Case Study and Sample Slides M&A Target Valuation
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M&A Target Valuation
THE CLIENT
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The client was a mid-size investment bank seeking to value a mandated private target
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The client engaged Sutherland to conduct a detailed target valuation based on several approaches, including comparable acquisition analysis, comparable company analysis, DCF valuation and LBO valuation
PROJECT TASK
Approach & Solution
RESEARCH APPROACH & SOLUTION
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Sutherland conducted an in-depth research to understand the target’s business model, offerings and financial performance
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The team executed a comprehensive transaction screening as well as a screening of public companies to derive an industry average at which the target should be valued
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Based on the industry drivers and inputs from the target company, Sutherland’s team also conducted a holistic DCF & WACC analysis
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Additionally, the team prepared a basic LBO model to arrive at the valuation
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A sensitivity analysis was conducted to arrive at the enterprise value of the target under various scenarios
Benefit to Client •
Sutherland’s research helped the client ascertain a suitable price range for the target. The price ranges determined through various valuation techniques aided the client to form an opinion on the sell-side valuation and accordingly advise the target company’s management
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LBO Valuation Analysis Key Assumptions • Assumes transaction closes December 31, 2014 for illustrative purposes
LBO Analysis Private Equity Returns Analysis Fwd. EBITDA Exit Multiple
• Exit at December 31, 2019 Enterprise Value at Entry
• Analysis excludes synergies • Assumes 6.0x leverage put on the business (Debt/EBITDA) • Fwd. exit multiple of 14.0x to 16.0x • Entry valuation generates a 30-40% internal rate of return (IRR)
14.0x
LTM EBITDA Multiple (12/31/14)
17.7x
Internal Rate of Return (IRR)
15.0x
LTM EBITDA Multiple (12/31/14)
19.0x
Internal Rate of Return (IRR)
34%
36%
38%
31%
33%
35%
29%
30%
32%
USD216,320
Fwd. EBITDA Multiple (12/31/15)
16.0x
LTM EBITDA Multiple (12/31/14)
20.2x
Internal Rate of Return (IRR)
16.0x
USD202,800
Fwd. EBITDA Multiple (12/31/15)
Enterprise Value at Entry
15.0x
USD189,280
Fwd. EBITDA Multiple (12/31/15)
Enterprise Value at Entry
14.0x
Implied Enterprise Valuation Range Midpoint: USD200 Mn
Note: 2014 projections through Net Income based on Company *XYZ+’s Company Overview presentation, Management Case. cash flow projections and 2019 income statement based on Proprietary Investment banking estimates and responses to proprietary question submission
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Discounted Cash Flow Valuation Analysis Key Assumptions
DCF Sensitivity Analysis
• 5-year DCF, valuing the company as of June 30, 2014 • Exit at June 30, 2019, Terminal Value based off of Fwd. EBITDA exit multiple (13.0x-15.0x 12/31/19 EBITDA) • Assumes discount rate (WACC) of 20% • Discount rate calculation based on: – Company [XYZ] comparable capital structure and betas – Size risk premium – US risk-free rate of return (US Department of the Treasury; US 20-year bond yield as of June 30, 2014)
Enterprise Value Sensitivity - WACC /Exit Multiple NTM EBITDA Exit Multiple to Calculate Terminal Value WACC
13.0x
14.0x
15.0x
18.0%
USD 232,177
USD 247,661
USD 263,146
20.0%
USD 213,817
USD 227,992
USD 242,168
22.0%
USD 197,234
USD 210,230
USD 223,226
Enterprise Value /2015E Adjusted EBITDA NTM EBITDA Exit Multiple to Calculate Terminal Value WACC
13.0x
14.0x
15.0x
18.0%
17.2x
18.3x
19.5x
20.0%
15.8x
16.9x
17.9x
22.0%
14.6x
15.5x
16.5x
Implied Enterprise Valuation Range Midpoint: USD227 Mn
Note: 2014 projections through Net Income based on Company *XYZ+’s Company Overview presentation, Management Case. cash flow projections and 2019 income statement based on Proprietary Investment banking estimates and responses to Proprietary question submission. Note: Cash flows discounted to the present applying the mid-year convention. 2014 cash flow based on an estimate of Q3 and Q4 contribution.
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Preliminary Valuation Summary Based on various valuation methodologies, Proprietary believes the company can obtain an enterprise valuation range of 14x-17x 2015E EBITDA Valuation Methodology
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Implied Valuation (USD Mn)
Comparable acquisition analysis – EV/LTM Adj. EBITDA (2014E): Multiple range: 13.0x-16.0x LTM Adj. EBITDA
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Comparable company analysis – EV/2015E Adj. EBITDA: Multiple range: 12.0x-14.0x 2015E Adj. EBITDA
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DCF Analysis – Based on Agility Management Projections: – 5-year revenue CAGR: 20.8% – 5-year Adj. EBITDA margin expansion: 1,102bps – WACC: 18.0% – Fwd. Adj. EBITDA exit multiple: 12x-14x
•
LBO – Based on Agility Management Projections: – 6/30/14 LTM Adj. EBITDA entry multiple: 14.0x-16.0x – 6/30/14 LTM Adj. EBITDA exit multiple: 14.0x-16.0x – Target Investor IRR range: 30.0-35.0%
USD170.9 Mn
USD138.9 Mn
USD189.0 Mn
USD162.2 Mn
USD172.8 Mn
USD136.2 Mn
80
110
USD250.3 Mn
USD155.6 Mn 140
170
200
230
260
Proprietary Enterprise Valuation Range: USD180-220 Mn
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Thank You
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