Business valuation and sales process 17 September 2019
Table of contents 1. IMAP Netherlands / Arend & Markslag 2. Valuation 3. Case study
IMAP Netherlands CHAPTER 1
Welcome IMAP Netherlands at a glance % € 3 core services… M&A Financing Valuation ... for a range of industries… …with international support IMAP China Desk STRICTLY PRIVATE & CONFIDENTIAL Sep-18 4
IMAP Netherlands Dutch league tables and recent transactions Dutch league table Recent transactions 32 32 24 22 21 21 21 19 17 16 14 12 11 10 9 Number of transactions in the Netherlands in 2017 Source: mena.nl IMAP Netherlands ranks among the top M&A advisors in the Netherlands with 19 completed transactions in 2017. IMAP Netherlands is one of the largest independent M&A advisory boutiques. STRICTLY PRIVATE & CONFIDENTIAL Sep-18 5
Introductie Edmond van der Arend 6
Valuation CHAPTER 2
Valuation methods An overview of various valuation methods (Improved) earnings capacity / income value (historical or future results) Based on financial results Leveraged buy out (LBO) (acquisition of company using large amount of debt) Free Cash Flows (future cash flows, DCF and APV) Comparable transactions analysis (CTA) Based on the market (EV/EBIT(DA), EV/sales) Valuation methods Comparable company analysis (CCA) of listed companies (P/E, EV/EBIT(DA), EV/sales) Intrinsic value (Equity value +/- hidden reserve) Based on Liquidation value the balance (Value of assets and liabilities based on the net proceeds of liquidation) sheet Replacement value STRICTLY PRIVATE & CONFIDENTIAL Sep-18 8
How to calculate value? How to calculate value Economic value is based of the present value of future cash flows, as shown by the following formula: (𝐹𝐶𝐽𝑈𝐸𝐵 − 𝑗𝑜𝑤𝑓𝑡𝑢𝑛𝑓𝑜𝑢𝑡) + (𝐹𝐶𝐽𝑈𝐸𝐵 − 𝑗𝑜𝑤𝑓𝑡𝑢𝑛𝑓𝑜𝑢𝑡) + ⋯ + (𝐹𝐶𝐽𝑈𝐸𝐵 − 𝑗𝑜𝑤𝑓𝑡𝑢𝑛𝑓𝑜𝑢𝑡) 𝑋𝐵𝐷𝐷 1 𝑋𝐵𝐷𝐷 2 𝑋𝐵𝐷𝐷 𝑜 Hence, economic value is a function of: 1. Performance of the company (numerator) 2. Financing (denominator) 𝑂𝑋𝐷 𝑑𝑏𝑡ℎ 𝑔𝑚𝑝𝑥𝑡 = 𝐽𝑛𝑞𝑚𝑗𝑓𝑒 𝑁𝑣𝑚𝑢𝑗𝑞𝑚𝑓 𝐹𝐶𝐽𝑈(𝐸𝐵) STRICTLY PRIVATE & CONFIDENTIAL Sep-18 9
Adjusted present value method (APV) Income statement Balance sheet Net sales Equity Costs of goods sold Assets Gross margin Liabilities Operational expenses EBITDA Depreciation and amortization EBIT Operational value Value tax shield EBIT Gross interest -/- adjusted tax -/- tax shield NOPLAT Net interest +/+ depreciation and amortization +/- capital expenditures +/- changes in working capital +/- changes in provisions +/- changes in equity Free cash flow TV FCF Tax shield TV tax shield Equity Free cash flow Tax shield value Enterprise Value Operational 1 2 3 4 5 ∞ 1 2 3 4 5 ∞ value Discount rate: Ceu Discount rate: Ceu Net debt Enterprise Value = operational value + value tax shield STRICTLY PRIVATE & CONFIDENTIAL Sep-18 10
Cost of equity unlevered Description Risk free The cost of equity leveraged equals the Expected inflation rate Real interest rate rate Compensation for the Compensation for the cost of capital if the company is fully 2% expected inflation of the provision of money financed with equity. currency When determining the cost of equity + unlevered we have used the ‘build up model’. The build up model states that the cost of Market Market risk premium risk equity is build up from the components Additional required return premium stated and expressed in the figure on the for a diversified stock portfolio 5.5% right side of this page. + Illiquidity premium 2% Premium for small scale Company specific premium Small firm Dependence of customers, Reputation, spread of premium suppliers and management activities, barriers of entry and track record. = Cost of equity unlevered STRICTLY PRIVATE & CONFIDENTIAL Sep-18 11
Calculation cost of equity - Example Example calculation Risk free We determined the small firm premium for according to the BDO rate Corporate Finance model as shown below: 2% Illiquidity premium 2.00% + Dependency on customers 1 * 1.57% = 1.57% Dependency on suppliers Market 0.5 * 1.26% = 0.63% risk Dependency on management 0.5 * 1.74% = 0.87% premium Premium for small scale 3.07% 5.5% Spread of activities + 1 * 1.26% = 1.26% Entry barriers 0.25 * 0.94% = 0.235% Illiquidity premium Track record 1 * 1.37% = 1.37% 2% Flexibility 0.5 * 1.05% = 0.53% Company specific premium 3.395% Premium for small Company specific Small firm scale premium premium TOTAL SMALL FIRM PREMIUM 3.07% 3.395% 8.465% 8.46% = Cost of equity Sources: Financieel Dagblad, ECB, KPMG Market Risk Premium research December 2017 unlevered 15.97% STRICTLY PRIVATE & CONFIDENTIAL Sep-18 12
Value driver “levels” STRICTLY PRIVATE & CONFIDENTIAL Sep-18 13
Additional value on top of standalone value ‘ Must win ’ mentality Defensive or ‘strategic’ acquisition Forecast / business plan Premium Synergies Cost of Capital Stand alone value Maximum value STRICTLY PRIVATE & CONFIDENTIAL Sep-18 14
IMAP Netherlands Contact information ROTTERDAM AMSTERDAM Javastraat 8 Gustav Mahlerplein 2 Viñoly Building, 1 st floor 3016 CE Rotterdam +31 (0)10 235 88 50 1082 MA Amsterdam info@imap.nl +31 (0)20 799 73 39 www.imap.nl info@imap.nl www.imap.com www.imap.nl www.imap.com Meet the team of IMAP Netherlands STRICTLY PRIVATE & CONFIDENTIAL Sep-18 15
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