Strictly Private and Confidential
This document is an extract of the full report www.evaluation.us
TAILORED VALUATION [Company XYZ] January 2011
New York - London – Miami - Madrid
Strictly Private and Confidential
www.evaluation.us
INDEX Page 1. Aim of the report and Executive Summary
4
2. Financial Hypothesis
6
3. Valuation Methodology
12
4. Trading Valuation
19
5. Private Transactions Valuation
22
6. DCF Valuation
26
7. Conclusion: Valuation Range
30
Appendix I. e-Valuation Company Presentation
32
II. WACC Calculation
33
III. Historical and Projected Financial Statements
34
IV. Difference Between Value and Price
37
V. Glossary
38
VI. e-Vauation’s References
39
VII. Contact Details
40
Estrictamente Privado y Confidencial
January 2011
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COMPANY XYZ – TAILORED VALUATION
3. Valuation Methodology
Introduction
In order to carry out XYZ’s valuation, e-Valora has used contrasted, generally accepted valuation methodologies: the Discounted Cash Flows methodology (DCF), the Multiples of Trading Comparable Companies methodology and the Multiples of Private Transactions methodology. The application of each of these methodologies, results in a specific valuation range for XYZ. In order to establish an estimated valuation range for the company, e-Valora calculates a weighted average of the results of the different methodologies, where the different weights are estimated using its own criteria and experience. We believe that the use of all of these methodologies improves the reliability of the valuation obtained given that they are complementary. Furthermore, it allows us to contrast the results of one and other (including the basic
assumptions made).
In the case of the DCF methodology, the assumptions that are considered are based on e-Valora’s estimates. Such information allows a qualitative and quantitative analysis of the current and expected future situation of XYZ.
If the strategy carried out by the Company in the future is different from the one that has been considered
according to the information provided by the Client, or if such information differs from reality, our view about the value of XYZ would vary accordingly.
Each of the methodologies mentioned take into account the information of XYZ in a different way, providing a complementary view of the company’s value.
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COMPANY XYZ – TAILORED VALUATION
January 2011
4. Trading Valuation
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Valuation using Multiples of Trading Comparable Companies (continuation)
According to the multiples found and weighting each of them as indicated in the following table, the company’s valuation range would be of between 169.172 and 186.980 Euros.
VALUATION USING MULTIPLES OF TRADING COMPARABLE COMPANIES
Companies Euros Mean Company XYZ's Magnitudes Results: Value of the Company Weights
E.V./EBITDA1
E.V./Turnover
E.V./EBIT2
PER3
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
0,35x
0,36x
0,30x
10,9x
7,4x
5,4x
16,9x
9,9x
7,0x
25,9x
15,6x
10,3x
4.421.756 1.564.738
4.386.531 1.559.332
4.474.261 1.322.394
14.549 159.030
17.414 129.028
19.490 105.893
14.372 242.783
17.062 168.805
18.958 132.625
10.779 170.328
12.796 91.225
14.219 145.949
5%
5%
5%
50%
50%
50%
25%
25%
25%
20%
20%
20%
2010
2011
2012
Value of the Company
388.776
275.907
298.172
Value of the Company reduced by 20%
311.021
220.726
238.538
Company Value Estimation USING MULTIPLES OF TRADING COMPARABLE COMPANIES
256.761 Euros
RANGE
5%
COMPANY'S VALUATION RANGE USING MULTIPLES OF TRADING COMPARABLE COMPANIES
243.923
269.599 Euros
- Net Debt (Negative)
108.765
108.765
VALUATION RANGE OF THE COMPANY'S EQUITY USING MULTIPLES OF TRADING COMPARABLE COMPANIES
352.688
378.365 Euros
Note 1 : EBITDA stands for Earnings before interest, taxes, depreciation and amortisation Nota 2: EBIT stands for Earnings before interest and taxes Nota 3: PER is equal to the company's market capitalization divided by the profit/loss (after taxation)
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January 2011
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5. Private Transactions Valuation
Valuation using Multiples of Private Transactions (continuation)
According to this approach, the company’s valuation range would be of between 162.226 and 179.303 Euros. The weight of the results obtained trough this methodology in the company’s final valuation are low for the reasons that have been previously explained.
XYZ'S VALUATION USING MULTIPLES OF PRIVATE TRANSACTIONS
Euros
E.V./ Turnover
E.V./EBITDA
E.V./EBIT
PER
Mean
0,34x
7,86x
9,29x
18,88x
Magnitudes 2009 of the Company
4.421.756
14.549
14.372
10.779
Results: Valuation of the Company
1.510.237
114.413
133.494
271.260
5%
50%
30%
15%
Weights
Company Value Estimation USING MULTIPLES OF PRIVATE TRANSACTIONS
213.456 Euros
Value of the company dicounting a 20%
170.765
RANGE COMPANY'S VALUATION RANGE USING MULTIPLES OF PRIVATE TRANSACTIONS
- Net Debt VALUATION RANGE OF THE COMPANY'S EQUITY USING MULTIPLES OF PRIVATE TRANSACTIONS
5%
162.226
179.303 Euros
(67.806) (67.806) 94.420
111.497 Euros
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COMPANY XYZ – TAILORED VALUATION
January 2011
7. Conclusion: Valuation Range
www.e-valuation.us www.evaluation.us Conclusion: Final Valuation Range
Taking into account the results obtained using the different methodologies described, and considering that our reference methodology is the DCF (with a weight of 85%, compared to 10% for the multiples of Trading Comparable Companies methodology and the 5% of the multiples of Private Transactions methodology), we obtain an average value, to which we apply a reliability range of +/- 5%.
Taking into account such assumptions, we conclude that the final valuation range for XYZ is the following : between 247.163 and 273.180 Euros.
DCF
256.971
Private Comparable Transactions
162.226
Trading Comparable Companies
169.172
179.303
186.980
Total
247.163
50.000
100.000
150.000
284.021
200.000
250.000
273.180
300.000
Equity’s Market Value
To calculate the market value of XYZ’s shares (Equity Value), the company’s net debt (it shows a company's overall debt situation by netting the value of a company's liabilities and debts with its cash and other similar liquid assets) at the moment of the valuation has to be subtracted from the enterprise value previously calculated.
Based on the historical data provided by the company, and considering the company’s net debt as of December of 2008 (1,669,850 Euros), the valuation range of the its Equity would be of between 179.357 y 205.374 Euros.
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Estrictamente Privado y Confidencial
COMPANY XYZ – TAILORED VALUATION
January 2011
Appendix I. e-Valora Company Presentation
www.e-valuation.us www.evaluation.us
e-Valora offers financial consulting services to the private as well as to the public sector, and is specialized in company valuations. Among other services provided, we must highlight advisory services towards mergers and acquisitions, the elaboration of economic and financial studies, business and viability plans, and financial and business consulting services.
Since its foundation in November of 2000 by a team of experts coming from international investment banks, eValora has carried out more than 1,000 valuations of Spanish and foreign companies, from companies with less than 1 million Euros of turnover to companies with more than 500 million Euros of turnover, from start-ups to companies with more than 80 years of history, including services and industrial companies.
At the end of 2008, e-Valora increased its professional team with members that have a wide experience in investment banking, coming from entities such as Bank of America or Rothschild, that have worked in projects belonging to every economic sector.
e-Valora has got ISO 9001 Certification in Business Valuation Services, Corporate Finance Advisory Services and Elaboration of Valuation Multiples.
Its offices locations and contact details are the following :
e-Valuation Financial Services North America 14 Wall Street, 20th Floor New York City, New York 10005 United States of America
e-Valuation Financial Services Northern Europe One Canada Square, 29th Floor, Canary Wharf London E14 5DY United Kingdom
e-Valuation Financial Services Central and South America Brickell Avenue, 11th Floor Miami, 33131 United States of America
e-Valuation Financial Services Southern Europe c/ José Ortega y Gasset, 42 Madrid, Madrid 28006 Spain
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COMPANY XYZ – TAILORED VALUATION
January 2011
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Appendix II. WACC Calculation
Calculation of the Weighted Average Cost of Capital
The cost of capital is equal to the weighted average of the cost of debt and equity
To calculate the DCF we need to estimate the company’s cost of capital: When valuing XYZ, the WACC has been calculated as the mean of the WACC of other companies that operate in the same industry In the following table we detail how such discount rate has been calculated:
Comparable Companies Company ADECCO A Company B RANDSTAD Company C MANPOWER USG People Company D Company E Kelly services Company Kforce F Company G Inc. Administaff, Average + 5 percentage points WACC
WACC 9,5% 9,7% 10,9% 9,8% 9,8% 10,0% 10,5% 10,0% 5,0% 15,00%
The calculated and adjusted discount rate is of 15,0%. A 5% has been added to such rate to take into consideration the company’s risk premium given that it is smaller than its comparables, its equity has no liquidity and its turnover is very concentrated.
Nota 1: WACC: Weighted Average Cost of Capital
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January 2011
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Appendix III. Historical and Projected Financial Statements
Balance Sheet (Euros) ASSETS FIXED ASSETS Tangible assets Machinery Other Installations Tangibles Accumulated Depreciation CURRENT ASSETS Debtors Clients' Average payment days from invoice
Accounts Receivable Other Debtors Cash and cash equivalents
TOTAL ASSETS LIABILITIES EQUITY Shareholder's Equity Capital Reserves Retained Surpluses/(Accumulated losses) Profit/loss CURRENT LIABILITIES Short term debts Debts held with financial institutions Other short term debts Short term debts with associated companies Accounts Payable Suppliers Creditors Company's payment days form invoice
Pending remunerations % over sales
Income tax payable % over sales
Social Security Institutions Payable % over total staff costs
Public Treasury, Output VAT
TOTAL LIABILITIES
2007
2008
2009 N
2010
2011
2012
2013
2014
242 242 2.019 10.504 1.123 (13.404) 387.336 390.341
242 242 2.019 10.504 1.123 (13.404) 486.015 484.555
0 0 2.019 10.504 1.123 (13.645) 1.283.384 1.261.830
707 707 2.150 11.184 1.196 (13.822) 826.409 696.037
1.232 1.232 2.280 11.860 1.268 (14.175) 832.153 690.860
1.596 1.596 2.412 12.548 1.341 (14.706) 861.447 704.677
1.802 1.802 2.549 13.258 1.417 (15.422) 900.304 725.818
1.846 1.846 2.689 13.989 1.495 (16.327) 944.446 747.592
385
533
127
57
57
57
57
57
80.939 309.402 (3.005)
69.235 415.320 1.460
1.261.830 0 21.554
696.037 0 130.372
690.860 0 141.293
704.677 0 156.770
725.818 0 174.486
747.592 0 196.853
387.578
486.257
1.283.384
827.117
833.385
863.043
902.106
946.291
2007
2008
2009 N
2010
2011
2012
2013
2014
14.385 14.385 3.005 895 572 9.912 373.193 0 0 0 0 373.193 (87) 372.755
16.166 16.166 3.005 11.379 0 1.782 470.090 0 0 0 0 470.090 0 447.286
24.719 24.719 3.005 13.161 0 8.553 1.258.665 40.000 0 40.000 49.360 1.169.305 0 171.592
35.498 35.498 3.005 13.161 8.553 10.779 791.619 0 0 0 0 791.619 0 0
48.294 48.294 3.005 13.161 19.331 12.796 785.091 0 0 0 0 785.091 0 0
62.513 62.513 3.005 13.161 32.128 14.219 800.531 0 0 0 0 800.531 0 0
77.594 77.594 3.005 13.161 46.346 15.081 824.512 0 0 0 0 824.512 0 0
97.314 97.314 3.005 13.161 61.428 19.720 848.977 0 0 0 0 848.977 0 0
800
1.982
365
0
0
0
0
0
(432)
7.992
344.635
245.837
243.879
248.756
256.219
263.906
0,1%
2,4%
8,7%
5,6%
5,6%
5,6%
5,6%
5,6%
(2.303)
10.946
496.344
350.240
347.449
354.398
365.030
375.981
0,6%
3,3%
12,5%
7,9%
7,9%
7,9%
7,9%
7,9%
3.260
3.867
156.734
195.542
193.763
197.376
203.262
209.090
1,8%
1,6%
4,7%
4,7%
4,7%
4,7%
4,7%
4,7%
0
0
(0)
0
0
0
0
0
387.578
486.257
1.283.384
827.117
833.385
863.043
902.106
946.291
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January 2011
COMPANY XYZ – TAILORED VALUATION
Appendix V. Glossary
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Intangible Assets or Intangible Fixed Asset: Non-physical assets such as franchises, trademarks, patents, copyrights, goodwill, shares, securities and contracts (as distinguished from physical assets) that grant rights and privileges.
Tangible Assets or Tangible Fixed Asset: Physical assets (such as machinery, property, etc).
Amortization: Accounting procedure that gradually reduces the cost of value of an asset, tangible or intangible, (e.g. investments in research & development), through periodic charges to the profit and loss account in order to fix the costs during its estimated useful life.
Trading Comparable Companies: Those enterprises whose business value is obtained through methods that compare the company to be valued to similar enterprises. It is calculated dividing the market value of the last ones by a financial magnitude of the companies’ profit and loss account (such as net income, net sales, etc). When multiplying by the same enterprise’s magnitude of the company to be valued, we will obtain its approximate value.
EBITDA: EBITDA refers to operating profit before amortizations.
EBIT: Earnings Before Interest and Taxes.
Balance Sheet: Statement of a company’s financial position at a given point in time. Lists the assets of a company and how they have been financed. Total assets is equivalent to liabilities plus shareholders’ equity.
Cost of Supplies: Cost related to the production, supply, transport and storage of raw materials and the materials used in the production process. In this section can also be included the cost of outsourcing services to provide the customer.
Profit and Loss Account: Financial statement that shows the expenses and revenues generated during a period of time.
Weighted Average Cost of Capital: Calculated as the cost of equity * (equity value / firm value) + cost of debt * (net debt / firm value) * (1- corporate tax). It is a discount rate typically used to discount future free cash flows to the moment of valuation.
Discounted Cash Flows (DCF): Company’s valuation method based on the idea that the value of a company is related to what it is able to generate in the future. It is calculated as the future cash flows of a company, discounted back to present value using an appropriate discount rate.
Net Debt: Total debt of the company minus any cash or liquid funds that the company has but does not require for its operating activity.
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January 2011
Appendix VI. e-Valuation’s References
www.e-valuation.us www.evaluation.us 2008 - 2009
Advertising
Ecological and Recycling
Logistics
Renewable Energies
Automotive
Editorial
Media
Restaurant
Aviation
Education and Training
Metallurgy
Retail
Biotechnology
Electronics
Quality Consulting
Software and Data Security
Brokerage and Financial Services
Engineering and Machinery
New Techonlogies
Sports
Building Materials Manufacturer
Entertainment and Leisure
Other Building Specilialists
Steel
Business Services
Forestry
Outsourcing Services
Technology
Construction and Contracts
Healthcare
Production and Distribution
Telecommunicaciones
Construction and Materials
Insurance
Public Administration
Textiles
Construction Related Services
Internet
Rail
Transportation and Logistics
Consulting, Audit and Advisory
Local TV
Recreation
Quemical Industry
NOTE: For confidentiality reasons our clients´ names are not revealed.
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COMPANY XYZ – TAILORED VALUATION
January 2011
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Appendix VII. Contact Details
www.evaluation.us
e-Valuation Financial Services North America
e-Valuation Financial Services Northern Europe
14 Wall Street, 20th Floor New York City, New York, 10005 Estados Unidos
One Canada Square, 29th Floor, Canary Wharf London, E14 5DY Reino Unido
e-Valuation Financial Services Central and South America
e-Valuation Financial Services Southern Europe
111 Brickell Avenue, 11th Floor Miami, 33131 Estados Unidos
c/ José Ortega y Gasset, 42 Madrid, 28006 España
40