The Next Phase of Strategic Acquisition

Joseph Calandro, Jr.

The Journal Of Private Equity, Vol. 19, No. 1, Winter 2016

The objective behind this article is to assess the value and risks of Disneys 2009 $4 billion acquisition of the
Marvel Entertainment Group (Marvel) in a case study utilizing the modern Graham and Dodd valuation approach
and profiling the phase-by-phase progression of buyouts from the classic phase to the present time.

The methodology used to present a detailed valuation of Marvel in 2009 is drawn upon previously published Graham
and Dodd methodological materials and Marvels publicly available financial reports wherein balance sheets,
income statements and ratio profiles have been worked upon.

Findings: Disneys $4 billion acquisition price for Marvel contained considerable risks based on certain valuation
assumptions, which were identified in the context of the analysis while the factors that were favorable were based in
the opportunistic, competitive advantage and flexibility approach. Through post acquisition analysis, it has been
suggested that buyout targets should involve enterprises that are highly profitable and valued as such. Also,
creating value from such a deal mandates intensive management of both sides of balance sheet in an integrated
manner, as well as an appreciation of the interactive dynamics of doing so over time. It also concludes that wherein
private equity was founded through financial leverage after acquisition, a more balanced debt-equity-cash ratio would
have led to better results.

Practical and research implications: This acquisition is a useful one for executives to study because it involves a
situation many of them could face: evaluating the purchase of a great company that is seemingly a strategic fit and
offered at what appears to be a reasonable price. Assessing such opportunities utilizing the modern Graham and
Dodd valuation approach facilitates greater levels of insight into key assumptions, value drivers, and risks. This is a
methodology that has proved useful to successful value investors over time.

The originality and value can be derived from the lessons executives in many industries can learn from a Graham
and Dodd-based valuation of the 2009 Disney acquisition of Marvel include: better risk assessment, valuation of
entertainment property assets and franchise assessment. The same ideas can be strengthened and worked on
by calculating the various operating ratios and the financial ratios of Disney over the years before and after the
merger and critically acclaim the growth in the value of the stock of Disney subsequent the merger to give the study
more of a practical conclusion than that of a theoretical one.