Professional Documents
Culture Documents
April 2015
Table of contents
Section 1
Introduction to UBS
Section 2
Section 3
Valuation methodologies
Section 4
17
Section 5
19
Section 6
Q&A
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Section 1
Introduction to UBS
Rank value
(US$bn)
Financial adviser
Market
share (%)
Number of
deals
Best Investment Bank (2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013)
Best M&A DealTransurban Consortium/QML (2014), NSW Ports Consortium (2013), Foxtel/Austar
(2012), Noble/Gloucester Coal (2009), St George/Westpac (2008), AGL/Alinta (2006), Foodland (2005)
UBS
38.0
35.1
30
Goldman Sachs
37.6
34.8
29
Credit Suisse
32.1
29.7
15
Citi
31.9
29.4
Deutsche Bank
30.4
28.1
10
Macquarie
30.0
27.7
42
Morgan Stanley
27.5
25.5
15
BAML
26.7
24.7
12
Rothschild
20.6
19.1
14
ASIAMONEY
10
JP Morgan
20.6
19.0
12
2013
2012
2011
2010
2009
UBS
Goldman Sachs
2008
2007
10
16
15
12
12
20
Deutsche Bank
14
11
Macquarie
Morgan Stanley
10
10
15
17
18
17
10
Rothschild
11
12
15
10
20
15
JP Morgan
12
BAML
Best IPOHealthscope (2014), Virtus Health (2013), QR National (2010), Boart Longyear (2007)
Best Equity-Linked DealSuncorp (2013, 2012), ANZ (2011), Westpac (2009)
Best Local Bond DealAOFM (2013), BP (2012), AOFM (2011),Tabcorp (2009),
AMP (2008), Swiss Re (2007)
Rank
Citi
Credit Suisse
Most Innovative DealWestfield/Scentre demerger (2014), Origin Energy EUR500m hybrid (2011);
PBL Media spin off and LBO (2006)
Source:
Thomson Financial, UBS
Notes:
1
Any Australian involvement, 2014 completed deals for the year ending December 2014
2
Total market share may be greater than 100% as full credit is given to each eligible adviser
3
Any Australian involvement, completed deals
Best Investment Bank (2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013)
Best M&A Bank (2005, 2006, 2012)
Best Overall Broker (2006, 2007, 2008, 2009, 2010, 2011, 2012)
Best Research, Derivatives, ECM & Dealing (2003, 2004, 2005, 2006,
2007, 2009, 2010, 2011, 2012, 2014)
Best Equity Capital Markets Bank (2010, 2011, 2012, 2013, 2014)
Current
Current
Current
February 2015
February 2015
February 2015
December 2014
November 2014
November 2014
October 2014
August 2014
July 2014
Information
barrier
Investor Client Solutions
Foreign Exchange
Leveraged Capital Markets
Securities Research
(also behind research information barrier)
Corporate Lending
Prime Services
Public information
Non-public information
Support functions / logistics
Section 2
Business growth
M&A activity allows a company to grow more rapidly than would otherwise be possible
through its existing operations
When a company acquires another company, it gains control of the targets assets, enabling
the acquirer to utilise them to maximise market share and cash flows earned
Synergies
Synergies exist when a company can acquire another company and extract additional value
from the ownership of that company. They make the target company more attractive and
valuable to the acquiring company than it would be on a stand-alone basis
Strategic advantages
A strategic acquisition can often benefit the business operations of the acquiring company by
expanding operations to include downstream or upstream functions related to the acquirers
business
This often allows exposure to growing markets or businesses which may not be presently
within the field of expertise of the acquirer
Section 3
Valuation methodologies
Valuation methodologies
Company valuation is a
critical part of M&A
advice and there are
three principal
methodologies
however, remember
that valuation is an art
not a science and no
single valuation
method will provide
the right answer
Relative valuation
Most appropriate for businesses with a substantial operating history and a consistent earnings
trend that is sufficiently stable to be indicative of ongoing earnings potential
Involves capitalising earnings based on comparative trading or transaction multiples and gives
an indication of value relative to a companys peers
in the real estate sector another common relative valuation measure is premium / discount
to net tangible assets (NTA)
Leveraged buyout (LBO) analysis
Leveraged buyouts are acquisitions funded with a significant proportion of debt (leverage) and
little equity
LBO analysis determines returns based on acquisition price and optimal leverage
It is used almost exclusively for financial sponsor or private equity transactions
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General industrials,
Consumer etc.
Mining
Infrastructure
Financial
institutions
Real estate
10
Market
capitalisation
Shares
outstanding
Share
price
Enterprise
value
Net
debt
(total debt
less cash)
Market
capitalisation
Hybrids
(i.e. convertible
notes)
11
DCF valuation
DCF valuation is the
process of discounting
future cash flows
Models need to be thoughtfully constructed. This is important to ensure model integrity and the ability to
convey information to the appropriate users. Criteria for good model design include:
accuracy
flexibility
ease of understanding
summary page
assumptions (e.g. depreciation policy, product price, volume growth, tax rate)
NPV outcome
NPV sensitivities
financial statements (profit and loss, balance sheet, cash flow)
detailed calculations
Keep it simple!
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DCF valuation
Sensible cash flow
forecasts are the key to
any DCF valuation
A cash flow forecast should be prepared on an assumed time frame (do not forecast out too long because
estimates may become unreliable, generally 10 years is acceptable)
Although there are several variations of cash flow that can be used, in order to value a firm as a whole, it is
common to use the Free Cash Flow available to both debt and equity holders
Free Cash Flow to Firm (FCFF)
Description
Represents the free cash flow available to all members of the firm including both debt
holders and equity holders
Discount rate
EBIT
- Tax
- Increase in working capital
- Capex
+ Depreciation
= FCFF
Future estimates should be driven by a set of growth and margin assumptions which will help deliver the
future EBIT. These drivers should be based on historical, industry and economic data as well as any
published management guidance
Cash flows are then discounted back to present value using the relevant discount rate (i.e. WACC)
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DCF valuation
Terminal value
This represents the value of the firm in perpetuity and is based around a perpetual growth rate (usually
equal to the growth rate of the economy in which the company principally operates)
TV
Final cashflow (1 g )
WACC g
The terminal value should then be discounted back using the appropriate discount rate
Combining the present value of future cash flows together with the present value of the terminal value
returns the total enterprise value for the firm
Deducting the net debt (total debt less cash) from enterprise value allows for a firms equity value to be
calculated, which in turn can be used to calculate fair value per share
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DCF valuation
Cost of debt
Cost of hybrids
Cost of equity
What is WACC?
Target weightings in
optimal capital
structure
Equity risk
premium
5.7%
Geared equity
beta
0.800.90
Cost of equity:
9.910.4%
60%
Cost of debt:
7.5%
25%
Cost of hybrid:
8.0%
(assumed interest
cost on nonpublicly traded
convertible note)
15%
Debt risk
premium
2.20%
Depends on
particular hybrid
instrument
WACC
9.09.3%
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Relative valuation
Relative valuation is based on the principle of capitalising earnings based on comparable trading or
transaction multiples
Multiples can be applied to a number of different earnings (or cash flow) measures including EBITDA,
EBIT or NPAT. EBITDA often allows a comparison between many different companies as it is not
affected by differences in the treatment of depreciation and amortisation or capital structure choices
Multiples are an attractive valuation tool because they are easy to compute, however they are static
in nature
When using a multiple for valuation purposes, care should be taken to ensure that the assumptions and
circumstances underlying the multiple are clearly understood
It is also important to ensure that companies with comparable operations are selected (quality of
comparables is more important than quantity)
Low
Midpoint
High
8.0x
9.0x
10.0x
100
100
100
800
900
1,000
250
250
250
550
650
750
100
100
100
5.50
6.50
7.50
Note:
1 Start with a midpoint multiple (i.e. the average EV/EBITDA multiple of a group of comparable companies) and then adjust upwards and
downwards to create a valuation range
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Section 4
valuation
c.40%
40%
c.35%
35%
30%
c.30%
25%
One day
One week
Four weeks
Note:
1 Represents average of premium to spot price in time period
following announcement
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Section 5
Timetable
Documentation
Scheme of arrangement
Independent
expert
Independent experts report required if: (a) bidder holds more than 30% of target, or (b) common directors.
But, in any case, frequently used by targets as defence strategy or to support a scheme
Compulsory
acquisition
Deal protection
Other
considerations
Section 6
Q&A
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