiva, el equipo gestor
junto a un grupo de inversores financieros liderados por Investindustrial
adquieren Svenson por un valor compañía de €121 mm
El paquete de deuda alcanzó niveles de ~8,0x EBITDA. Nazca multiplica su
inversión por 9,0x
Estructura Accionarial
Nurnberg
Equipo
Directivo
20%
Munich
Investindustrial
55%
BBVA
25%
Fuentes: Información pública obtenida de Factiva, Mergermarket, información de sus páginas web, Registro Mercantil
¹ Incluye la adquisición de Alemania
233
Agenda
Aspectos Preliminares
Principales Acuerdos en Operaciones de Private Equity
Aspectos Relevantes en la Negociación de la Inversión
Valoración de la Inversión en Cartera – Parámetros Generales
Estrategias de Salida
El Proceso de Desinversión – Mecanismos y Estrategias
234
El Proceso de Desinversión – Mecanismos y Estrategias
Negociación
(no-subasta)
Subasta Controlada
Subasta Abierta
Mayor número de compradores
Valor
Maximiza competencia y precio
Mayor atractivo para los compradores
Mayor velocidad de ejecución
Calendario
Mayor flexibilidad
Mayor confidencialidad, menor interrupción del negocio
Otras
Cuestiones
Mayor probabilidad de éxito
Menor riesgo de consecuencias negativas de fracaso de la venta
235
Descripción de un Proceso de Desinversión
Fase de Preparación
Fase de Ejecución
Duración
estimada
6-8 semanas
10-12 semanas
Objetivos
principales
Preparar documentación de la compañía
Contratación de asesores independientes
Selección de potenciales compradores
Contactar con potenciales compradores
Estructurar el proceso de venta
Maximizar el precio de venta del activo
Cerrar la transacción
Un proceso de venta completo suele tener una duración aproximada de entre 16 y 20 semanas
236
Preparación del Proceso
La elaboración del “Cuaderno de Información” es una de las fases críticas del proceso, ya
que debe existir un equilibrio adecuado entre la información facilitada, para maximizar el
valor de la compañía, y el mantenimiento de la necesaria confidencialidad de aspectos
clave del negocio (si bien este aspecto cobra menor relevancia si se consideran
exclusivamente inversores financieros)
Preparación de materiales de marketing
Visitas a la compañía
Reuniones con la Dirección
Recopilación de información
Estructura típica del documento
Resumen ejecutivo
Atractivos de la inversión
Descripción del sector
Descripción del negocio / activos
Análisis financiero y operativo
Análisis del sector / mercado
Aprobación de accionistas y equipo
directivo
Resumen financiero
Plan de negocio (proyecciones
financieras)
Materiales de promoción, en su caso
237
Fase de Ejecución
PRIMERA ETAPA SEGUNDA ETAPA
Marketing
Due Diligence
TERCERA ETAPA
Estructuración
Negociación
Contacto con los socios potenciales seleccionados
Distribución
del
cuaderno
de
información
previa
firma
Cierre
del
acuerdo
de
confidencialidad
Solicitud de ofertas indicativas que incluyan las condiciones necesarias para realizar
la transacción y demuestren el interés en el activo
Selección de candidatos para la fase restringida del proceso en base a la recepción
de ofertas indicativas
Preparación de la presentación del Equipo Directivo¹
¹ Documento preparado por los asesores junto al equipo directivo para ser presentado a los socios potenciales en una segunda etapa
238
Fase de Ejecución (cont.)
PRIMERA ETAPA SEGUNDA ETAPA
Marketing
Due Diligence¹
TERCERA ETAPA
Estructuración
Negociación
Entrega del Vendor Due Diligence1 a los socios potenciales
Reuniones de trabajo de los compradores con el equipo gestor
Organización de visitas a la empresa
Coordinación de solicitudes adicionales de información
Asistencia en reuniones con responsables de áreas de negocio
Mantenimiento de diálogos constantes con socios potenciales
Supervisión de visitas al Data Room
Cierre
¹ Auditoría y valoración de posibles contingencias de la compañía en los ámbitos legal, fiscal, laboral, financiero y medioambiental realizada por los asesores de los
socios potenciales
239
Fase de Ejecución (cont.)
PRIMERA ETAPA SEGUNDA ETAPA
Marketing
Due Diligence
TERCERA ETAPA
Estructuración
Negociación
Cierre
Elaboración y revisión de la documentación legal
Contrato de compraventa
Acuerdos de accionistas
Contrato de financiación
Solicitud de ofertas formales
Valoración de ofertas
Definición del calendario de cierre
240
Fase de Ejecución (cont.)
PRIMERA ETAPA SEGUNDA ETAPA
Marketing
Due Diligence
TERCERA ETAPA
Estructuración
Consideración del periodo de exclusividad
Selección de oferta óptima
Negociación de términos y condiciones
Negociación del precio final
Otras consideraciones y negociaciones
Negociación
Cierre
241
Fase de Ejecución (cont.)
PRIMERA ETAPA SEGUNDA ETAPA
Marketing
Due Diligence
TERCERA ETAPA
Estructuración
Negociación
Cierre
Obtención de autorizaciones pertinentes de los órganos de administración
respectivos, competencia, etc.
Formalización y firma del contrato
Publicidad, en su caso
Cierre formal de la transacción
242
El Proceso de desinversión – Mecanismos y estrategias de desinversión
El proceso de desinversión comienza desde la negociación de la inversión. Los acuerdos que se
alcancen en el momento inicial determinarán, o podrían determinar, la salida de la inversión de
forma relevante
1
Cláusulas Contractuales
Tag Along o Derecho de Arrastre (unido al Derecho
de Información)
Drag Along o Derecho de Acompañamiento,
especialmente como protección para los accionistas
minoritarios
Otorgamiento de Manifestaciones y Garantías:
Gestores/Accionistas Minoritarios/Inversor Financiero
Plazos preestablecidos para el inicio del proceso
3
Incentivos para el equipo directivo en la
desinversión – bonos, ratchet, incremento de la
participación según TIR inversor financiero, obligación
de permanencia, etc.
Evitar o minimizar el riesgo del conflicto de interés
del equipo, especialmente en Secondary Buyouts, o
desmotivación en la venta a un inversor industrial
COMPAÑÍA,
Bloqueos y resolución (Derechos de Adq. Pref.)
ACUERDOS
Y PROCESO
Opciones de Compra-Venta
Opciones de Compra y Opciones de Venta
Compra y venta forzosa
Precio
Mecanismos y Plazos de ejecución
Good Leaver / Bad Leaver – Condiciones y
consecuencias de la no permanencia en la ejecución de
las opciones
2
Sistemas de Incentivos
Por el otorgamiento de R&W
Incentivos para los asesores de la
operación
4
Salvaguardia post-desinversión
Inexistencia de Garantías prestadas por el
fondo, limitación cuantitativa/temporal y/o
cobertura mediante un seguro
Limitación de otras responsabilidades
Salvaguardia de conflictos/responsabilidades en
Secondary Buyouts, y ayuda al equipo en negociaciones
con el comprador
Cláusula Anti embarassment
243
Oficinas
Madrid
Pº. de la Castellana, 23, 1º
28046 Madrid
t. +34 913 912 066
f. +34 913 102 222
Barcelona
Avda. Diagonal, 418, 2ª
“Casa de les Punxes”
08037 Barcelona
t. +34 933 426 289
f. +34 933 015 050
Oviedo
Pl. de la Constitución, 8, 1º-2ª
33009 Oviedo
t. +34 985 207 000
f. +34 985 212 027
Valladolid
C/ Pío del Río Hortega, 8, 1º
47014 Valladolid
t. +34 983 218 904
f. +34 983 309 777
Vigo
C/ Colón, 12, 3ª y 4ª
36201 Vigo
t. +34 986 442 838
f. +34 986 226 110
Sevilla
C/ Fernández y González, 2
41001 Sevilla
t. +34 954 293 216
f. +34 954 293 377
244

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