Post on 29-Dec-2015
Firm Valuation
Lecture 7
Trading and Operating Comparables
• Aggregate Value• Market Value• Revenue• EBITDA• EBIT• Net Income• Total Debt• Book Value/Share• EPS• LTM Revenue, Net Income, EBITDA growth rates• P/E• TSR
Profile of Home Depot & Lowe’s
HD Lowe’sMarket Cap $78.6B $46.6BEnterprise Value 84.7B 49.1B1 yr TSR (9.5)% 4.3%3 yr TSR 8.4% (6.3)%2007 AV/EBITDA 7.0X 7.0X2007E P/E Ratio 11.9 13.92008E P/E Ratio 10.7 12.2Credit Rating Aa3/AA A1/A+
ROIC and P/E Multiples
Aggregate Value Analysis
Purchase price per share $12
%Premium to Current price 20%
Fully Diluted Shares Outstanding 100M
Implied Equity Value $1.2B
Plus Net Debt 0.4B
Implied Aggregate Value $1.6B
Current EBITDA $150M
Implied AV/EBITDA 10.6X
Financial Outlook Analysis
Characteristics of Top Performing Firms
• Capital Efficiency
• Working Capital Efficiency
• Increasing Return on Invested Capital
• Rising Incremental Relative P/E values
• BottomlineLimited Capital Requirements and High NOPAT
margins generate strong ROIC
Sale Process Alternatives
• One Party- Negotiated Sale Contact One Party
• Controlled Limited Auction
• Open Broad Auction
• Publicly Announce Pursuing Strategic Alternatives
Factors in the Decision
• Shareholder
• Marketing
• Senior Management
• Employees
• Contract
• Community
Factors in the Decision
• Marketing– Confidentiality– Number of potential Bidders– Timing – Information Flow
Factors in the Decision
• Senior Management– Willingness to stay on– Depth of the team– Contracts/Severance– Incentive-Stay Pay Agreements
Factors in the Decision
• Employees– Future Opportunity– Benefits– Job Security– Culture
Factors in the Decision
• Structure of the Deal– Representations and Warranties– Indemnifications– Closing Conditions