Ch 3 Deck 7 Flashcards
valuation that does not include any of the cost reductions (synergies) expected from the acquisition
Stand alone valuation
When doing a stand alone valuation, you are only valuing
the target corporation
in a standalone valuation, the most appropriate cost of capital to use is
the target’s WACC (Weighted Average Cost of Capital)
method of analysis where the value of a company is determined by comparing it with relevant peers
Comparable company analysis
valuation method built on the idea that similar companies should have similar valuation multiples.
Comparable company analysis
performed to help understand the value of the companies in light of current transactions
A precedent transaction analysis
a precedent transaction analysis looks at
the prices paid by purchasers of similar companies under comparable circumstances
Precedent transactions analysis is usually used
to analyze a possible merger or acquisition
Precedent transactions analysis usually analyzes
a group of comparable acquisitions
The weighted average cost of capital (WACC) is used to calculate the present value of a set of forecasted free cash flows.
Discounted cash flow method
an acquisition funded with debt
leveraged buyout
These types of businesses may not be appropriate for leveraged buyouts
small or cyclical businesses
A good LBO candidate is
a corporation
predictable cash flow
well established
leader in industry
The formula for expected earnings per share in an acquisition is
(buyer’s net income + target’s net income)/total number of new shares
Method for calculating expected earnings per share in an acquisition
Step 1: offer price/buyer’s price = exchange ratio.
Step 2: exchange ratio * Target’s shares outstanding = amount of new shares to be issued.
Step 3: new shares + buyer’s old shares = total new shares.
Step 4: (buyer’s net income + Target’s net income)/total new shares = expected earnings per share