Strictly Private and Confidential
This document is an extract of the full report www.e-valuation.us
COMPLETE VALUATIO N [Company XYZ] January 2011
New York - London – Miami - Madrid
Strictly Private and Confidential
www.e-valuation.us
INDEX
Page 1. Aim of the report and Executive Summary
4
2. Financial Hypothesis
6
3. Valuation Methodology
14
4. Trading Valuation
16
5. Private Transactions Valuation
19
6. DCF Valuation
22
7. Conclusion: Valuation Range
25
Enclosures I. e-Valuation Company Presentation
28
II. Financial Forecasts
29
III. Information Provided by Company XYZ
33
IV. Difference between Value and Price
34
V. Glossary
35
VI. e-Valuation’s References
36
VII. Contact Details
37
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Company XYZ – COMPLETE VALUATION
2. Financial Hypothesis www.e-valuation.us Introduction – Company Description
XYZ is a catholic school founded in 1990 and specialized in preschool, primary and secondary education. Most of its clients are located in the city of Panama in the Republic of Panama and belong to the middle-upper and upper social class.
XYZ’s business model belongs to the retail sector. According to XYZ’s knowledge and experience, it is a sector
with low entry barriers that has experienced slight positive trends in the last years.
As stated by the Client, XYZ counts with strong brand awareness within its market segment and the company is not very sensitive to economic cycles.
XYZ
Note: Information provided by Company XYZ.
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Company XYZ – COMPLETE VALUATION
2. Financial Hypothesis www.e-valuation.us Main EBITDA1 and EBIT2 Hypothesis
EBITDA and EBIT Trend 900,000 779,037
721,283 657,948
700,000 600,000
operating magnitudes. It is defined as the result obtained when subtracting from sales the sum of
25% 776,433
800,000
509,985 461,940
457,734
500,000
365,693
400,000
505,662
520,833
15%
385,298
10%
267,952
300,000
direct and indirect costs (excluding amortizations, financial and extraordinary expenses and taxes).
20%
634,649
604,175
Earnings before interest, taxes, depreciation and amortization (EBITDA) is one of the most significant
200,000
XYZ’s EBITDA slightly falls in 2009, but it increases in the following years, reaching the levels of 2008. EBITDA’s margin over sales follows a similar trend, going from 23.3% in 2008 to 18.8% in 2013.
5%
100,000 0
0% 2007
2008
2009e
EBITDA
2010e
EBIT
2011e
2012e
EBITDA Margin
2013e
e-Valora has based its analysis on the estimates provided by XYZ in order to calculate the future fixed
EBIT Margin
assets’ amortization. Between 2008 and 2012 included, the amortization increases a 35.2%. Amortization Trend 300,000 250,000
242,033
249,351
238,482
259,344
270,771
12% 258,204
For the estimated period, XYZ’s Earnings before interest and taxes (EBIT) experience a similar
10%
evolution to the one of its EBITDA (9.2% of CAGR3), since both magnitudes decrease in 2009, and go
200,214
200,000
8%
150,000
6%
increase in the following years in spite of rising depreciation and amortization. Consequently, EBIT’s
100,000
4%
Margin over sales goes from 16.2% in 2008 to 11.6% in 2009, and then rises up to 12.6% in 2013.
50,000
2%
0
0% 2007
2008
2009e
2010e
Amortization
2011e
2012e
2013e
% Sales
EBITDA & EBIT CAGR (2009 – 2013) EBITDA
6.6% EBIT
9.2%
Note 1: EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization. Note 2: EBIT = Earnings Before Interest and Taxes. Note 3: CAGR = Compound Annual Growth Rate
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Company XYZ – COMPLETE VALUATION
3. Valuation Methodology www.e-valuation.us Introduction
In order to carry out XYZ’s valuation, e-Valuation 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-Valuation 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-Valuation’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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7. Conclusion: Valuation Range www.e-valuation.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 80%, compared to 10% for both the multiples of Trading Comparable Companies methodology and the multiples of Private Transactions methodology), we obtain an average value, to which we apply a reliability range of +/- 10%.
Taking into account such assumptions, we conclude that the final valuation range of XYZ is the following: between 3,036,332 euros and 3,711,072 euros. Considering the adjustment that corresponds due to the ownership of property (ies), the valuation of the company range rises up to 7,381,838 euros and 8,056,579 euros. VALUE RANGE 5,000
Thousand euros
4,784
4,500 4,000
3,561
4,117
3,639
3,500 3,000 2,500
3,131
2,914
2,000 1,500 1,000 500 0 DCF
Transactions
Comparables
Market Equity 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 1,366,482 Euros and 2,041,223 Euros. If the company’s property is considered at its market value, such range would increase to between 5,711,989 Euros and 6,386,729 Euros.
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Appendix I. e-Valora Company Presentation www.e-valuation.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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Appendix III. Information Provided by Company XYZ www.e-valuation.us Information provided to e-Valora by XYZ PROFIT AND LOSS ACCOUNT FINANCIAL FORECASTS Forecasts according to e-Valora Figures in Balboas Revenues Revenues in terms of tuitions and monthly fee Other revenues
2003
2004
Salaries and Social Charges % Growth % over sales
Wages and salaries Social charges
14,0%
9,3%
18,9%
2,8%
1.246.530
1.392.984
1.642.015
1.793.929
676.354
768.036
843.781
1.058.482
1.036.826
44,7%
13,6% 44,5%
9,9% 44,8%
25,4% 47,2%
-2,0% 45,0%
598.909
679.494
746.195
943.045
958.423
13,5%
9,8%
26,4%
1,6%
77.445
88.542
97.586
115.437
78.403
12,9%
14,3% 13,0%
10,2% 13,1%
18,3% 12,2%
-32,1% 8,2%
Average number of employee level 1
70
% Growth
Real average salary
Other Operating Expenses
80
2.241.237 2.233.825 7.412
85
2.303.914 2.296.749 7.165
90
12,9%
1,3%
6,3%
5,9%
8.556
8.601
9.327
11.095
10.649
0,5%
8,4%
18,9%
-4,0%
21.607
21.834
23.566
26.367
25.599
% Growth
Productivity ratio
79
1.885.247 1.882.204 3.043
2007
1.092.308
% Growth % Growth % sobre sueldos y salarios
2006
1.724.870 1.715.569 9.301
Estimated growth
Operating Expenses
2005
1.512.514 1.494.232 18.282
415.954
478.494
549.203
583.533
757.103
% Growth % over sales
27,5%
15,0% 27,7%
14,8% 29,1%
6,3% 26,0%
29,7% 32,9%
Leasing and canon
7.989
3.193
4.355
3.559
1.778
0,5%
-60,0% 0,2%
36,4% 0,2%
-18,3% 0,2%
-50,0% 0,1%
68.699
63.118
81.157
71.391
96.797
4,5%
-8,1% 3,7%
28,6% 4,3%
-12,0% 3,2%
35,6% 4,2%
25.543
34.229
37.922
41.554
42.381
1,7%
34,0% 2,0%
10,8% 2,0%
9,6% 1,9%
2,0% 1,8%
47.524
65.650
79.165
82.428
103.527
3,1%
38,1% 3,8%
20,6% 4,2%
4,1% 3,7%
25,6% 4,5%
21.434
21.697
23.195
23.712
35.472
% Growth % over sales
Recovering and maintenance % Growth % over sales
Insurances % Growth % over sales
Electricity, water, telephone % Growth % over sales
Representation % Growth % over sales
Fees % Growth % over sales
Diets % Growth % over sales
Other expenses % Growth % over sales
EBITDA EBITDA Margin Depreciations and amortizations
1,4%
1,2% 1,3%
6,9% 1,2%
2,2% 1,1%
49,6% 1,5%
77.001
51.995
47.769
39.464
61.385
5,1%
-32,5% 3,0%
-8,1% 2,5%
-17,4% 1,8%
55,5% 2,7%
18.500
21.400
24.000
30.000
37.800
1,2%
15,7% 1,2%
12,1% 1,3%
25,0% 1,3%
26,0% 1,6%
149.264
217.212
251.640
291.425
377.962
9,9%
45,5% 12,6%
15,8% 13,3%
15,8% 13,0%
29,7% 16,4%
420.206 27,8% 121.303
478.340 27,7% 161.508
492.263 26,1% 199.654
599.222 26,7% 199.034
509.985 22,1% 242.033
33,1%
23,6%
-0,3%
21,6%
298.903 19,8% -167.689
316.832 18,4% -218.630
292.609 15,5% -230.372
400.188 17,9% -235.560
267.952 11,6% -233.186
-11,1%
-12,7%
-12,2%
-10,5%
-10,1%
4.391
4.512
5.463
10.274
14.194
0,3%
0,3%
0,3%
0,5%
0,6%
172.080
223.142
235.835
245.834
247.380
11,4%
12,9%
12,5%
11,0%
10,7%
131.214 35.104 3.642
98.202 21.199 5.268
62.237
164.628 34.239 15.639
34.766 23.238
Estimated growth
EBIT EBIT Margin Net financial income % over sales
Financial revenues % over sales
Financial expenses % over sales
EARNINGS BEFORE TAXES Income tax Deferred income tax Efective rate (%)
FISCAL YEAR SURPLUS Net Margin
18.184
29,5%
27,0%
29,2%
30,3%
66,8%
92.468 6,1%
71.735 4,2%
44.053 2,3%
114.750 5,1%
11.527 0,5%
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Company XYZ – COMPLETE VALUATION
Appendix V. Glossary www.e-valuation.us
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. 35
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Appendix VI. e-Valuation’s References www.e-valuation.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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Appendix VII. Contact Details www.e-valuation.us
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 United States of America
One Canada Square, 29th Floor, Canary Wharf London E14 5DY United Kingdom
e-Valuation Financial Services Central and South America
e-Valuation Financial Services Southern Europe
111 Brickell Avenue, 11th Floor Miami, 33131 United States of America
c/ José Ortega y Gasset, 42 Madrid, Madrid 28006 Spain
37