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Cogent Analytics M&A Manual

Mergers and Acquisitions A Beginners Guide

Cogent Analytics M&A Manual

Valuation
M&A involves using more than one valuation technique to arrive at a valuation that we think is fair. The most common techniques used are:

Comparable Publicly traded companies (Public Comps) this analysis indicates how the stock markets are valuing companies that are similar to the target Precedent Comparable Transaction analysis (Transaction Comps) this analysis indicates the valuations at which prior M ! transactions have been done in the same industry as that o" the target# $C% analysis is one o" the most important valuation techni&ues 'um(o"(the(parts analysis )" a target has more than one lines o" business* the "inancial advisor will value each business separately# There"ore* each part might have its own Public Comps* Transaction comps and $C% (with di""erent +!CCs "or each part)# The total value is the sum o" the parts ,ther depending on the uni&ue characteristics o" the transaction* "inancial advisors will per"orm a number o" other analyses to arrive at "air value like -everaged .uyout (-.,) !nalysis* /istorical 01change 2ation analyses etc#

PUB !" "#MP$

Compare the current trading level o" a Company to its peer group o" companies The peer group is a set o" 3 to 45 companies that are most similar to the target in terms o" business mi1 and strategy* geographic risks(same country)* margins and si6e# (i#e# processed meats and raw meats are di""erent)# To "ind a good peer group start broad (all companies in the ')C code) and then narrow the list to the most comparable peers# !lso re"er to e&uity 2

Cogent Analytics M&A Manual

research reports* industry reports* the company7s 458 where its discusses competitors and .loomberg (9uote :) to identi"y the most comparable peers# (look at "iling ;8* prospectuses when they do a "iling "or new debt or e&uity in "reeedgar#)
?nderstand why 0&uity valuation and 0nterprise valuation are di""erent

The goal o" the analysis is to understand how the markets is valuing the peer group in terms o" Price to 0arnings* Price to .ook value* Price to Cash"low to 0&uity* +hat the P0< ratio is* 0nterprise =alue to 2evenues* 0.)T$!* >et !ssets etc# !lso understand i" merger premium is already built into price industry group should know this# There are always some industry speci"ic comps (Telecom 0nterprise =alue to P,Ps and '?.s* 0lectric ?tilities ( @AMw etc#)# Make sure you capture these in your analysis# ?sing these* we will try to value the target bearing in mind that public comps don7t re"lect the control premium that an ac&uirer will pay "or buying control o" the target# The control premium is generally around B5C "or ?#'# transactions# !lso* some companies that are widely perceived to be ac&uisition targets may have some premium built into their stock price# Most common multiples areD

4# 0&uity MultiplesD PA0 (Price A -TM 0P'* Price A 4(Eear "orward 0P'* >ote that the 0arnings need to be a"ter Pre"erred $ividends so that they are earnings that are available to Common shareholders)* Price to .ook (Price A .ook value o" e&uity per share)# :# 0nterprise =alue MultiplesD 0=A2evenues* 0=A 0.)T$!* 0=A0.)T (>ote that the 2evenues* 0.)T$! and 0.)T multiples could be computed "or -TM and 4(Eear "orward proFected numbers) T%A&$A"T!#& "#MP$

The goal here is to understand the multiples at which transactions in the target7s industry sector have been announced or completed# The importance di""erence with public comps is that in this case* a control premium is built into the o""er price and there"ore the multiples# 'peci"ically* determine the pricing o" past deals as compared to the target7s "inancial per"ormance and una""ected (pre(announcement) market value

Cogent Analytics M&A Manual

Transactions selected should be as comparable to our proposed transaction as possible* so one should look "or recent deals* where a company with highly similar business was ac&uired* in the same country as the target etc# The most common ones are same as in the case o" public comps but* additionally* transaction comps also cover Premium paid (,""er price premium as C o" 4(day* 4(week and G(week trading prices)#

'"( )Merger model has this alread* +uilt into it, $iscount unleveraged proFected "ree cash "lows (or in some cases dividendable income) at Company7s cost o" capital to obtain an economic present value o" assets# 'ubtract market value o" outstanding net debt and pre"erred capital "rom the present value o" assets to get present value o" e&uity# %ree cash "low is a"ter(ta1 operating earnings plus non(cash charges less increases in working capital less capital e1penditures# (,n leveraged $C% analysis* "ree cash "low is reduced by a"ter(ta1 interest e1pense)

'ensitivities on discount rates* terminal value assumptions and operating scenarios are "re&uently used to estimate the uncertainty in the values obtained

B# <oal is to understand how much value a "inancial buyer (with no operating synergies) could buy the target "or

To understand the economics o" an -., lets do an e1ampleD Company !7s e&uity market capitali6ation is @455MM and it has $ebt o" @H3MM# This year it reported 0.)T$! o" @35MM# ! "inancial sponsor reali6es that the even i" it bought the stock at a B5C premium to market "or @4B5MM* it could generate attractive returns# 'o* the sponsor approaches management and structure a deal where the "irm borrows an additional @455MM to buy back stock# The sponsor supplies the remaining @B5MM re&uired to buy the public "loat and ends up owning a 455C o" the e&uity o" the "irm# The new "irm has @H3MM o" old and @455MM o" new debt outstanding which is sustained by the @35MM o" annual 0.)T$! and an e&uity cushion o" @B5MM# To "inance a -.,* the restructured company has to have a $ebt to Total Capitali6ation ($ebtI0&uity) not e1ceeding ;5C and a $ebt to 0.)T$! 4

Cogent Analytics M&A Manual

ratio that does not e1ceed 3#51# >ote that these could vary based on the nature o" the industry#

!ssume current market scenarios "or pricing the new debt The e1it mechanism is an important element since it de"ines what the sponsor will do in* say* 3 years to e1it the investment# )n other words* is the sponsor planning an )P, or sale to strategic playersJ The sponsor7s returns will be driven by 0.)T$! growth rate* margins improvements* Cape1* and e1it multiples )n a -.,* the entire e&uity is privately held* while in a -everaged 2ecapitali6ation* there is usually a small percentage owned by publicly#

Cogent Analytics M&A Manual

$elected Pu+lic "om-s statistics e.-lained

)/,

"losing -rice: most recent closing stock price ("rom .loomberg* )-K or Populator)# Prices "or all companies should be as o" the same date# 1quit* value: last closing stock price multiplied by number o" shares outstanding# 'hares outstanding "rom "ront page o" latest 458* 459* or other public document adFusted "or options or other instruments in e1istence (i" applicable)# >ote date o" shares outstanding on the e1hibit# The "ollowing is a list o" de"initions o" shares outstandingD .asicD The actual outstanding shares which can be "ound on the cover o" the latest 459 or 458# $ilutedD This is the .asic shares plus the dilutive impact o" any in(the( money options or warrants that are outstanding as calculated by the Treasury stock adFustment method# -ook "or average strike price and i" lower than closing price then assume would convert# -ook at public comps template# ,ption in"o is in 458# %ully dilutedD .asic I !ll options and warrants (as i" all converted into e&uity) !verageD This calculates the average shares that were outstanding during the year or &uarter (irm value )or 1nter-rise Value,: 1quit* market value 3 T de+t 3 $T de+t 3 -referred stock 3 Minorit* !nterest )4, cash# (0nterprise value may value "rom "irm to "irm or industry to industry sum o" total value o" "irm# Comes "rom cash "lows o" business#)

)0,

)2,

?se net income to common "or common share price ?p to 0.)T still enterprise L7s# !s soon as you pay interest the net income belongs to e&uity holders#

T de+t: "rom latest 458A9 under >AC liabilities -T debt plus redeemable p"d# (,ther types o" p"d# stock are not considered -T debt#)

Cogent Analytics M&A Manual

$T de+t: "rom latest 458A9 under current liabilities 'T borrowings* bank notes* loans* plus accrued interest and current maturities o" -T debt (i" any) Preferred stock: "rom latest 458A9 under stockholders7 e&uity# ?se market values* i" possible* otherwise book values# (Market value can "re&uently be obtained "rom .loomberg#) "ash: "rom latest 458A9 cash and cash e&uivalents plus marketable securities (i" any) "ommon (irm Value multi-les are: %=A2evenues* %=A0.)T$!* %=A0.)T* %=ACash"low* %=ACustomers etc# +e do >,T calculate %=A>et )ncome or %=A.ook =alue since the denominators in these belong to e&uity holders and so they are 0&uity multiples not %irm value multiples# )5, 1quit* value multi-les: +hile the %irm value multiples re"lect how the business is valued* e&uity multiples re"lect how e&uities are valued relative to the net income or 0P' (-TM and proFected) and .ook value (latest available)# $ivide the -TM >) by the weighted average number o" shares outstanding "rom the most recent 459 to calculate -TM 0P'# )'o not use TM average shares6, $ivide stock price by -TM 0P'

Pro7ected P81: <et median )A.A0A' estimates "or the ne1t two years# (!vailable on .loomberg* )n"ocenter* )nsight* or Populator by inputting M )$$ (ticker* %E4M0$)! or %E:M0$)!* 5)# These estimates are reported on "ully diluted basis and updated every Thursday# !lways use median )A.A0A' (not mean) to avoid skewed data values# Calendari6e earnings estimates as needed Pro7ected net income multi-le: Multiply "orward )A.A0A' by )A.A0A' proFected weighted average shares outstanding (M)$$ (ticker* ibesshrs* 5) to obtain proFected net income# )&ote that !8B818$ shares are not full* diluted and are source from 1.lel not 9street: anal*sts. !t is thus im-ortant to check to see that !8B818$ -ro7ected shares outstanding are consistent with credi+le +rokerage re-orts; if not< use most recent /=4> shares outstanding to derive full* diluted shares., $ivide proFected net income into current e&uity value# )?, ong4term 1P$ growth rate: <et median )A.A0A' estimate "rom )n"ocenter* )nsight* or Populator by typing M )$$ (ticker* M0$-T<* 7

Cogent Analytics M&A Manual

5)# These estimates are updated every Thursday# )t is advisable to crosscheck this with analyst reports# (.loomberg) )@, #ther equit* multi-les:) look at P1A ratios, Price8+ook value -er share: .ook value e&ual to sum o" common e&uity accounts on most recent "inancial stated divided by most recent number o" shares outstandingN this result then divided into most recent stock price# Price8cash flow -er share: Cash "low re"ers to operating cash "low* or >) plus $ ! plus de"erred ta1es plus other non(cash charges* divided by average number o" shares outstandingN this result is then divided into most recent stock price# )B, ast /04Month )9 TM:, statistics: )n order to see how a "irm trades it is customary to calculate -TM 2evenues* 0.)T$!* 0.)T* Cash"low and >et )ncome or 0P' (be"ore any e1traordinary items)# 'ay* you are spreading comps in 'eptember :554 "or a company that has a Oan($ec "inancial year# Eou would calculate the -TM 0.)T$! as "ollowsD %E0 4:AB4A55 0.)T$! ("rom 458) I P(Month 0.)T$! "or :554 ("rom the 459 dated PAB5A54) (() P(Month 0.)T$! "or :555 ("rom the 459 dated PAB5A54)# Pro7ected firm value statistics: )n addition to -TM multiples* its customary to look at the multiples o" 4 and : year "orward 2evenues* 0.)T$!* 0.)T etc# +e usually cite recent e&uity analyst reports as sources "or publicly available proFections# /owever* we could also make our own (private) proFections and use them "or calculation multiples# To adFust proFected net incomeD 0.T M (>) I (Pre"# $ividends I Minority )nterest)) Q (4 ( marginal ta1 rate) 0.)T M 0.T I net interest e1pense 0.)T$! M 0.)T I $epreciation I !morti6ation

)C,

Cogent Analytics M&A Manual

Publicly Traded Comparable Company Analysis (Sample)

"losing "om-an* Comp 4 Comp : Comp B Comp G Comp 3 Mean Median PriceE (@)

1quit* ValueF (@MM)

(irm ValueG (@MM)

(irm value8 TM %evenue (1) 1B!T'A (1) 1B!T (1)

(irm value8(D/ )first -ro7. *ear, 1B!T'A 1B!T (1) (1)

Price -er share81P$ TM (D/ (D0

T growth rate (C)

#-tional multi-les P/BVPS (x) P/CFPS (x)

Company "inancials )mplied "irm value >et debt )mplied e&uity value )mplied e&uity value per share )mplied premiumA (discount)

R .ased on closing stock price as o" (date) S .ased on (L) shares outstanding "rom the latest 458A9 dated (8A9 date) T 0&uity value plus total debt less cash

Cogent Analytics M&A Manual

Trading com-ara+les 1.hi+it: $elected o-erating statistics


Pro7ected T growth rates "om-an* Comp 4 Comp : Comp B Comp G Comp 3 Mean Median "om-an* R 0stimated C!<2 over the ne1t "ive years based on the =alue -ine report as o" (date) S Cash "low as de"ined by =alue -ine T Median estimated C!<2 o" 0P' over the ne1t "ive years based on the )A.A0A' report as o" (date) Business descri-tion TM 1B!T margin $alesE (C) "( E<F (C) (ive4*ear 1P$G (C) (C) TM 1B!T'A Margin (C) TM leverage Ad7usted Ad7usted +ook market (C) (C) TM 1B!T8interest (1)

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Cogent Analytics M&A Manual

Trading comparables 1.hi+it: $elected credit and o-erating statistics


ArowthF $ales "om-an*E Comp 4 Comp : Comp B Comp G Comp 3 Mean Median "om-an* !ll "inancial in"ormation is be"ore e1traordinary items# !ll -TM "igures are "or the period ending (latest 458A9 date)# Three(year averages "or the "iscal years (date)(date) : >e1t 3(years average annual 0P' growth rate represents mean estimates "rom )A.A0A' report o" (date) B Total debt divided by total debt and book value as o" (latest 458A9) G Total debt divided by total debt and current market value 3 0.)T divided by gross interest e1pense
4

Margins 1B!T &?DA (C) 2DA (C) TM (C) 1arnings 2DA (C) TM (C)

%eturns %#1 (D (C) %#" (D (C) everage BookG (C) Mkt.


5

"redit !nterest coverage? 2DA (1) TM (1) (C) $&P8Md* %ating

1arnings 2DA (C)

2DA (C)

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Cogent Analytics M&A Manual

$elected o-erating statistics e.-lained


Objecti e !ssist e1planation o" e&uity trading multiples by analy6ing key operating "igures and ratios# !"planation )/, Pro7ected T growth rates: <et =alue -ine (in the -ibrary) estimates "or sales and cash "lowN )A.A0A' estimates "rom Populator "or 0P' H !'' )9ticker<: 9M1' TA<: =,I )0, TM 1B!T margin: 01clude any e1traordinary items and one(time occurrences (e#g#* restructuring charges)# $ivide -TM 0.)T by -TM total revenues# ?se most recent "inancial statements "or these "igures TM leverage: Book leverage: divide total debt by sum o" e&uity accounts "rom latest 458A9 and total debt

)2,

Market leverage: divide total debt by sum o" e&uity market value* pre"erred stock (pre"erably market value) and total debt

)5,

TM 1B!T8interest: $ivide 0.)T (including interest income) by gross interest e1pense (not net o" interest income) Arowth J calculating the "AA% )com-ound annual growth rate,: $e"initionD value that simpli"ies observed data into one number that is descriptive* accurate and meaning"ul to others &B: Khen growth rates are used in e.hi+its< the* should +e clearl* identified as 9n4*ear com-ound annual growth rates.: The method of estimation )i.e.< 9log linear least squares method:, ma* +e s-ecified in a footnote< since it is normall* not necessar* to tell the reader how to inter-ret the statistic.

)?,

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Cogent Analytics M&A Manual

)@,

%eturns on equit* and ca-ital: 2,0D numerator is sum o" >) (e1cluding e1traordinary items) and minority interestN this result divided by average stockholders7 e&uity (including minority interest)# 'um beginning and ending period e&uity accounts (not including pre"erred stock) and divide by two to get average stockholders e&uity

2,CD >umerator is 0.)T (e1cluding e1traordinary items)N this number divided by average book capitali6ation# 'um beginning and ending period e&uity accounts (including pre"erred stock) and divide by two to get average book capitali6ation

)B,

$&P8Mood*Ls ratings: Call ' P at 0/040=C4/?0B and Moody7s at 0/04??24=2BBN ask "or the current senior secured rating# !lternatively* library has re"erence books with recent ratings

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Cogent Analytics M&A Manual

$ummar* of in-uts and out-uts

!tem -atest indicated annual dividend Common shares outstanding !verage shares outstanding -T debt 'T debt .ook value <ross interest e1pense >et interest e1pense

1.-lanation and source -ast &uarterly dividend paid times G# !vailable on .loomberg or latest 458A9 ?sed "or e&uity and "irm valuations# ,n the "ront page o" the latest 458A9 near the bottom ?sed "or 0P' calculations# (458A9) -T debt plus redeemable p"d# stock plus minority interests (i" any)# ,ther types o" p"d# stock are not considered -T debt# (458A9) ?nder current liabilities* short(term borrowings or bank notes* plus current maturities o" -T debt* i" any (458A9) Common 'hareholders7 0&uity (458A9) )nterest e1pense "rom income statement (458A9) )nterest e1pense "rom income statement less interest income and less ca-italiMed interest which is usually "ound in the PP 0 "ootnote (458A9) $epreciation* depletion* amorti6ation are on the cash "low statement (some 459s may not disclose) 0arnings be"ore gross interest e1pense and ta1es but a"ter minority interest and e&uity interest in subsidiaries 0.)T plus $* $ ! >et income plus $* $ ! plus changes in de"erred ta1es plus other noncash charges# (%rom cash "low statement* but be"ore working capital changes* which are discretionary) %ully diluted* be"ore e1traordinary items# +atch "or stock splitsN i" net incomeAshares outstanding di""ers "rom 0P' by more than 45 percent* try to "ind any# 2emember that some discrepancy is normal* as total shares outstanding does not usually e&ual "ully diluted weighted average shares outstanding =alue -ine or brokerage reports =alue -ine or brokerage reports )A.A0A' or %irst Call

$* $ ! 0.)T 0.)T$! ,perating cash "low

0P'

ProFected cash "low ProFected sales ProFected 0P'

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Cogent Analytics M&A Manual

1.hi+it: #ut-uts to the com-ara+les


!tem 0&uity value 0&uity capitali6ation %irm value PriceAearnings PriceAcash "low $ividend yield PriceAbook Percent payout )nterest coverage %irm valueA0.)T
4

%eci-e< comments 'tock price 1 common shares outstanding 0&uity value I -T debt 0&uity value I -T debt I 'T debt cash (I minority interest* i" added back to 0.)T and 0.)T$!) 'tock priceA0P' or e&uity valueAnet income (see 0P') 'tock priceAoperating cash "low per share !nnual dividendAstock price 'tock priceAbook value per share !nnual dividendA0P' 0.)TAgross interest e1pense

%irm valueA0.)T$!4 %irm valueAsales4


4

The idea is that since 0.)T* 0.)T$!* and sales are not a""ected by the Company7s choice o" capital structure (as cash "low* earnings* 0P'* and book value are) the appropriate multiples use total capital and not Fust e&uity capital

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Cogent Analytics M&A Manual

"om-ara+le transactions anal*sis


Typically* we begin with a '$C search "or transactions in particular industry or ')C code# !dditionally* one can usually "ind applicable transactions by looking at the ac&uisitions announced by companies in the peer group (o" public comps by using the .loomberg "unction C!C') and by reading the "airness opinions "or these transactions "rom the merger pro1ies#

/. 0.

'ate of announcement: Public announcement date (not rumor date)# %rom '$C output (check against news articles) Target8target: )ndicate ac&uiring company and target company or subsidiary o" target company with parent o" subsidiary in parenthesis# %rom '$C output "onsideration8transaction terms: )ndicate consideration paid (cash* notes* stock) and terms o""ered (percent ac&uiredN e1change ratio* o""er price per share* debt assumption* competitive or negotiated bidding* etc#)# %rom '$C output and public documents $tatus: )ndicate i" transaction is pending* closed or terminated ("ootnote reason "or termination o" transaction)# %rom '$C output 1quit* -urchase -rice: 0&uity value paid M ,""er price 1 Target shares (cash transaction)N !c&uirer issue price 1 01change ratio 1 Target shares (stock transaction)# %rom ;8 or pro1y/ Aggregate -urchase -rice: 0&uity value paid I Target debt assumed0 Target cash Premium over market: Premium paid to get control o" a target company# 0&ual to ((o""er price per target share (cash transaction) or issue price per ac&uirer share times e1change ratio (stock transaction)) Q (the una""ected share price) 4) 1 455 >#.#D ?na""ected share price is target share price one week prior to announcement# )n instances where a transaction has been rumored "or some time* it may be appropriate to use a longer time "rame to calculate the una""ected share price

2.

5. ?.

@. B.

C.

Transaction multi-les (a) Calculate -TM 2evenue* 0.)T$!* 0.)T* and net income using the latest "inancial statements prior to the announcement o" the Transaction# 'ee Trading Comparables i" unclear on calculating -TM numbers 16

Cogent Analytics M&A Manual

(b) Calculate .ook =alue by taking Common 0&uity accounts "rom the annual report or 458A9 immediately prior to the date o" the transaction# (c) $ivide .ook value and -TM net income into the e&uity purchase priceN divide -TM 2evenues* 0.)T$! and 0.)T into !ggregate purchase price# The results are the comparable transactions multiples# N. 1stimated TA rate: Calculate estimated long(term growth rate by taking the latest median )A.A0A' -T< rate prior to announcement o" transaction# (!vailable on )ntracenter* )nsight or Populator)

/=. 'escri-tion of TargetLs +usiness: 'ummary o" target7s business activitiesN "rom .loomberg* ' P Tear 'heets* or =alue -ine //. #ther transaction multi-les (Check with senior team member to ascertain whether inclusion is appropriate) (a) PA0 ( price earnings ratio can be calculated by dividing the o""er price per target share (cash transaction) or the issue price per ac&uirer share times the e1change ratio (stock transaction) by -TM 0P' available prior to transaction date &B: This is not the same multi-le as dividing the 1quit* -urchase -rice +* TM net income. Transaction P81 value are often com-ared to the P81 values of a com-ara+le industr* or com-osite grou- on the transaction date. (b) PriceA,perating Cash %lowD $ivide o""er price per target share (cash transaction) or issue price per ac&uirer share times e1change ratio (stock transaction) by -TM ,C% available prior to transaction date

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Cogent Analytics M&A Manual

1.hi+it: Premiums and multi-les -aid on com-ara+le transactions


Aggregate -urchase -rice as a multi-le of TM: Acquirer8 Target Ann. 'ate "onsideration8 transaction terms O Vote acquire. Agg. -urch. -rice (@MM) >o >o B5#5 4:P#5 !m-lied mkt. ca(@MM) :3H#B GGG#H !m-lied firm value (@MM) (4) 4UP#U B3;#4 Prem. over mkt. (C) (:) (4B#5) (P#U) TM &! (1) >M >M Book value (1) 4#; :#B !m-lied firm value as a multi-le of TM 1st. TA %ate (C) (B) 4H#3 4;#5 .iopesticidesN crop protection .iopesticidesN crop protection >M Target Business 'escri-tion

$tatus

"ontrolP

$ales (1) 4#H :#U

1B!T'A (1) >M >M

1B!T (1) >M >M

(C) Ag4+iotechnolog* J M*cogen transactions PioneerAMycogen UA4;AU3 CashN privateN BMM primary shares V @45N Closed 4B#G also* @:4MM "or 2 $ "unding $ow0lancoAMycogen 4A43AUP Privately negotiated purchase o" Closed BP#P secondary U#3MM shares* "rom -ubri6olN MycogenA-ubri6ol 4A43AUP .uyback o" 4U#GPC stake in Mycogen 'eeds "rom -ubri6ol "or 4#3MM primary sharesN separately* -ubri6ol converts pre"erred shares* into 4#;MM primary shares V 4H#BU; (:3C premium over average closing price during prior P5 days) MycogenA?nited !griseeds 4A43AUP Concurrent sale by ($ow0lanco to MEC, Closed 455#5 "or G#3MM shares# (4G#;C) and @:P#GMM cash ($ow0lanco7s MEC, stake raised to GP#4C) )mplied MEC, valuation V @4P per share (last close pre issuance o" G#3MM shares# to $ow0lanco) $ow0lancoAMycogen 4:AGAUP >egotiated purchase o" 4MM shares# "rom Closed B#B Co# to thwart Monsanto overturesN $0 stake over 35C Ag4+iotechnolog* J "algene transactions MonsantoACalgene PA:;AU3 B5#:MM primary shares (GU#UC) in e1# "or Closed GU#U @B5#5MM cash* oils produce techn#* <argiolyo (tomato germ plasm)N privately negotiated reorg# wApurchase acct# MonsantoACalgene HAB4AUP CashN P#:3MM primary shares V G;#55 Closed G#H privately negotiatedN MTC gains .oard control with 3G#PC voting block MonsantoACalgene 4A:HAUH Two(step cash o""er "or last G3C stakeN Pending G3#G original o""er o" @H#:3 in Oan#* 4UUH* privately negotiated "inal o""er V @;#55 Ag4+iotechnolog* J other transactions .ionova (0-M)A$>! Plant 4A:UAUP 'tock swap reverse merger $>!P is Closed H5#5 Tech# surviving entity s# 0-M as H5C owner and .ionova mgmt# @BUMM deal based on last $>!P close o" @H per share !g0vo (/oechstA'chering) ;A:BAUP Competitive bidding serious interest "rom Closed H5#5 Plant <enetic 'ystems >ovartis* $uPont* .ayer and Weneca

Ees

U;#G

U;#G

U;#G

/ybrid seed corn soybean

>o Ees

H: 4P#;

3BP#P 3;H#U

P:B#B 33P#H

4:#B 5#5

>M >M

:#H B#G

3#5 B#3

>M >M

>M >M

4;#5 :5#5

.iopesticidesN crop protection

>o

4GG#:

:UU#;

:P;#5

(B5#3)

>M

P#3

G#;

>M

>M

>!

%ood* seed and oleochemical biotech# %ood* seed and oleochemical biotech# %ood* seed and oleochemical biotech Plant cellular genetics

Ees

35#5

3HB#4

P:5#3

;5#B

>M

P#4

P#3

>M

>M

:5#5

>o

:G:#P

3HB#G

P43#B

PG#4

>M

H#:

G#5

>M

>M

:5#5

Ees

B;#P

PB#G

PH#U

(:3#B)

>M

>M

G#3

>M

>M

35#5

Ees

335#5

H;3#H

>!

>!

>!

>!

X455

>!

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Plant biotechnology

Ag4+iotechnolog* J all transactions MeanD 45#4 >! MedianD (B#3) >!


4 : B

G#B B#G

G#4 G#B

>! >!

>! >!

:B#G :5#5

0&ual to amount paid per share times the pro "orma number o" shares outstanding (including options) 0&ual to implied market capitali6ation plus total pro "orma net debt ?na""ected price de"ined as closing price one week prior to transaction announcement G Median estimated C!<2 o" 0P' over the "ive years post announcement date* based on the latest )A.A0A' report as o" transaction announcement

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Cogent Analytics M&A Manual

'iscounted "ash (low )9'"(:,


Unlevered and evered '"(s:
-evered $C% involves discounting cash "lows available to e&uity holders i#e# the cash "low a"ter interest and scheduled debt repayments# The discount rate is the e&uity cost o" capital# ?nlevered $C% discounts the "irm7s "ree cash "lows by the +!CC# ?nlevered means not looking at capital structure but rather C% to business#

(ree "ash (low )9("(:,


#e$inition% Cash "low generated by all assets employed in business (tangible and intangible)

?nlevered ("ree "rom "inancing considerations) !ccrual to all providers o" capital

Calculation% >et income (e1cluding e1traordinary items and be"ore pre"erred dividends* e&uity income and minority interest) I !"ter(ta1 interest e1pense (net interest e1pense (4( average ta1 rate)) I $epreciation amorti6ation de"erred ta1es other non(cash charges Capital e1penditures $i""erence between beginning and ending >et +orking )nvestment (>+)) M %ree cash "low (unlevered) &B: contrasted with cash flow from o-erations )net income availa+le to common shareholders 3 de-reciation & amortiMation 3 deferred ta.es 3 non4cash charges, Khether *ou use levered8unlevered J equit* value should come out to same amount. KA"" is -ro7ect s-ecific J the* ma* use acquirerLs KA"" instead.

19

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