Lecture 5 - Case Study: Comparable Analysis

Describe the background behind comparable analysis for ValueCo

Background:

• Purpose: Show how trading companies are used to value the illustrative company ValueCo

• Assumption: ValueCo is a private company in a formal M&A sale process

• All financials/multiples in the book assume normalised market conditions

• Study the target

  • Gather info on sector, products, customers, competitors, distribution channels, end markets

  • Review historical financials and projections

  • Sources: CIM/CIP, management presentation, data room (eg. Datasite)

Describe screening for comparable companies

• Identified ValueCo’s public competitors using the CIM and industry reports

• Reviewed equity research for additional comparables identified by analysts

• Examined fairness opinion excerpts in recent sector M&A proxy statements

• Screened companies using relevant SIC/NAICS codes to broaden coverage

• Compiled an initial peer list and summary financial profiles using a financial data service

How do you locate the necessary financial information of these companies?

• SEC filings (10-K and 10-Q)

• Earnings announcement and call transcript

• 8-K/Press releases

• Consensus estimates and equity research

• Financial information service

• Moody’s and S&P websites

What information is used about a company when finding key statistics, ratios and trading multiples?

Input sheets

Describe the general information on the input sheet

Describe selected market data

Describe selected market data

Describe how equity value is calculated

What then is needed to calculate enterprise value?

Balance sheet data

Describe how enterprise value is calculated

What does the reported IS look like?

How do adjust the IS for non-recurring events?

How do adjust the IS for non-recurring events?

How is the LTM return on investment ratios calculated?

How are the LTM credit statistics calculated?

How are the trading multiples calculated?

How are growth rates calculated?

What does the table look like when benchmarking the comparable companies (Pt 1)?

What does the table look like when benchmarking the comparable companies (Pt 2)?

What does the trading multiples output page look like?

How is valuation determined?

Describe the football field displaying the comparable companies