Module 4 Flashcards
What is the Primary Valuation Approach Methodology for Infrastructure Investments, and for Private Equity Investments?
Infrastructure: 1) DCF secondary : Market Multiples
Private Equity: 1) Market Multiples secondary : DCF
What are some of the characteristics of Infrastructure Investments?
1) Lower Return Expectations
2) Longer Investment Horizon
3) Strong, Stable and predictable cashflows
4) Regulated Rate of Return
5) Monopolistic or quasi-monopolistic environments
6) Capital Intensive
7) High Barriers to Entry
What are some of the characteristics of Private Equity Investments
1) Higher Return Expectations
2) Shorter Investment Horizon (5-7 years)
3) Strong Cash flows with potential for margin improvements
4) Ability to leverage balance sheet
5) Organic growth or growth through acquisitions
6) Strong management team
7) Strong or leading market position
What are the 3 levels of the “Price vs. Value” valuation that are likely to influence negotiation strategy?
1) Synergistic Value
2) Optimized Acquisition Value
3) Status-Quo Value
What is Synergistic Value?
When Private Market investors complete a deal in an industry where they already hold pre-existing investments. There are often synergies that can be achieved from cost rationalization of labour, improved logistics channels, and economies of scale.
What is Status-Quo Value?
Value of a company assuming the business strategy remains consistent with the existing vendor’s practices. Business improvements not
What is Optimized Acquisition Value?
Upon gaining a sense of status-quo operations, potential investors will attempt to quantify the value of easy to accomplish, business improvements (“low hanging fruit”). Such “fruit” may include optimization of the capital structure, efficiency gains available from the closure of redundant operations, working cap management techniques, and etc.
What is the difference between Synergistic and Optimized Acquisition Value?
Synergistic Value differs from Optimized acquisition value in that the vendor cannot achieve increased value from synergies simply by changing their business practices as it requires the aid and combination of the buyer.
What are the Three Key Sources of Information that are received after the buyer and seller enter into exclusivity?
1) Actual Results
2) Board Approved Projections
3) Senior Management
What is a Bridge Valuation?
A Value Reconcilliation that is based on received information allowing a valuator to generally provide useful data for analysis so to both understand primary causes of changes in value and how they may relate to the underlying business.
What are some practical issues with Bridge Valuations?
1) Time Consuming
2) Complex at the best of times
3) Different Valuation Methods Used
4) Reclassification of Cash Flow line items create noise for analysis
5) Output fails to properly explain ultimate drivers of value
