So I'm gonna start off by, welcoming you to the final chapter in the Saga, the 12th Felix live session of our inaugural, our inaugural run.

And I wanna thank, Yolanda for being here, for this.

And it's been a pleasure.

So, the last session that we're gonna do today is technically in the syllabus.

They, it's called Football Field.

And that doesn't mean we're gonna go out on recess and, you know, kick the ball around the pitch or have some snaps at the qb.

But what I'm gonna do instead is talk about the concept of how we co compile the analysis into a, into a table chart that allows for kind of an executive summary of, of the various methodologies that we've looked at now, because I've gone very quickly, and a lot of it was like the how to, we haven't really stepped back and kinda looked at any of the numbers.

And I do think that regardless of how much technical training you need or want, if you get all technical training and you don't ever step back and look at the numbers, then you're probably, gonna be kind of feeling around in the dark, you know, when you do finally get to work on stuff.

So the first thing that I'm gonna do is I'm going to talk about a couple of different types of, of transactions, like how acquisitions can actually be done, per executed, so to speak.

And the reason why I wanna do that is because of all the valuation techniques we've talked about, we actually did not cover the concept of transaction analysis or precedent transaction multiples.

So we looked at trading multiples, which is how one company trades relative to another company in the market.

That's a relative analysis, obviously.

And we use multiples like price to earnings ratio, right? Or more specifically, more appropriately for investment banking.

We used or private equity, we use enterprise value multiples.

So all of those multiples can be applied using data from an actual sale of the business.

So in other words, not what the stock is trading at, but actually what somebody paid for it.

And that's incredibly, as you can imagine, incredibly helpful if you're trying to figure out how much you want to pay for another company, because what a company trades at in the market is not what you're going to buy that company out for.

It's going to be a premium above that.

So we'll look at that for a little bit.

So the plan is we're gonna cover that.

There's no real exercises to do for it, but what I am gonna do is I'm gonna pull up a couple of case studies and we're gonna look at the transaction analysis for that.

I have not given that to you, it's not on the syllabus because these are cases that we actually use currently in our teaching, and I don't really want those kind of floating around.

But we will then wrap with kind of a summary of these techniques in the football field so we can see it all kind of stretched out and hopefully have a chat about that.

So for right now, there's nothing really you, you, you need to do except listen.

And then, I'll let you, in fact I've uploaded today a couple of files to the to the screen, to the, sorry, I'm looking at the share screen, at the share screen.

So I said screen, which is what happens all the time, right? Just like, I learned this is a little aside since we know each other so well, we've been together 12 weeks.

This is a long term, right? This is a long-term deal here.

I took, I got to take, because I'm on the west coast, I took some like advanced driving classes at a racetrack at up in, near, up near, Monterey called Laguna Sec. It's a famous track. It's got this crazy hammerhead turn, so kind of an F1 style track, right? So I went and took some classes there about how to, you know, how to spin out and get control of the car and gym on the brakes and all that kind of fun stuff.

And one of the things that I learned was that the reason why we often, you know, when we, when we start to lose control of the car we hit things, is because we look at those things.

So instead of looking at the road where you want to get back to, you look at the light post, or you look at the stop sign or the other car, right? Or heaven forbid, you know, the bicyclist, I just got a bike.

So I'm thinking about getting hit by cars a lot.

And so if you actually train yourself, and it's not easy to do because you gotta get outta control first to do it, train yourself to get your eyes back kind of on the road.

If you look at the road, you will actually steer toward the road, right? Assuming that the car isn't, you know, rolling over or spinning wildly.

But in any event, right? How I got on that, I forget, I was looking at the menu item as I was trying to speak.

But let me show you the, the course syllabus here.

And what we're gonna do toward the end is we will, we'll grab these this file here, valuation summary model, empty.

But right now, you don't really need that.

You don't really need that.

So there are basically two ways that we can execute an M&A type of deal, right? Two ways really. I won't say M&A.

Because merger is not really one of, there's two ways we can actually acquire a company. And I'm not talking about currency, like how we pay for it.

I'm not talking about the financing, because we talked about that last week.

Does any, does anybody know kind of the two types of deals that there are in the, in the world of acquisitions? Anybody know what the two types of deals are? This would be an an LBO, this could be an just a strategic transaction transaction. Does anyone know what the two types of deals are? Public or private? That's really good.

So yeah, certainly the targets can be public or private max, but in terms of like how the deal is executed, the, the kind of the structure of the deal, structuring the deal, what kind of options are there or what kind of two paths can we take toward buying a company? I'll call this deal structuring, acquisition structuring. We'll call it. Anybody know.

Well, basically, what we've got are, asset deals and stock deals, asset deals and stock deals.

Now, gonna be careful, again, I'm not talking about how we're paying for it.

I'm talking about what we're actually buying.

What are we buying here? Acquisition structuring, I'm sure I spelled acquisition wrong, is it's kind of telling me I did.

There it is. So when we buy a company, we kind of have a choice, so to speak, of whether we wanna buy the assets or whether we wanna buy out the shareholders.

And when we buy out the shareholders, we get their stock, right? So that's kinda where the two terms come from.

So now you might say, well, I mean, don't I always want the assets? I mean, I always, I, I mean, I could look very foolish if I give, if I pay somebody a fortune for their, you know, their stock, for their equity ownership, and then I run back to my shareholder or my, my shareholders and my board of directors and say, yeah, I got their stock, but it doesn't include any assets.

That's not actually what I'm talking about.

Although it does sound that way.

There are ways to kind of actually just buy the assets of a company.

And then there are ways, obviously to take over the entire company.

And that's effectively what the shareholders own, right? They own that residual stake, so they get a piece of everything.

So when we buy out the equity in a company, we're buying that stake in everything.

Um, there are times, however, when we won't do that.

So when we talk about an asset deal, this is when we're purchasing, specific assets.

So how could that happen? How could we buy, how could we go to somebody and say, Hey, I wanna buy some specific assets.

I want, I want that car, I want that truck.

I want only the blue trucks.

Don't gimme any of the red ones.

And then I want, you know, maybe that office in the corner, it's got the nice window.

I mean, how can you, when would you wanna buy the assets of a from another company or from some existing shareholders? What could that involve? It happens all the time. Happens all the time.

Well, you might only want, for example, a division of a company.

You may not want the whole thing.

And look at a gigantic company like IBM or GE.

These are the, these are the companies that Yolanda and I saw a lot in our days as analysts and associates in M&A and left thin because they were just, they were, you know, these big kind of conglomerates that, that built up and bought a lot of businesses. And then they were like, well, we, we, this one, we don't want, this one's no good. This somebody else could do this better.

So they'd sell an optics division, they'd sell a home products division, they'd sell an aerospace division.

So you can go in to GE and not buy out the whole company, but just buy a division, right? So that would be one way we could do it.

You could also buy a whole subsidiary of a company, and that could be a geographic subsidiary. You know, the co Coca-Cola has bottling facilities all over the world. Maybe they want, maybe they buy the bottling assets of a, of a, you know, Brazilian soft drink company or just buy, you know, something related to, you know, to that.

So you could, you can buy divisions.

You could also, I'll put subs here.

You could also could buy like a specific product line or a particular, you know, copywriter patent.

You could, you could do that. So I'll just put, you know, a product copyright, et cetera.

It happens. So let's think about this.

I mean, when that happens, you know, you're, you're actually not buying an entire company.

So you're, you're one seller and you're selling assets, hopefully for profit.

And what the tax law says here, I'm not gonna get too deep into this, but the tax laws say that, when you buy these assets, there's a transfer of ownership, just like when you sell a house or if you sell a car.

But cars tend to depreciate, houses tend to appreciate famous last words of the 2008 GFC.

And so because of that type of transaction, the, the, the tax laws allow for a writeup of those assets, we call a step up in value.

I'll put step up because that's kind of the term we use a lot.

And the seller of those assets actually kind of assumes that tax.

So they bear the burden of that tax seller bears the tax burden and the acquirer gets the, gets to write the assets up to market value.

So then when they sell them again, or if they do, that value has been kind of moved up to the market value.

And so that, that would minimize their kind of tax liability, right? So the seller bears the tax burden here.

Now, the seller bears the tax burden twice, believe it or not, because the corporation has And then if and when they dividend those proceeds of the sale to the shareholders, guess what? Shareholders will pay a second time if they, if there is a dividend. There doesn't have to be a dividend, but the dividend will be taxed.

So that's where that double taxation that you hear about all the time comes into play.

So obviously, if you're an acquirer, you know, this is kind of a good deal for you because you're getting the assets that you want. You're not paying any tax on anything.

And effectively, the seller's gotta deal with all the tax issues.

Now, as you can imagine, if you are in the acquisition game, you, you would love to structure everything like this because it's just kind of easy for you.

The problem is, is that everyone's kind of caught onto that and they said, no, no, no, no. Look, if, if you're not buying specific assets, if you are buying an entire company, then you can't kind of pretend that it's an asset deal. You gotta just go through, there's a number of tests.

And so effectively this happens, you know, when we're buying an entire company.

So if we were, if we were buying not the, not a subsidiary of General Electric, but actually General Electric, right? If we were buying that, then what we'd have to do is we'd have to structure this as a, as a stock deal and a stock deal.

What happens in a stock deal is that the, the targets equity goes away.

We didn't really do a lot of balance sheet stuff with the M&A deal. We just focused on accretion dilution, but the targets stockholders' equity goes away.

They're basically bought out, they're paid off, and we're gonna basically acquire their, what we call net asset value, right? Which is that, which is what that equity amounts to.

The net asset value of a company is assets minus liabilities equals equity, right? Acquire the net asset value or equity.

Now, this is what creates that, that very famous account.

Does anyone know what, what, what happens? Does anyone know the name of the account that is generally created when we buy another company? There's a, there's sort of an accounting gimmick, I'll call it.

We talked about it very early on.

I think when we did consolidation accounting back like in week, maybe two or three.

We talked to maybe it was three or four Goodwill. Yeah.

So what happens is, is that of course, you know, we're gonna pay for that equity a lot more than what's on the books.

So, Max is correct, this is called Goodwill. Because what happens is that we have a book value.

And again, remember I keep saying that valuation's a balance sheet exercise, right? So we're trying to take a balance sheet that's recorded at book value or historic value and revalue it to market value, and that gap between market value or what you pay for it, and book value is like an accounting nightmare.

So they just said, look, we gotta plug that and we're gonna plug that by creating something called Goodwill.

Now, you might say, well, why don't you just write all the assets up to the, you know, kind of fair market value? Well, you, well actually, you do, you can and the problem is that sometimes we still pay more for than, than that.

So just because we just, because we offer the equity holders, you know, 30 bucks a share doesn't mean that all of the assets are worth that.

I mean, no, there is nobody out there that's gonna say that all of these assets when you add them up are just gonna be equal to that offer price.

I mean, it's still, you still might be buying a company for a lot more than it's worth.

Now why would you do that? Well, you know, we talked about that for the last few weeks.

It's future value, it's strategic value, it's, you know, all those, all those good things, right? Once you get into the negotiation or a bidding war many times the valuation is kind of detached, you know, from the numbers.

I mean, hopefully the numbers will back it up, but you, you never know.

So the goodwill is gonna kind of close that gap.

And the, the issue here is that in, in a, in a goodwill in a transaction where there is goodwill or where, when it's, when you're buying the stock of a company the assets are not allowed to be written up for tax purposes only for accounting purposes.

And there's a kind of a massive sort of confusion there.

And what happens is that as a result, the acquirer bears the tax burden of the increase in value.

So think about that.

I'm don't worry too much about the details of it, but in the first situation, the seller kind of had all of the responsibility for the taxes.

And then in the stock deal, the acquirer has, has to bear some responsibility as well.

So this is kind of the issue between the two types of deals.

And, they're very complicated to work through. You really need to usually sit down with an M&A tax structuring team to kinda work this stuff out.

We don't care about any of that.

The reason why I wanna bring these two things up is because I wanna look at transactions, right? I wanna look at, how we can, look at other transactions in the market and figure out what, what another company paid for a target.

And in order for me to do that, I have to understand kind of the nature of the deals.

So if I'm looking at an asset deal, asset deal, you're not buying the whole company, right? You're not buying the equity or the enterprise, you're just buying specific assets.

So for the, these types of transactions, we need to be able to identify them because they might not apply to our analysis.

Whereas the stock deal transactions, that's where we actually go to shareholders and say, I want to actually pay a premium above current market share price or whatever, you know, wherever the stock is trading.

And I want to take control of your company.

So the, these deals on the right, you know, are what we would call kind of EV deals and these deals, you know, because we're, because they're just assets, you know, they're, they're not EV deals, they're just talking about specific assets.

So when we start to look at these transactions, we'll be able to kind of sort them that way.

Now, other than that when we look at transaction multiples, sometimes they're called precedents.

There's a few things that we need to understand about them.

The first thing is what we just talked about then is it a comparable transaction? Meaning is it an an EV deal? EV deal and or not? And that's the first thing we'll we'll look at.

The multiples that we use are the same exact multiples that we, that we use for trading comparables.

Same exact one. So we're gonna be looking at ev to some value driver.

I'm gonna say EBITDA is probably the one that we're gonna focus on.

Now, let's think about this for a minute.

We did trading comparables and I said this was gonna be a review. So this is an opportunity to kind of go back over some of these finer points.

When we did trading comparables, that value driver, which was either revenue, EBIT, EBITDA, or possibly if you wanted to look at net income for PE multiple, you could do that.

How did we often define that multiple, in other words, or where did that that value driver come from? Did it come from the past? Did it come from the present? Did it come from the future? Like what was our, you know, kind of our, our take on how companies are valued? Are they valued on the past? Are they valued in the present or are they valued, based on the future? Who remembers that? I lost my chat is hidden behind all my screens here.

Anybody recall? What EBITDA did we use? LTM? Did we use, current year or calendar year one or as we call it, which would be kind of the kind of the projected earnings from the, or did we use fiscal year? Does anybody recall what we would use? Well, generally speaking, valuation, we're paying for future performance.

It's like the example that I used at the time of the footballer, you know, yeah, they had a great career.

They a great career in Barcelona, but if AC Milan wants my, I always try to incorporate actual football because, you know, I teach globally and I start getting into cornerbacks and right fielders and everyone's like, huh.

But, basically whatever the athlete is, they've had a great career, but you're not paying them for that.

You're paying them for what they're going to do for the new club.

And so it's a future value proposition, and that's what the discounted cash flow does, right? It's the future cash flows.

And with comparables, what we're assuming here is that companies are trading in the market based on their future performance as well.

So when we look at trading comparables, we are absolutely looking at forward, generally speaking, forward multiples.

The problem is that when we do precedent transactions, we're no longer doing that.

And the primary reason is because once a company is purchased, it, it's actually private, it doesn't have future earnings or it doesn't have a, sorry.

It doesn't have, what's the word I'm looking for? Estimates, there's no, there's no future estimates. It's not published any longer.

So you can't get an IBUs, you can't go back and look at a deal Microsoft Activision, and say, okay, well what was, what was this done? I mean, you probably could dig them up, you know, some kind of way back machine kind of thing and just dig up, okay, what were their future earnings? But in general, we don't do that, what we do.

And also because a lot of times we're, we, we we're pulling data from companies where it was a, where it was a private transaction and there was no estimate of stock price we, or estimate of earnings.

It's based entirely off of LTM.

So to do a precedent transaction, we're always gonna use LTM, almost always, almost always.

So that's, that's one thing we've gotta figure out.

Now, another thing that'll come up with precedent transactions is we need to think about kind of what's relevant history.

Because since we're looking at the past, acquisition history goes back a long time.

I mean, you really started to see M&A activity kind of tick up in the sixties and seventies.

That's when the conglomerates were going out and buying up smaller companies.

And then you saw kind of M&A stuff go nuts in the eighties, and then it cooled off quite a bit and then it kind of picked back up again.

In the early two thousands was the last kind of heyday of M&A activity.

And now it's quiet, gone quiet again.

Now, what I'm saying here is that there's a lot of deals to choose from.

How do we know where to where to look for our deals for our transaction pool? Anybody have a thought on that? Where could we look for our transaction pool? Well, we can't go back obviously to the sixties and seventies.

Wouldn't go back to the eighties even though it was a heyday.

Nineties were great years for me, quite honestly, but, would wouldn't want to go back to them either.

For deals and the early two thousands, what happens is that once you kind of get into, even that's still 20 years ago, right? Long time. But we had this major event, you know, like in 2000 809, where we had a wipe out of the equity markets and, and credit markets.

And so, it took several years after that to kind of get back.

So you, anything before 2008 doesn't count.

And then probably you'd have to go back to get up to like, maybe 2011, 2012 to get going on all cylinders for the analysis to start to really kind of hold, you know, hold, any value.

So what I'm getting at here is that we wanna make sure that the period that we're looking at is a relevant period.

And we generally kind of look kind of from bull market to bull market.

So the minute a bull market kind of crashes or goes away, that kind of wipes it clean.

Those are anything after that no longer relevant.

Because you have a, usually a bear market gap in between.

And the reason why, of course is because, you know, equity is a huge, you know, component of these deals and equity is currency that is.

And so, we wanna make sure that we're looking at relative prices.

So we have to be careful of what period.

So I'm gonna put here relevant kind of historical stock market periods.

Does that make sense? Anybody have a doubt about that? Any It's okay.

So there's a lot of work that goes into pulling these together.

I mean, getting the data and calling the data and all that stuff, we we're not gonna spend too much time on that.

But there's a couple of at least one other thing that I want to, I want to talk about here, which is the concept of, the control premium.

And the control premium is exactly what I was talking about when I said that.

If I were to survey do a survey of competitors trading in the market today, for example, I'm gonna go over to Felix and I'm just gonna, I'm just gonna pull up a company, on Felix.

Anybody have a company that they like? Not one that you're working on? If you are working on anything sensitive, but I had Wayfair up, I was looking at Wayfair probably because, I was curious to see if all of this stuff that, that my wife has bought online has made an impact on the enterprise value of JPM.

Thank you for that's a good one.

We could do JPMI prefer to stay away from financial companies just because they're a little bit trickier to see.

But we, we could, we probably could do JPM, that's Santiago.

The name is cut off there, but, yeah, I think it is.

Oh, oh yeah, Nvidia Yolanda's, NVIDIA's a good one.

Because everyone's, and that's a tricky one because they might not have a ton of, uh, lemme just see.

Because I got Wayfair who, who are Wayfair's competitors? They've got Chewy, the pet company.

Because they, they work the same way. Just go to the website and it's just like page after page after page of any, anything that you want.

It doesn't, it's not branded, it's not really selected.

But then they also threw Petco in here.

I wouldn't put Petco.

So sometimes the so the suggested comps are not good ones. I'm gonna do Nvidia, maybe that'll be a little bit better.

Anyway, so I don't know this because they got the AI component and the graphics com, you know, graphics is what they really do, but who their competitors would be. We'd have to talk to somebody in um, TMT.

But, in general, if we're looking at kind of the, the market cap of these companies, again, you know what, what, what's basically happening here is that we're, we're seeing kind of what the, the companies are relative.

Max Moody's, that might be a good one. Lemme see.

I'm gonna stick with Nvidia.

NVIDIA's fine, but thank you for the suggestion.

The values that we see are for market cap, again, are obviously not what we would have to pay to take over the, so how do you figure that out? Well, that's the valuation problem.

Now, that difference between what you, pay for a company and what it's trading at in the market is, is called the premium or the control premium.

So that's kind of what that term comes from.

It's what it costs to take control.

And that's effectively difference between the acquisition price per share, right? And the stock market price.

Now, typically in an M&A deal, does anybody know, did anyone guess what the average premium is in an M&A deal? And I know it's a really broad question, so you can give me a range if you want, because we're talking about industries and we're talking about, you know, a lot of different things that could impact it.

But, obviously, like NVIDIA's in a real hot industry, so there's gonna be a pretty steep premium there, which would not be the case probably for something that's a little bit more, you know, kind of in the older economy.

But what do you think it costs to acquire a company like over, like what premium, what percentage premium over the current share price? If you were getting together with a team in the office and said, I got a great idea to buy Company X, what do you think it would be? So Max is saying three point a half to four point a half percent.

So that means if NVIDIA's trading at, I know, I know NVIDIA's here, or super hot companies, so maybe I'll go back to Wayfair.

Because they're, they've actually struggled quite a bit.

They're doing okay, but there's, their share price is down from their 52 week high is like 300, and now they're down to about 50.

So, well, 52 week eye is actually 90, but it was higher I think just before that.

So that means Max is, I would be paying just like three, three or 4% above that to buy out the company.

Now, I know it depends on the company, but that's pretty low actually.

Because shareholders are gonna be like, no, I'm just gonna, hang on.

I might get, I might get three and a half to 4% on my own, just meaning waiting for the market to kick in.

And I don't, I don't lose control of the asset.

So Anushka has said 20%. So 20% is actually pretty close. That's kind of the bottom of the range.

So typically, the cost to take a control of a company is 20 to 40% over the current market price.

And the question then becomes, well there's two questions at that point. One is, how do you justify that? How do you justify paying a company 20 to 40% above the current valuation? Now, we touched on this momentarily in the DCF, and we touched on it a little bit in M&A which is to say, what makes you want to pay extra for a company? And that's usually some kind of synergy, right? Some kind of synergy. Or in the case of a financial buyer like a KKR or you know, Blackstone or, you know, what have you, that doesn't have a real synergy.

Because they're gonna, they're not merging it with another, they're probably not merging it with another company.

They're gonna run it more efficiently. They're gonna drive up, right? So there's more of a strategy thing there.

Synergy or strategy in the eyes of the acquirer has to be able to drive that value, that that control premium.

In other words, we're buying this company and we are assuming that we can get a 20% increase in value on our own, 30% increase in value on our own.

And you know, in the LBO analysis, we looked at that ways you can do that, right? You can drive up EBITDA, you could, you know, pay down the debt.

You could, you know, there are ways we could, we could pray, you know at our meditation alters, which you're supposed to just use for meditating, you're not supposed to pray to Ganesh for higher exit multiples.

Ganesh is the remover of obstacles.

If you take a yoga class, as one does quite a bit here in LA because you might guess, you learn about these things.

But that, you know, that's just something you can't really plan, right? You gotta, you gotta pray to the M&A gods for a higher exit multiple.

So you gotta ho figure out how to get that value out.

Now the one thing I want to kind of touch on before we, before we leave this and move on to the numbers themselves, is how do you measure the difference between the acquisition price, what you're paying for those shareholders, the agreed upon price and the stock market price? Like what stock market price? Because the deals don't happen in a day.

They take months and the stock price is trading every day and word gets out.

If it's a public company that you're trying to buy, word gets out that you're trying to do a deal.

And what happens to the share price of the target? Generally, if a word gets out that a company is in play or it's a target, what do you think would happen to the share price? Come on, you saw Wall Street, or maybe you didn't.

it's an old movie now.

What happened to Blue Star Airlines? Was it Blue Star, Yolanda? I think it was Blue Star Airlines.

Yeah. Yeah. Sounds, sounds right. Hmm.

You know, it's the old you hear a couple people on the on the subway talking about a potential buyout of now if you're in the securities industry, you gotta look the other way.

Because we have lots of rules.

But like the old thing was that, you could o overhear a couple of, investment bankers at a bar talking about a potential buyout, then you could go and buy up that stock hoping that the deal gets done because the deal gets done. They're gonna pay a premium.

And if you got in early enough you would benefit from that stock price going up, right? So those kind of, that those are rumors and be careful of that.

Obviously don't wanna, certainly don't want to touch any inside information or we call non-public material information.

But that's kind of the thinking is that people hear a rumor and the rumor might just be on the public side, stock price goes up.

So if we look at that, you know, kind of that sort of, I'll just I dunno if I have Wayfair, Wayfair is not in play, but Wayfair stock is all over the place.

But do I have just downloaded the from Felix handy? Dany Felix, I downloaded the Wayfair share price.

Kinda open it up.

Okay. It did. Just in the wrong window. Gimme a second here.

All right. Move this into view.

Here we go.

Now I could just to be, you know, just a line.

Okay, so now you can see what I'm talking about with Wayfair.

Now wait, has the Activision deal closed? Yolanda? I think they got approved, but I don't think it's officially closed now That would even be better because Yeah, then I could even, I'd have to, I don't think so.

I think they just got Approval from antitrust or they didn't get Approval. Activision group. See, see it's got a it's, oh, here it is.

We've added all these, non-US that may be trading halted.

No. Okay, I'm gonna do this one, but this will be a good one.

Sorry, I gotta go through all that again.

Hopefully it'll, hopefully it'll at least be on the right screen.

All right, here we go. Oh, give me a break, Microsoft.

Oh, Okay. Here we go.

And then I'm going to insert a, nope, I just want a line chart. Here we go. Line. Alright, let's see what happens here.

So here's Activision.

Now question is, when was that? Do we, do you remember when the deal was announced? I don't know. It was like early 2022.

I think it was like January of 20, 20, 22.

Yep. So basically, you know, Activis, I don't know, I don't exactly know a lot about act.

I dunno if anybody does, you're welcome to chime in here.

But basically I remember because I was actually, we had Activision was one of our cases, one of our kind of Felix cases.

So I was doing some work on it and I thought I had built a fantastic case in the gaming sector only to find out that Activision was of course gonna go away as, as a company. And I was like, well, there goes the whole case. Mm-Hmm.

But it happened right around here.

And I'm not exactly sure what caused this decline in Activision stock.

Something was, something was going on with the company.

But basically, you know, what we see here is this quick jump.

You see this jump that just kind of it climbs up here is, February is this point here, right? It's really the end of January probably because of, these are two month intervals here and then all of a sudden we have this super steep vertical line going up.

So Activision dropped and then it started climbing out again. Maybe this was because of earnings.

This could be, this could be attributable to fourth quarter earnings release that did better than people thought.

And then what happens all of a sudden January, 2022, Microsoft comes into the picture and what happens to the share price, it just pops.

And so this particular dot on the map right here, which is roughly, you know, 60, maybe 65, I've got, I've got all the data points here.

I can just look this January, That vertical from 65 to 81, that sounds like it might be, it jumped 15 bucks to share. Look at this. It's in the sixties.

Yep. And then boom, it goes.

I didn't even need, really need the chart for that, but, I think ultimately I was supposed to be teaching you some, some charting today.

So I wanted to throw that in. Okay.

That jump from here to here, this is exactly if we were to go back and dig up the history when that news got out and everyone then piled on Activision stock, what are they thinking? They're thinking that Microsoft is gonna pay, they have deep pockets, they're gonna pay a lot for it.

They've people are just, just kind of, we call jumping on the tackle here.

So this point right here is what you would call the unaffected share price.

Unaffected share price.

Because everything after that has been impacted by the news of the acquisition.

So how, how can I measure the control premium if I don't have a normal stock price to look at? So that's what I'm gonna do. I'm gonna find that.

Now, when I look at these numbers, actually, not scrunched up on the, this Wayfair again, not so scrunched up on the timeline.

If I had just kind of mapped out maybe the last couple of years this, this, this chart would've looked a lot more normal and, and we would've been able to really spot, kind of a nice sort of, even sort of six. There was say I was in the sixties for a while, kind of doing okay B-B-B-B-B, you know, doing fine and then all of a sudden, boom.

So that's, that's usually how it works usually.

So, if I were to go back, I don't wanna spend that much more time. And if I were to go back and kind of look at it, that's probably exactly when Microsoft made the, made the announcement or word got out.

And then what we'd have to then look up is sort of what's now the agreed upon share price.

Yolanda, you don't know what that is, do you? No.

Microsoft offer for Activision. Can we find that? At the time it was 68.7 billion all cash offer, They don't have that for share for shares.

That was the announcement.

And lemme just tell you how it closed ATVI buyout price for, see, somebody else must be teaching this class right now, Yolanda.

Because it jumped right up in my, in my search.

Yeah. 95 bucks a share.

Yeah. Okay.

So what is, if that's the deal according to two sources, according to EF Hutton, do you remember that, Yolanda? I do. Okay.

Ba ba ba ba let's, let's calculate that.

95 bucks a share.

Yeah. Over the 65 unaffected.

That is a 46% control premium.

That's, so that's even a bit above my 20 to 40 range, right? So that's on the higher end, 46% control premium to take over this I gaming company.

And then the next thing you'd have to do is you'd have to kind of take a look back, you know, kind of at where it was trading because so now if I'm a, you know, if I'm a shareholder, I'm saying, well, you know, if I go back, you know, earlier I'm looking now kind of mid pandemic when our youth was home playing video games in instead of, instead of being in school, Hey, you all remember that, don't you? And the share price was quite high, right? Because there, this was an example of a company that did well when everybody went online, during those years.

So that was their, that was their peak.

And if I go back before that kind of pre lockdowns, they were in the fifties.

So you could see why the shareholders might really want to go for that deal because they're not getting back to 95 anytime soon.

They're gonna, they've been living, you know, in the forties, fifties, and now they're, they're now they're at 65 being offered 95.

That's a good deal to, to them.

I'm speaking for them.

I don't know anybody on the board.

Where are they right now? They're back down.

No, they're now, well now it looks like it's actually might be frozen.

Obviously what genius is gonna is going to buy the stock now at 95.

The deal, I mean, the deal is at 95, right? So there's no, there's no real trading going on. No.

So, okay, so you might say this, you might say, well, if the stock is now trading at 95, why should I take Microsoft's software at 95? Well, it's only trading at 95 because of the offer.

So if the offer goes away, the stock is gonna fall again unless another suitor arises.

But those are pretty, that's a pretty big offer.

Pretty deep pockets there.

Okay, so let's take a look at another industry since I, I don't know, I know a little bit about that from the case that I worked on. I got another case here. We're gonna look at. Again, you don't have this file.

We're gonna look at a few comparables in the athleisure industry, right? What's kind of the term that came into being because of the success of companies like Lululemon and, um, Athleta, which is owned, I guess by by Gap, I think Yep and Ugly Betty, no, sorry, ugly Betty.

Sweaty Betty. I had a friend who was on, I had a friend who was on Ugly Betty.

Sweaty. Betty, Betty, sweaty Betty is the name. So UK now.

Yes.

So that's what athleisure is.

So we're gonna look at other, other kind of deals in here.

And we've got a list that's been compiled.

I'm just gonna kind of go through it and, and see what's in here.

We've got an announcement date.

So obviously the date is important because of what we talked about right now.

I think that this case was done right around the time of the shutdowns and everything.

So, we have to be careful of that because there were winners and losers in that, right? There were winners and losers. Activision was a winner.

There were other companies that Airbnb was a loser right in that.

So you'd wanna be careful if you're looking at hotels and leisure, not a great time to be fishing for multiples between 2020 and 2022.

But regardless, you know, this deal I think happens before that.

So we've got mostly stuff in here from the period leading up to, and our deals kind of stretch back to 2018, and that's pretty sensible. Couple of years, very, very high, multiple period because of the market was, was quite good.

And what we see, we've got the target, we've got the buyer, and then we've got the EV to LTM EBITDA as I was explaining.

And then the overall deal size.

And then we've got a little bit of a blurb here about, about that.

So what we would do if we were doing a case is we would say, look, here are the transactions deals, sometimes you're in a robust deal environment where there's a lot of deals in one sector of public companies, but many times you're not.

And so you don't get to have like the luxury of saying with trading comparables, we say, Hey, I want five to seven comps minimum, don't leave your desk until I can get that.

With deal comps, you're not, you're lucky if you get one or two really good ones.

So what you might have to do is go through and cull that list and get the one or two that are really, really, really a applicable to your transaction.

So the blurb here would kind of tell us that.

Now you'll notice that some of them have NA for EV to LTM EBITDA.

Why would they have no EV to LTM EBITDA ratio? In this case it looks like the deal is in progress or rumored. It says rumored bidder.

So we just, it looks like we might not, I don't know.

I don't know what this is actually, I can't recall, because I haven't taught this in a couple of years, but it's either we don't have the information because it was a private deal or it was an asset deal.

In other words, they just bought the, the brand or the name or something. We didn't. So that's what the NA is for.

So guess what, we're not using that one right now.

We've got Golden Goose, we've got Montclair.

That was a big private equity deal here.

So carrying, is this, this Montclair was owned, I believe, by a sponsor and bought by Caring, very high multiple.

Yeah.

And then we've got, Nike, Nike Brazil was they sold off a subsidiary to it looks like another Brazilian, or this could be, this could just be Latin American.

The way the spelling this, this could be Spanish, this PTOs I think is spelled wrong.

So, I can't tell if what that is, but, also because this was just the division, no ev there to have a multiple, couple more deals.

Koto Consulting, no idea what that is.

Designer Shoe Warehouse bought them.

But that sounds like it's not quite, quite right as a deal, right? Because it's like it's a consulting company or was that in there? Maybe it's a shoe consulting company. I don't know.

Actually now that I think about it, there is a com there is a shoe, a shoe maker with the name Camuto and the, I used to see them a lot.

And I think, I can't remember, I think it's maybe, maybe Vince Kato or something like that.

I can't think of the name, but, so that might, that might've just been an odd name for that company, but doesn't matter.

No, EV so that's not gonna help us.

Helly Hanson don't know what that is.

They were bought by a tire company.

And then Peak Performance, was looks like a small, small company that was bought by, this another sports company called Amer Sports.

So just like with our comparables, you know, we're gonna go through this and we're gonna see, okay, well, you know, should we look at big deals or small deals? Are we, are we doing a big deal like the Activision deal? In which case we wanna make sure we're looking at other big deals.

Bigger deals generally get higher multiples than smaller deals do.

So, you know, we come down here, we see a smaller deal.

This peak performance is at 15.4 x it's only a $300 million deal, whereas Golden Goose, bigger deal, higher multiple.

Now Montclair was kind of in between huge deal.

You also have to remember with, with a lot of the luxury brands, companies that are super, super high-end, they often have lower multiples. And the reason why they do, can anyone think of why they might have a lower multiple? Why would a big luxury company have a lower multiple, particularly in retail, but also in this company has stores too, right? So their retail and, and you know, and and I dunno if they make their own stuff or not, but they would know why you would have a perhaps a lower multiple.

Who can guess? Gimme a guess. It's the last week.

Just let it rip. Doesn't matter, right? Wrong. Otherwise I'm holding out hope here.

Well, I think probably what happens is you've got a company that's got kind of a massive, advertising spend a massive recognition like to, for them, for Montclair to compete where they compete, they gotta spend a ton of money to do that.

Now, there their stuff is probably massively marked up and overpriced for what it is.

But to be on billboards, on Rodeo Drive and, you know, and the Gold Coast and, and, and you know, the Riviera and whatnot, you gotta, you know, the, the money you've gotta spend is insane.

You know, you to compete, to have fan, you can't just have any, any, anybody in your clothes. You've gotta have the top supermodels. I mean, it's a very expensive business. It's retail.

Those stores are not cheap. They're not in the outlet malls.

I mean, they might have an outlet store, but I mean, they're like super high-end Madison Avenue stores, right? So to compete at that level, you know, know you, it's expensive.

And that generally fetches both a lower, you know, debt to EBITDA.

If you're looking at doing an LBO, you cannot push the limits of debt to EBITDA for these companies. And you also can't push the EV to ebitda. And you want to go for brand because brand is important, but, but brand is also expensive in some cases too.

So that's why I believe this is at 17.7 and Golden Goose is higher at 23.6.

Any, any questions on that? And I wanna look at one more set of comps before I move on to the exercise itself.

Any questions? Okay, so I've got another one here.

This is for the beverage industry and this is the, um, well, let me see.

I had it here somewhere. Let me see where I have it.

Case in point, beverages thought I had it open already, but okay, now this page, I'm gonna have to make it a little bit bigger.

It's a lot of, a lot of information on here.

Again, this is a teaching case, so we've got it kind of full up with stuff.

A little bit more detail. This is a case we tend to do with some, maybe some more experienced type of, analysts and associates. You might have done this case yourself if you've came through a full-time program.

But, for the beverage industry, first of all, this has been an incredibly active sector.

Incredibly active, active.

In fact, it was so active for a while.

It was hard to teach in certain places because everybody had so many deals going on. They were like, could you come up with another case? We don't want, we don't want to be poking around in that sector while we've got a lot of active deals going on.

But what we can see here is that you're gonna, you're gonna have a kind of a wide range of transactions. You've got beverage, I mean you've got alcoholic beverage beer, right? Anheuser-Busch InBev, being an acquirer with Miller Beer being a Target.

There was another deal after that with Miller as well, with a different acquirer.

We've got, a soft drink deal.

Keurig coffee, the coffee maker buying up Dr. Pepper. That was a huge deal. Huge deal.

And it's now called Keurig, Dr. Pepper, right? This is definitely a, a Chinese deal.

I'm not sure what the brands were involved in that Pepsi bought SodaStream kind of a unique deal there.

some smaller deals.

Pepsi bought Rockstar and I believe Coke bought Monster.

Is that in here as well? Hmm, I don't see that one in here.

But, Coke bought Body Armor that I believe that's another kind of performance drink, but obviously, oh, here's Monster here.

Now the reason why you wouldn't see Coke buying Monster on this is because Coke only bought a non-controlling stake in Monster.

They bought about 20% of the company.

So we, we would want to use that, right? Because Coke did not have to pay a what a control premium to acquire Monster.

They just had to go out and buy enough stock to get a sizable stake.

And maybe they bought somebody else's stake, I don't know.

But they didn't get control of the company.

So again, that would not be the kind of deal that you would wanna put into this analysis.

Okay? So, you know, if here, I'm just curious, I'm just gonna look at my EV to EBITDA and just, and look at the size of the deal.

Here's the EV size lots of different sizes here.

Ultimately we pulled a short list together that included Coke and body armor, Cott beverages, which they've been around a while.

Bought a water company, Pepsi, buying Soda Stream and Keurig Dr. Pepper buying Snapple.

So again, very, very lucky because of the industry to be able to do this.

And the EV on these deals we're kind of a little bit all over the place. This is a huge deal. I don't know, I guess it depends on what we're trying to value.

I think in this particular case, we're valuing a, a private company.

So I would argue that this deal, personally, I would argue that this deal doesn't really might, it might push the limits of the analysis, but somebody felt it was important to have it in there, so I'm gonna leave it in.

And then the other, other companies, the other deals I think are for, for private companies.

So maybe they're a little bit, you know, more appropriate.

It looks like the multiples stretch from 14 and a half to about 17.

Sorry to about 24.7 with 17 being kind of down the middle.

So this is, you know, what we're doing with transaction analysis.

Now, where are we gonna go with this? Well, what we're gonna do is we're, we're gonna build something called a football chart.

Now, the chart itself is gonna be kind of done for us, but we're gonna pull the analysis in from that file that I uploaded above.

And essentially I'll show you, I'll just show you the athleisure actually, is that a good one? I can't remember. I'll show you the athleisure football chart here.

This was valuing, under Armour.

And effectively what we're gonna do is we're gonna, we're gonna pull in the data that creates this kind of chart.

And all this chart is doing is, it's summarizing the range of valuations for the target and how it's doing that is hopefully, you know, we've got a pretty robust set of data at this point.

But you'll notice on the left hand side, what we see here are all of the different methodologies that we used.

Now, I would argue that this could be a little bit clearer.

Because this usually gets imported into kind of a presentation or a deck that you would bring to a client.

So here we're saying that we did an LBO analysis, and what we're saying is that to achieve a return of 20 to 25%, that, that would imply that we would have to pay in this range of 11 to 13.

And you probably would want to have the one that we're gonna do has, has these floating labels in here that tell you the, the ranges.

Not just down here, but up here.

So that's one analysis that we did. Well, the next analysis that we did is we did a transaction analysis, like I just showed you in the transaction range.

Looking at the, the multiples that we ultimately chose, the transactions that we ultimately chose tell us that we could pay anywhere for from $4 a share to about $14 a share.

That's saying that if we took, if we took this range of deals, which is kind of all over the place, but seems to be kind of hovering in the 15 to 16 times, if we took that range of, of multiple and applied it to our targets, EBITDA, the implied valuation in price per share is 4 to 14.

Now, that to me is a bit broad.

I think I'd have to go look at what they used for the transaction companies. This is what we're gonna compile on, on our own right now.

But it looks like for the transactions, they they used the minimum of 15.4 and that one was peak performance, but then they just went and took the highest one, which is 40.7.

They didn't call this list.

And the reason why is, because it's a short list to begin with.

So I think they were probably a little bit stuck here.

But unless Gazal Corp is a fantastic facsimile transaction, I would make the point that that should not be in there.

And I think that ultimately this range is way too high on the beverages. We'll go back to athleisure.

So this one we have to question DCF.

We added some synergies that comes out to the right.

This range here represents the kind of active trading range.

So what you wanna be able to show somebody is, Hey, we did all these valuation methodologies.

Here is where the stock is trading in the last couple of weeks.

Again, probably you'd wanna do this either based on a current, if you're just just pitching a client and there's no, there's no rumors of this out there, right? This is just you talking, this is an idea you had, your team had going to a client.

There shouldn't be a need for an unaffected share price because it's not out there yet, because this is just very private.

So you might show this kind of trading range, like here's where they're trading in this range, and here's where our valuation is coming out.

So here, the DCF with synergies is showing a very high valuation, 14 to 16, the trading comparables look like they're kind of justifying the current share price.

In other words, what we're saying is that this company is fairly priced in the market because the range kind of puts us right in the range where it's trading the implied range that is now, that's based off of forward year two earnings.

And this is based off of forward year one.

It's like here, there's like a tiny bit undervalued in the market, tiny bit undervalued, this is a Under Armour.

And if we just look at large cap companies, then perhaps it's saying that Undervalue is under, under Armour is trading at the higher end of its range because it's very, very high end, high end of its range.

If we just look at where its larger competitors are larger being Nike, Adidas, right onto, so if they're already trading kind of at the higher end of their range, you know, you're certainly not making a case for them to be undervalued, right? It looks like, it looks to me like they're kind of sort of trading right, you know, in the pocket.

So this would probably be a pretty difficult deal.

I would say, just given what we're seeing here, we're not, there's not, it doesn't seem to be a tremendous story for, for a very high premium.

Now, of course, it depends on who the buyer is and what the synergies are and what how much they need to have that asset.

Any questions on that kind of rough, very rough analysis.

Anybody have any other observations or questions? These are all, by the way, this should say this, but these are all trading.

And you'll notice we are showing two different dcfs.

We're showing the DCF with synergies and then kind of DCF without.

So the DCF without synergies is showing that the company is undervalued.

So the only way to get to this is to say that we think we can run this company better, or there's a tremendous synergy in the product lines or distribution or retail strategy or whatnot.

That's a big, to me, that's a big gap to, to bridge.

That's nearly, you know, five to $6 a share.

You know, 50 to 60% of the value of the company that you're saying you can add to it.

So, you know, again, a lot of this probably has to do with the fact that it's a difficult industry because there aren't a lot of, you know, there aren't a lot of real pure play comps.

By pure play. I mean, you know, companies that do exactly what the target does.

You know, Lulu's a little kind of shishi and yoga-y and then under Armours got, you know, got kind of the, the, all the sporting goods covered, all the sport, all the sports covered, and they make all kinds of stuff.

You know, Nike and Adidas obviously are world beaters dominating.

So not an easy company to value.

Okay? How about luggage? What do we think about luggage? Well, let's have a look here at this case that's on the syllabus.

And this is for to me fancy luggage company.

I mean, not fancy, like, you know, like the luxury Gucci, you know, LVM, uh, LVMH or LV, I guess would just be the luggage That's just kind of, that's just kind of baggy luggage, right? They're just into slapping the badge on things to me is a luggage company, right? Although I think Louis Vuitton started out as a luggage company as well.

And now they're obviously just a big fashion house.

Gucci also started out as luggage, or at least leather goods and is also, you know, something else.

So what we've got here, this file is lemme tell you where I got this from.

Because this is gonna help you, uh, beyond, beyond me, beyond my time with you.

So what I did here was I was trying to figure out what to do today.

And I said, let me, you know, let me look at what's in the Felix link to building a football field, right? Because the last thing I wanna do, especially remotely like this, is walk you through the, the construction of a chart in Excel.

PowerPoint. Like that to me is, I mean, you, you might have to do this.

You might have some help.

It's really hard to kind of, without someone to walk around, okay, you clicked on that wrong. That's gotta, you know, that kind of stuff. Really you need to be in person for.

We've got a great video on how to actually create what is known as a floating bar chart.

So this is a football field in investment banking, but it's a floating bar chart to somebody in the presentations world, right? Someone in the PowerPoint world.

So we want to probably at some point know how to do that.

I honestly never really had to learn how to do this because when I was an analyst, we actually had a presentations group that would do all this.

And before you jump on me for being like overly spoiled, let me tell you, we, I had to, the number of things I had to do by hand, that type into, because I didn't have downloads, I didn't have, you know, SEC documents at my fingertips.

I mean, please, it was a lot harder when I was an analyst.

I can promise you that.

But I did have a presentations team that I could just say, please make it pretty, I need an hour of sleep tonight.

And that's how that would work.

But the file for for this exercise is this to me file.

So I thought, let me just download it. We'll go through a little bit of it. We'll, and we'll pull in the data from this really cool case study on how to value to me.

And that'll ultimately kick out the the floating bar chart, which has already been been built for us in this file.

If you wanna learn how to build it, follow Felix, it's fan. Really fantastic set of videos there.

So the way this is gonna work is, you know, we've got,

let's see, we've got a case file here.

Sorry, my dog is going nuts 'cause somebody's at the door.

Let's see how good the noise canceling microphone is.

Now, all of these other companies that are in here are the comparables, the comparables for this transaction.

We've got a little bit of a mix here, right? We've got a little bit of a mix of luggage, pure luggage, which is Samsonite, and they do d they dilly dally in some clothes and stuff, but, you know, as I think Tumi does now too, but for the most part, you know, we've got, we've got a luggage company and then we've got a couple of fashion companies here as well.

Not a tremendously robust peer group, but we're gonna have to make do with it.

Okay? Now, the, the way this file works is you're, you're gonna have a, if you were working on a deal, this is kind of what you would have, you would have a model in this file, which comes from ho hopefully management projections, but, but possibly not maybe from the sponsor, but maybe you had to made, make them up yourself.

But, so all these sheets in here relate to the, to me standalone model.

So these are, these are, which I'm grouping here.

You might even have in a file, you might even have, a tab that, like they have those, separator tabs, which I think is the right way, really the right way to do it.

And that's just gonna show you that, okay, from this tab over, this is the standalone model, right? And now we've also got, it looks like another comparable here as well too, which seems to be sticking out over to the right lopiano, which is a obviously kind of a very high-end tie-in, cashmere company.

And we, we might have pulled them out for various reasons, but in any event, the first thing, the next, the first thing the valuation, that comes up is the trading comparables.

So we can see where Tomi is trading, we can see where Samsonite is trading Burberry and LVMH, and then we can see where where the companies are relative to each other.

So again, if I'm just looking at EV to ebitda, it looks like, you know, Burris has been, had been struggling when this, when this was done.

I think they still are, but they're on the lower side.

But to me, Samsonite and LVMH are certainly, kind of right, right there with each other.

So again, th that should make for a pretty, pretty tight valuation.

We've got a DCF, we did that together and we've got the transaction comparables and the transaction comparables here just shows some other deals that have been done in the market.

So it looks like to Tomi has acquired, Tomi has been acquired by Samsonite, and that's kind of the deal that we're sort of looking at here.

And there's some other transactions as well.

LVMH bought, bought Laura Piano. Okay, I forgot about that. That was a while ago.

And few other kind of fashiony deals in there as well.

So now what we're gonna do is we're gonna go over to the football field page and we're just gonna pull in the data or to me, and we're just gonna figure out if this is a, if this is a good deal or not, how does the football field for Tomi look? So there's a Tomi page and a to me one page. You're gonna use the Tomi one page. And if we go over to that page, what we can see here is that this is kind of the summary page.

It looks a little bit like what's on Felix because it's very much linked to that kind of analysis.

So we've got the key data over to the left, which is really just kind of the stock price information and the shares information as well.

We've also got the EV bridge, we've got, the calendarized earnings and drivers.

And that's important when you're doing, when you're doing M&A work so that you can have all the periods match up.

And then as a result, we've got the calendarized multiples as well.

Got some other stuff here, that we're probably not going to, not gonna use very much.

So, I won't go into that, but, that's just kind of where we got a lot of the data.

Probably probably the original download of data from CapIQ or FactSet.

Okay? So to build the football field, what we're gonna do here is we're gonna go over to this football field page. We're just gonna start pulling in the data and I'm gonna go for my key data and I'm gonna go over and get from the two me one page from the enterprise value bridge, the cash in cash equivalents.

It's so funny when I have Zoom going, it does not wanna do this.

Hmm? I say that because I, I did this whole thing in the morning and like I did not have a problem getting that formula text to show.

And now what I can do is I can just copy these down because, all of the assets are right in this row here, right? Don't pull in the ev, we're gonna, we're gonna, that's what we're going to, we're going to get all the implied EVs, right? I don't want to me's actual EV I want their implied EVs based on all this other analysis that we did.

So now for the financial debt, I'm gonna go over and I'm gonna grab the financial debt from the next column.

It's just the way we set this file up assets, liabilities on the other side.

And I'm just pulling this stuff in here.

Now I'm pulling this in again Because I'm going to use it later to get from across my bridge if I get my implied equity value.

To get my enterprise value, I'm gonna need the data in this section, right? If I get my EV and I want my equity value, I'm gonna need the data in this section.

So this is how it's gonna help us review Now for,

this is the trading multiples here.

I wish it said that, but it's fine.

These are the trading multiples.

I'm gonna look at forward year two, and I don't exactly know why.

It would really depend on what we know about the industry. That would be kind of up to the more senior people in your team.

But it might have to do with just, you know, kind of where they are in the cycle.

It may, there may have been some choppy years and the second calendar year is actually a cleaner year.

So that may be the reason why.

I can't think of any other reason why you want to use two years out, Yolanda, do you, can you, other than getting past, yeah, There, there must just be some, some noise in that, like you said in the current year one. Yeah, that makes it a little, yeah.

Maybe they're undergoing a recap or something, or yeah, restructuring.

Yeah. Great. So now what we're gonna do is, so we, we've got these multiples here. Now, these multiples are gonna come, you know, from where Samsonite and LVMH are actually trading relative to their forward year two ebitda.

But I want to take those multiples and apply it to where two me is generating their EBITDA.

So I can see again, that implied ev so I need here toy's EV I need Tumi's EBITDA for calendar year two.

And I'm gonna go over to Tumi's file to get that.

And I'll go and do equals go back to two me one and I'm gonna go to this calendarized numbers and I'm using US dollars here.

I think we're doing that just to kind of keep everything simple.

Generally, you know, you kind of work in the home currency,, until they're acquired.

And then you or the, you move it to the acquirers, number until you consolidate and then you consolidate at one currency, typically the acquirers currency, right? So we're gonna do this in US dollars.

To start right now, just to be simple.

So the forward year two, this is LTM, this is forward year one.

This is forward year two. That's the ebitda.

So I want the 124.9, and then that is gonna be the same regardless of whether we're looking at the, the low end multiple, which is the nine x or the high-end multiple, which is the 10 x Tumi's EBITDA is not gonna change.

So the implied EV is therefore multiplying the multiple times the ebitda.

Okay? Now I gotta get to what that means in terms of a share price.

What am I saying about to me's? Implied share price, looking at where its competitors are trading.

Okay, well now I gotta go back and I gotta get the sum of all of those financial assets, which is just the top four.

And then I'm gonna subtract the liabilities and other stakeholders, which is the bottom four.

And that's gonna give me the residual stake, which is the equity stake.

And what I can do here is, again, I can just link, these aren't gonna change.

So let me just link that over and then copy across my implied EV formula.

And now I've got the, I'm sorry, implied equity value formula.

And now I've got the implied equity value and I wanna figure out what that means for a share price.

So I take that 1,216.4 and I wanna divide it by the shares outstanding, fully diluted for, to me, I don't have that on this page,

I should have it on this page. Yeah, I just didn't, I didn't. It's on row 13. Yeah. Okay.

So we'll just go ahead quickly and do that, which is Yeah, diluted shares outstanding.

Go back to, to me, that should be down here.

Yeah. Am I, Yeah, Diluted shares outstanding is 68.2.

Hang on.

Okay, so now I can just take the equity value and divide it by the shares and we're, we'll be good to go.

I'm gonna anchor this so that I can copy it across.

And there is my implied share price range based on the EV to EBITDA.

Mm-Hmm. Now what's happening here is, as I'm doing this, magic is happening the football field is filling in.

So we'll, we'll do as much of this as we can.

It's at this point, it's really just mechanics.

But I want to, again, I just want to, to go over it because I think it is a good review.

Now, typically you don't value based off of price to earnings, but clients like price to earnings because that's what their shareholders are telling them about.

And so price to earnings is much more quoted than EV to EBITDA or EV to EBITDA, whatever.

So you generally stick it in there just to like, you know, show it.

But we, we, as we discussed several weeks ago, we don't want to base an entire valuation off of that, right? So now what I'm gonna do is I'm gonna go and link to my calendar year two pe I need my calendar year two EPS, sorry.

So that's gonna be equal to, uh, calendar year two EPS, and that's the 1.08.

And that's gonna be the same for that.

And now, since I'm working off of a multiple, I have the earnings per share and I have the multiple, the share price is just the function of multiplying by the multiple.

And had I done net income, of course I would have to divide by shares, but I don't have to do that because EPS is generally forecast on a per share basis.

And that's why it's important to, to know that.

Again, as I mentioned many weeks ago, when you look at pe when you look at EPS in any of these forecasts, like Ibis or they're always diluted.

So we know that we're always working off of diluted shares. And that's, that's critical if you're doing an analysis like this.

Okay, moving down, DCF we want the, the high end and the low end of our DCF.

It looks like we're doing it basically without synergies here.

So what I'm gonna do here is I'm gonna go into the, DCF or the free cash flow tab, and I'm gonna find the low end of this range and then low end of the range, and then the high end of the range.

So what this is referring to here is a data table.

The data table is gonna show us that we didn't, we didn't do data tables in here, but if I go over to the free cash flow tab, the data table here is telling us what the share price would be from a low end, which is a low growth rate, and a high WACC, right? High cost of capital.

That's gonna give us the lowest share value.

And the highest share value would be the highest growth rate and the lowest WACC, the WACC measuring the riskiness, right? Of the, and that's gonna be the 2,532.

Any questions on this where I'm getting the numbers, what they mean? And again, we can just see that the, the DCF and the PE have filled in on our chart below.

Okay? 52 week range.

I think that's on the two me one tab here.

52 week low is $15 and one penny.

And the 52 week high is 2,784.

And the um, last thing we're gonna have to do here is the transaction comps, which worked the same way as the trading comps.

We're going to imply the EV and then we're gonna go from EV to equity value. But again, now we're looking at LTM.

So my LTM EBITDA for Tomi is going to be this, one 20.6 figure, which strangely is higher than forecast.

Year one. I noticed that just now.

So there's the static Yolanda right there, right? That 2016 is kind of a down year, at least for it is for, to me, don't know whether it is for the whole industry or not.

The EBITDA applies to both high and low.

And again, my acquisition EV I'm gonna be taking the multiple that I hopefully got from my transaction analysis.

Ours is hard coded in, the warnaco deal is the deal we're saying is the best deal on the low end and the Marco deal is the best deal on the high end to look at.

So that's how we get that, that range. Yeah.

And now, financial assets and liabilities, I'm gonna just go and grab those from above because I don't need to do those again and I can copy those over as well.

And now my equity value, it's going to be the net of those and divide it by my share price, I'm sorry, by my shares outstanding.

And if I were being super meticulous in my formatting, which you should be, all of your shares should have currency and two decimals.

But, as I joke, formatting is not our thing premium paid.

Okay? So now we need to find that unaffected share price.

Can anybody spot it? Do we know?

Is it on here? I think it's on here already.

Yeah. Unaffected.

Is it on that page, Yolanda? I think it is.

It is, yeah. Up top.

No, it's on the, sorry, it's on the to me page, right? I'm on the to me page, aren't I? Yeah.

So go up to, C18, I think.

Oh, is it, there's probably a comment here that says that this is the yeah, excludes the price on jump and acquisition.

So this is the date that we're using for for that, yeah, I don't think it matters which cell we pick, but I'll just pick that one.

And then that's gonna be the same in the both scenarios.

So now the, the premium here is just what, uh, the implied share price, the implied share price that we're, we're effectively, assuming based on the, on the, the percentage premium.

Now as far as where we get this from, I think I actually took it outta here accidentally.

Because what you would do is, you know, you would kinda look at the historic, the trading comparables and try to figure out where, where was this price for warnaco over its unaffected price.

You would look at where Mark Colon was, right? But what we're s what we're gonna assume here is that our premium is was, is within a range of 24% and we'll just do 34% because that's what's in the solution file.

And those, those are either given to you or they're clear from the tra the transaction page.

That would not be clear on the transaction page.

So I'm putting that in there.

And how do I calculate this? Well, I'm gonna take the 1980, which is the unaffected share price times one plus the premium.

And that tells me what I would pay at a 25% or 24% and a 34% mm-Hmm.

Okay. Now I think the last thing we have to do is the DCF and the synergies.

And that's going to complete our evaluation summary.

So again, for the DCF with the synergies, what we have to do here first is we're trying to figure out what four to 6% of LTM sales are.

That's kind of what they're saying that the synergy is going to be.

So it's, it's a little bit, it's, it's a little, a little bit odd.

'cause technically, you know, I, I would do, I, if I were doing this, you know, what I would do is I would have the synergies built into the DCF page and if I go to that free cash flow page, I would have the synergies built in here so that we can actually just reference another data table that's including the synergies in there, right? And we could, we could have the synergies as, you know, kind of in one of the axes or something.

But, this is another way to do it and that's fine.

So I'm gonna go back to the football field here.

And what I'm gonna do here is I'm gonna take, that I hate having hard numbers in my formulas.

I'm just gonna say that flat out, and I don't teach generally don't teach that way, but I don't wanna alter the file.

So equals 0.04, or you could do 4% if you want to have at least show up a little bit better in your formula times my LTM sales four to me, which are the 555.5, and now I can do 6% times same thing.

And that's gonna give me my range of the synergy as a percentage of sales.

So what I'm saying here is that I'm gonna get some, some operating income or some EBIT that's going to be between four and 6% of sales an increase as a result of this deal.

So what does that mean? Well, if I take that increase in ebit, what does it do to my ev? Well, the EBIT multiple currently for EBIT is 12.8 times.

This is a little bit like that LBO analysis that we did where we take the 12.8, which is the kind of the entry multiple or what the EBIT is worth currently, and that's the 12.8 and multiply it by the amount of EBIT that we're gonna generate.

And that's gonna give us this range, this this increased range of enterprise value.

And so now our adjusted ev we're adding that to the ev for, to me, standalone without the synergies.

And that should come from the DCF as well.

Now we have hard codes here, that's fine.

But if I, what I'm adding this too is, is to me kind of standalone, right? Without the synergies.

Now, uh, what about the financial assets? Well, this is again, all gonna be just like from above.

Copy those down, copy these to the right.

Equity value is the net of all of these.

And that's showing my range of equity value, including the synergies.

And that's gonna be divided by C15, C15 locked.

And so we can see here that there's quite a bit of difference in the DCF with synergies.

DCF without synergies was 19 to 29.

Now it's 24 to 29.

So that has, I think it has to do with where they pulled these numbers and I'm not entirely sure. So let's just ignore that for right now.

Okay, so everything else is done in the model.

And you would have a template if you were kind of filling this out, you know, so you wouldn't be recreating this, but what's what's happening with this, with this floating bar chart, which is now complete, I'm gonna just make it a little bit bigger, is what's happening here is that the floating bar chart is actually, it's got like, it's got a, it has a piece here that's just in white and it's got a piece here, it's in white.

They're just kind of, hiding from us.

So we, what we see here is actually just the difference in these two highs and lows.

So that's why it's calculating here, the difference.

And that is effectively what makes this chart look the way that it does, is that it's hiding a part of the bar and only showing you kind of the difference.

And, you know, again, it's kind of a clever thing, whoever thought of it they should have patented it because they'd be making a lot of money, off of it.

But, you know, this stuff, obviously once it gets out of the bag, every, everyone kind of just repeats it.

So that's what's happening here is it's feeding in all of these differences.

And you can see the bigger differences, you know, are for the 52 week high and low, which is not a valuation, you know, not a calculated valuation. It's really just an observed valuation.

As well as the transactions, which seem like a pretty, pretty wide band, considering that we don't have a lot of good data.

Right? And then this dotted line in the middle is the share price of where Tomi is currently trading.

So, what's this saying about, about where the valuation should be? I mean, does anybody wanna just proffer up a a guess here as to what they think, you know, that where, where they might pinpoint the valuation range or pinpoint the valuation range is not really a good term, but where they might locate the valuation range.

What would you try to do here? What do we think we could do here? Well, obviously it's a bit of an art to this, right? Because first of all, you, you would, you would never wanna walk into anyone's office and say that you think the valuation is X because that's, well first of all, it's setting yourself up for potentially a lawsuit because there is no scientific number.

No matter how many evaluation techniques that you do, the more, the more, the better.

We wanna range, and the range here obviously would depend on where we think which metric, which methodology we holds the most, holds the most water or carries the most weight.

And in general, I would say that when talking to clients, Yolanda, you could, you could, you know, chime in on this too, that clients love multiples, they love comparable transactions trading comparables because they, because one, they can relate to it. And two, it's, it's something that they can explain very easily and say, look, this is where this deal got done.

All these deals are being done at X, we can, we're worth X, you know, or this is where companies are trading and we should be trading here as well or more, right? Obviously some of the other valuation techniques like the synergies and the dcf, they get a little bit more involved.

But, but you know, not to say that they don't understand them, but, but they may be require a different amount of explanation or selling.

So clients will always look towards certain multiples and it's always certainly the banker's job to try and figure out, well are, is there anything that we're leaving out of the multiples or that belong, you know, we should shift our analysis somewhere else.

Now, you know, if I'm looking at the, the, the whack is showing that the company is undervalued, right? Because the I'm sorry, the DCF is showing the company here is undervalued.

Because this is pulling it way to the right? The transactions, the what people are paying for similar companies in the market are also pulling way to the right.

So we've got a couple of, you know, kind of data points here that to me are showing something in the, you know, close to $25 range.

Now as far as average premiums paid in the market, those, those should be linked to this.

That's also showing north of 25.

And then the synergies are showing north of 25 as well.

So it looks like, you know, if I were to kind of bracket this as a range, I would say probably, you know, something in here is a pretty decent valuation range. Something in the 20, you know, 24 to 27 range.

I don't know, what do you think, Yolanda? Something like that.

Yeah, I was gonna put the low end, the low end of the DCF with synergies. They, their low end.

Where's that? So oh, so you say 20, so that's more like, that's 24, right? So that's like, which Is the right of it? Yeah, yeah.

So yeah, so, but Yeah, Maybe the band would be a little bit but roughly skew to the right. That's kind of what, what's that? Yeah. Skewed to the right. Yeah, exactly. Yeah.

Yeah. So, you know, this is basically looking at a share price of 24 to 27, maybe 24 to 28.

There is some room because the, because all of these things have nice tails to the right here.

The, if I'm the client or you know, if I'm the banker, I'm, I'm saying, look there's some room to go here.

You might even be able to get to, you can probably get to 28, 29 and still be safe, right? And that's it, that's effectively what, what this page is all about.

And hopefully that combination of the review and and the analysis was, you know, was helpful.

Me just get my controls back here so I can, We didn't leave much time for questions did, but if anyone has any, let us know. Yeah.

Oh, there it is. Sorry. Paul I was, I thought, I thought I'd be done by 3 55, but I was like, Next thing you know, I got to the end.

So, for those of you that stuck around you know, we're here for, I certainly recognized you having been here the last few weeks.

I appreciate your, you know, your time.

Yeah, if you have any questions on this, you know, after the fact, please feel free to message me at any point.

You may come a come across this stuff in the, in the next few months as you take on new tasks and you might wanna rehash or, or, you know, resee something again, you know, by all means, don't, don't hesitate to question me about that.

You can email me, you can chat as well.

Email is generally a little bit more efficient.

I think sometimes the chats kind of get stuck in there, but also, you know, there is a feedback kind of form at the bottom of the I'll probably send a message out about this for the larger group, would welcome any feedback about how we can, you know, improve these sessions focusing on other things, spending more time on this or that. If you have any of that feedback, we would appreciate it as well.

Anything that I could have done better too, happy to, happy to hear that.

And, we are gonna be running these, again from time to time.

So depending on whether it's a firm sponsored thing or an FE sponsored thing, you might be able to jump back in at any point for a, uh, a brush up.

The videos are there for you as well.

Should be, pretty close to what we discussed in class, if not a little bit more thorough, a little bit more detailed.

So, I think with that, Yolanda, I'm going to, a good night. Yeah, just a, Like, if there's any questions. Yeah. So, All right, good, good to hear.

And um, happy holidays to everybody.

Hope everyone gets some time outta of the office and look forward to seeing you again. Hopefully in another, another financial edge Yeah.

Session and get your, you know, your money's worth outta that Felix subscription. There's a lot of good stuff there.

A lot of really, really good stuff there.

Thanks everyone. Alright, well thank you everyone. Goodnight.

Goodnight.

Alright, Yolanda, I'm gonna wrap it up there. Okay.

Yeah, looks like there might, somebody might have stepped away or something.

Just, yeah. Okay. Audio. Okay, great.

We'll talk to you soon. Take care.