M&A Case Study - Analysis at Various Prices
- 03:37
How to use Excel to analyze the valuation of a target company based on different EBITDA multiples and compare them with the trading and transaction multiples of comparable companies. How to calculate the enterprise value, change the EBITDA basis, and interpret the results in a negotiation context.
Transcript
When we are presenting the deal, the person acquiring the company is just going to be focused on the actual price paid the enterprise value. But actually when we think about the valuation, we probably wanna think about actually the multiple basis. So if we just take the CY1 EBITDA number for our target company, and I'll take it up from the information here. This is CY1, that's the CY1 EBITDA. And then I'm going to just keep that constant and I want to know what the value means for different multiples. And I'm just gonna start by, let's say 15 times. And then I'm just going to add half a turn to that a 0.5. So that will increment by 0.5. I'm gonna keep my EBITDA constant. And then my enterprise value is just simply the multiple times the EBITDA. And the reason this is useful in a negotiation, it means you can easily and quickly swap between a multiple valuation versus a dollar amount. So if we negotiate 17 times, that translates into an enterprise value of $63 billion. And this is analysis of various prices. It's just looking at the price versus the multiple and having a language that allows you to quickly flip between the two. So we could also take the comparable multiples, but actually to do that, because our transaction multiples are based on LTM numbers, it probably makes sense to do this not in a CY1 multiple basis, but an LTM EBITDA multiple basis. And that's an easy change to make. I can go up to my information for the target and instead of using CY1, I can just use the targets EBITDA there on an LTM basis. And this means I can put these multiples in context of where the trading comps are trading and the transaction comps. So if I do the median calculation here and I go to the trading comps median here, it's not gonna be fantastic because there are only two numbers, but we get about 23 times. So this means if you are trading multiples 23 times, you are gonna have to pay in excess of this. So if I just change this to, let's say, not a turn of half, but a turn of 1, it will get me to, so I'm gonna have to pay, you can start to see well over 86 billion. In fact, I may change this. So instead of 1, let's say 1.5, and then you get a bit of better range. So I would expect, assuming you say 30% of 23 is getting on for about 29, So probably in terms of premium above the current traded price, I would as a vendor be expecting numbers to be pretty close to 100 billion, our median deal comps or transaction comps, unfortunately are gonna be lower. And the reason for that is that the deals were done when the markets were weaker for lower multiples. And also some of the comparable companies are not great comps. So you can see we are only getting a multiple of about 17 times, which is much, much lower.