First calculate the enterprise value and add with the net free cash flow

Answer 1

Precedent analysis is a valuation technique which uses the price paid for comparable companies in the past as a guide to a company’s potential value. Stock’s estimated value in the event of an acquisition is produced using precedent analysis.

Step 2: Analyze and refine the available transactions

Step 3: Determine a range of valuation multiples

1. Determining valuation multiples – The identification of valuation indicators such as Price-to-Earnings (P/E) ratios, Price-to-Sales (P/S) ratios or Enterprise Value-to- EBITDA (EV/EBITDA) multiples. These criteria are then applied to the target company’s financial data in order to estimate the target company’s value.

2. Risk Assessment – Assessing the possible risks associated with a particular transaction can be aided by looking at previous transactions that act as models. If on the basis of assessment it seems that acquisition of similar companies had trouble integrating or failed to produce the expected synergies.

Answer 3

The ways to filter companies using refintiv screener are as under –

5. Further, advance filters may also be applied depending upon the complexity and data required like dividend yield, specific debt ratios, fundamental and technical analysis.

Answer 4

4. Size of the acquirer and target – The relative sizes of the target and acquiring companies may have an impact on the deal’s viability. If a smaller acquirer wants to buy a significantly larger target, it can have trouble because of money constraints and the challenges of combining the two companies. When assessing whether past deals involving businesses of a similar scale were successful and whether the size gap between the acquirer and the target affected the deal’s outcome, precedent analysis is crucial.

5. Market Conditions – The state of the financial markets, economic backdrop, and investor sentiment at the time of the transactions being examined, collectively referred to as “market conditions”, is a vital element in precedent analysis for ascertaining the value and conditions of a deal.

Discounted cash flow – It is a method for valuation by using expected future cash flows with discounting rates to determine present value for a company. Both the variables of this method are based on future expectations.

Sensitivity analysis – It helps to determine how different independent variables have effect on a variable which is dependent on the independent one.

Question – 6

In our analysis, we have taken the 5 prominent deals in the past. Going on in reverse chronological order, the most recent deal was the acquisition of “Over the wire Holdings Ltd” by Aussie Broadband Ltd on 10/22/2022. The enterprise value (EV) of the company is 283.06 million dollars with equity value of 256.03 million. The ratio of EV by sales for twelve trailing months (TTM) [EV/TTM] is 4.1 with an EV/EBITDA of 18.8. Next was acquisition of Empired Ltd by Capgemini SE on 07/19/2021 when the EV was 165.62 and equity valuation of 158.89. EV/TTM stood at 1.2 and EV/EBIDTA was 10.9. On 01/22/2021, another deal was cracked between the acquire Redflex holdings limited and acquirer Verra Mobility Corporation with an EV of 122.3 and equity value of 116.54. The EV/TTM was determined at 1.5 and the value of EV/EBIDTA was 8.3. DWS Ltd was acquired by HCL Australia Services Pty Ltd in the year 2020 when the EV was as 136.13 and equity was 114.27. EV/TTM at the time of the deal was 1.1 and EV/EBITDA was 9.5. In the year 2019, GVST Holdings Limited was acquired by Kiwi Holdco CayCo Limited. At the time of the deal, the EV was valued at 171.18 while the equity value stood at 183.76. The EV/TTM stood at 2.6 while the EV/EBITDA was valued at 13.1. The EV/TTM mean of the above 5 stated deals was 2.1 and the mean for EV/EBITDA is 12.12. Median EV/TTM stands at 1.5 whereas median EV/EBITDA is 10.9. The highest and lowest EV/TTM are 4.1 and 1.1 respectively while the highest and lowest EV/EBITDA are 18.8 and 8.3 respectively. On an average, the companies have been paid a premium of 57% over their values for acquisition with the highest premium paid at 140% by Verra Mobility Corporation to the shareholders of Redflex Holdings Limited. To compare the above, the EV of our company stands at 33.10 million dollars and equity at 55.43 million dollars. EV/TTM of our company stands at 1.25 and EV/EBITDA is at 17.03.

Since both EV and Sales take debt and equity into account, it is often believed that EV/Sales is a stronger ratio and offers more useful information than the price/sales ratio.

Answer 8

3. Comparable Company Analysis – Within the context of football field analysis, it is an integral valuation approach that assesses the value of a target company by drawing comparisons with similar publicly traded firms which involves examination of crucial financial metrics like Price-to-Earnings (P/E) ratios, Price-to-Sales (P/S) ratios, and various valuation multiples, pertaining to comparable companies operating in the same industry.

4. Comparable Transaction Analysis – In the football field analysis, this method serves as a crucial component, providing a broader perspective on the target company’s value. It involves examination of previous transactions which could include mergers, acquisitions or sales of companies that have resemblances to the target company. This analysis helps investors and analysts in understanding how the target company’s value stacks up against analogous transactions, thereby enriching the overall valuation.