Chapter 4 - Precedent Transaction Analysis Flashcards
Precedent Transaction Analysis - Overview
- Precedent transaction analysis provides information about transactions in the same industry or with similar
characteristics as the company being valued
- Precedent transactions provide insight into:
- M&A Activity in a Sector
- Individual Company Strategies
- Premiums Paid by Acquirers
- Potential for Synergies
- When preparing precedent transaction multiples, consider the following:
– The industry/profile of the company being valued, in order to properly screen for relevant transactions
– The time frame of the transactions – focus on transactions that have been consummated in the past few years unless the data set is sparse
– The status of past transactions
*Successfully completed, pending or terminated
*Consideration (cash vs. stock) and nature of the transaction (hostile vs. friendly negotiation)
* The macro environment at the time of the transaction
Sourcing Precedent Transactions: The following sources are widely used by investment bankers to source relevant transactions
- Third-Party M&A Databases
- Public Company Disclosure
- Client / Senior Banker Input
- Internal Databases
- Equity Research
- News Articles / Google Searches
- For M&A transactions with a publicly-traded target, the most relevant documents to review are:
– Takeover circular
– Latest published financials of the target
– Acquisitionpressrelease
– Investor presentations / call transcripts
– Equity research reports
Precedent Transaction Analysis – Example Calculation: Step 1:
Step 1: Gather information on the transaction, including the offer details, the target’s financial statements and
consensus forecast estimates
M&A transactions involving two private companies typically have _____ _______ information disclosed
very limited
- It is critical to pull financial figures from the most _____ prior to the acquisition announcement, as those are the financials that the buyer will use to anchor their view on value
recent quarter
Precedent Transaction Analysis: Step 2
Populate the relevant financial information into excel to calculate the equity value, enterprise value and
implied transaction multiples
Purchase Premium =
Offer Premium / Share Price
Precedent Transaction Analysis : Step 3:
Review third-party publications (company call transcripts, investor presentations, equity research reports, news articles) to validate your calculations
Precedent Output Chart from a CIBC Presentation : Precedent Transaction Multiples (EV / EBITDA)
- Acquirer
- Target
- EV/EBITDA
- Date
- Location
- Enterprise Value
- Term
Precedent Transaction Case Study - Sale of Vicwest to Kingspan and AGI
- CIBC successfully coordinated a single, complex transaction involving two distinct operating divisions and buyers, ultimately leading to a positive outcome for all parties
Transaction Overview (Sale of Vicwest to Kingspan and AGI)
- Vicwest BP: Kingspan agreed to acquire all of the outstanding common shares of Vicwest for C$12.70 per share in cash by way of a court approved plan of arrangement, representing a premium of 26% to the 20-day VWAP
– $154.5 mm (10.3x LTM EBITDA)1 - Westeel: As part of the arrangement, substantially all of the assets of
Vicwest’s Westeel division will be sold to Ag Growth – $210 mm (10.5x LTM EBITDA)1
Key Process and Execution Highlights (Sale of Vicwest to Kingspan and AGI)
Special Committee of the Board of Directors of Vicwest authorized CIBC to begin a sale process to maximize shareholder value
CIBC-led competitive process generated significant auction tension with key strategic buyers globally
The complex deal involved the concurrent sale of each of Vicwest’s two main operating divisions as part of a single agreement
Leading up to the process, Vicwest released Q4 2013 and Q1 2014 results that were significantly below consensus estimates due to rising costs
Holders of ~15.6% of shares, including all of Vicwest’s directors and officers, locked up via voting support agreements prior to announcement
Market Reaction: (Sale of Vicwest to Kingspan and AGI)
- Analysts have reacted positively to the transaction announcement, stating the offer price is fair and reflects Vicwest’s growth prospects
Key Transaction Metrics (C$ millions, except per share) (Sale of Vicwest to Kingspan and AGI)
- Valuation Build Up
- Historical Share Price (LTM)
- Historical EV/ NTM EBITDA
Precedent Transaction Case Study – Sale of TransX to CN Rail
- CIBC acted as exclusive advisor to TransX Group of Companies, a Winnipeg-based integrated transportation and logistics services company with operations in both Canada and the U.S., on its sale to Canadian National Railway
