Valuation Methods of M&A
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Transcript of Valuation Methods of M&A
8/8/2019 Valuation Methods of M&A
http://slidepdf.com/reader/full/valuation-methods-of-ma 1/17
VALUATION METHODS OFMERGERS & ACQUISITIONS
ByGroup 1.
8/8/2019 Valuation Methods of M&A
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Value is
Cost vs. market value
Historical vs. Replacement
Differs depending on need of the person whois doing valuation- buyer, seller, employee,
banker, insurance company
8/8/2019 Valuation Methods of M&A
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Valuation Process
Review and selection of valuation methods.
Understanding the issues which impact
valuation. Special situations and their impact on
valuation
8/8/2019 Valuation Methods of M&A
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Why Valuation?
To purchase
To sell
To transact To take decisions
To report
8/8/2019 Valuation Methods of M&A
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Valuation Methods
They can be broadly classified into three:
Cost Based
Income Based Market Based
Within these methods there are sub-methods
8/8/2019 Valuation Methods of M&A
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Cost Based Methods
Book Value
Replacement Value
Liquidation Value
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Book Value Method
Historical cost evaluation
All assets are taken at historical book value.
Value of goodwill is added to the above figureto arrive at the valuation
8/8/2019 Valuation Methods of M&A
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Book Value Method
CurrentCost Valuation
All assets are taken at current value and
summed to arrive at value This includes tangible assets, intangible
assets, stock, investments and receivables
VALUE= ASSETS - LIABILITIES
8/8/2019 Valuation Methods of M&A
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Replacement Value Method
Cost of replacing existing business is taken as
the value of business
The replacement costs of its assets liabilities.
8/8/2019 Valuation Methods of M&A
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Liquidation Value Method
Value, if a company is not going concern
Based on the value that will be derived if the
firms assets were liquidated.
8/8/2019 Valuation Methods of M&A
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Income Based Methods
Earnings capitalization method or profit
earning capacity value method
Discounted cash flow method
8/8/2019 Valuation Methods of M&A
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Earnings Capitalization
Method Companys Value is determined by
capitalizing its earning at a rate considered
suitable Assumption is that future earning potential of
the company is the underlying value driver of
the business
Suitable for fairly established business having
predictable revenue and cost models
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Discounted Cash Flows
Cash Flows statements are made
Net Present Value is helps in assessing the
value The cash flow from year 1 to year n is
calculated and is discounted to arrive at the
present value of future cash flows from year 1to year n
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Market Based Method
Also known as relative method
Assumption is that other firms in the industry
are comparable to the firm being valued Standard parameters are used like earnings,
profit, book value
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Valuation is based on
ManagementTeam
Historical Performance
Future Projections Project, product, USP
Industry Scenario
Country Scenario Market Opportunity, growth expected,
barriers to competition
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Valuation depends on
Nature of Competition
Amount of Money Required
Stage of Company (Pre-IPO, IPO) Strategic Requirements ( needs of the
company)
Demand/Supply Position Flavor of the Season