Transaction comparables.

Let me talk to you through why we're doing this.

First of all before I go into what we're going to cover.

You are trying to assess how much you need to pay for business either on the buy side or you are trying to figure out how much a company you're trying to sell is worth.

And obviously when we are looking at M&A we will have to pay something extra to either get the company or we will receive more to when we're selling a business.

And that is the control premium.

And that's what we really want to identify.

So I want to value the company I'm trying to sell.

Let's assume we're on the sell side and identify for how much I should sell it. So that's the whole idea behind transaction comparable.

It's also often called premium paid analysis, or prepaid.

We obviously like abbreviating everything in banking.

So what we're going to cover is first a quick overview of the m and a market, just to give you an idea on what type of premium we're paying at the moment.

What is the control premium.

Then, um, looking at types of consideration, nature of the acquisition.

And also then diving a little bit deeper into the information we require to actually do this analysis.

Okay. We're then going to have a look at the real deal.

Slightly old, but really interesting to have a quick look at in terms of valuation. So that's the plan for the session today.

Please remember all resources are in the resource section for those who have just joined and any questions you have, please use the Q&A function because that is really, the easiest way for me to then, make sure that I answer your questions immediately.

Okay. Right. So M&A market, we are paying a control premium for a company when we're buying a hundred percent.

If you think about the current share post, so let's focus on public companies at the moment.

The current share post really reflects the value on a standalone basis.

So when you decide to buy 100 shares, 1,000 shares, 1 million shares, you really are looking at buying a minority stake.

However, if you want control, so about 50% you'll have to pay a premium.

And this control premium tends to be between 20 and 40%.

But does depend on the sector and obviously control premium will have to be covered by synergies because we can't just grab money out of thin air and say this company is suddenly worth 40% more. Right? So the reason why we are able to pay more is because once we have control of the company, we're able to extract synergies.

I thought I'd just show you a couple of numbers just over the years how this has developed.

You can see, first of all, if we are staying on the green line, it gives you an idea about the multiples are being paid.

In terms of in terms of enterprise value sales.

Now a bit unusual just to see enterprise value sales, but obviously the tech sector has really impacted, the M&A market, particularly if you're looking at 2021. We had an awful lot of transactions in the tech sector, so multiple there really, really high.

And we are obviously looking at sales multiples because you know, sort of the fast growing tech companies probably don't have any income yet, or very little ebitda ebitda, which means you would be showing me a multiple of a hundred times EBIT or a hundred times ebitda. That just doesn't make sense. The average premium paid, um, over the last 14 years is 32%.

But you can again see, you know, development over time.

So as we are coming into, you know, it's a more fast growing type of M&A transactions, we are looking at higher premium and also it does very much depend on the underlying assets.

Okay. But I thought I'd just show you this just to give you a bit of a feeling.

So on average around 32%, okay? In terms of the control premium itself, what we actually calculate are two items.

We calculate the control premium.

So these are always transactions where we are looking back in time.

So my company, let's assume the company I'm looking at is Britvic because I'm gonna show you a recent deal that was announced in the drink sector and I'm hired to sell this business.

Now I want to figure out how much I should be paying for this.

I will look at historical premium paid in the sector, but I'm also at the same time looking at historical EV multiples. So this is always historical because you're looking at deals that have happened or have been announced, maybe not closed yet to give us an idea of how much we might have to pay for the underlying business we're looking at.

Premier are always calculated based on the unaffected share post.

So no m and a noise in the share post whatsoever, which can actually mean that you have to go back in time somewhat to find the unaffected share price.

Okay, more than that in a minute.

And then in terms of multiples, we tend to focus on enterprise value multiples, but obviously in the financial institutions or real estate sector, we will absolutely look at PE multiples and price to book multiples, okay? Because those are the multiples that drive, um, that sector.

Now, if you have done some valuation, you might have done trading comps. And actually the calculation of the multiples in transaction comms is exactly the same.

We, again, calculate an enterprise value, we divide by LTM, EBITDA, EBIT or sales or PE multiple as I just mentioned.

However, I actually think it's more difficult to do transaction comms. Number one, finding all of the information you need. And number two, particularly the qualitative aspects of a transaction.

Okay? So every deal is different and you need to really understand why someone was willing to pay 30 times or 25 times EBITDA for a business when other companies within that sector went at 14 times EBITDA, which means you need to read up on the transaction.

I think that's actually really super interesting because you learn something about the m and a transaction.

So ask yourself was their competitive tension? I.e. where there are lots of bidders for this asset and obviously more bidders you will have to pay a higher premium because you are competing supply and demand.

Same for scarcity of assets, right. So is it a company which is unique in terms of, in terms of what it does? Is it maybe the last smallest or medium sized player in a sector? So again, you know, you would probably get more interest in this asset than for for other transactions.

And then finally the more synergies you can extract, particularly if it's a scarce asset or that is competitive attention, then you will have to pay a higher premium.

Why? Because the seller will also be aware of what type of synergies, you might be able to extract because through due diligence, through the questions you've been asking that company, you know, it's became really obvious.

You know, that you might be one who can extract higher synergies, synergies. We normally think in terms of cost and revenue synergies, okay? Cost synergies in the market likes somewhat better reason being, they are easier to achieve, right? And they're, they're more tangible.

Whereas revenue synergies actually longer term are more valuable because, you know, cost synergies you can only cut costs up to a point. Whereas revenue synergies, if you really integrate those companies well and you're able to grow the top line you know the world's your oyster, right? Basically you are able to potentially achieve a lot more value.

So if there's a lot of 10 competitive tension, if it's scar asset, you probably will have to pay away most, if not all of your synergies in some transactions. We unfortunately overpay for the synergies.

It's not necessarily the amount of synergies that we don't achieve them, but the timing of the synergies, okay? That we, that we are not actually getting them as quickly as we think we might do.

So let's have a quick look at I've just mentioned I would show you something regarding Britvic.

So Britvic is a British soft drinks company and the company's just has just been announced that the company will be acquired by carlsburg.

Carlsburg you've probably all heard of.

And you can see the company has announced a carlsburg that they are paying, well we got it 13.6 times EBITDA, LTM EBITDA and they're also expecting 100 million of synergies, okay? And then it, here's a little bit more detail on the synergies. A hundred million cost synergies. So they're not mentioning revenue synergies at all.

80 million to be realized by the end of year three and the remaining 20 million by end of year five, which is pretty interesting because that's a very long run rate.

I.e. when I'm getting to that final top number in terms of total synergies, five years is actually relatively long. Generally we would expect companies to get all synergies by year three synergies. We mean we cut costs and those costs are gone forever, right? So every year from year five onwards, you're going to have 100 million more EBITDA or EBIT.

In terms of, in terms of your underlying financials.

Okay? So we'll come back to this in a minute.

Let's just talk about a couple of other aspects.

So, this is what I've just gone to.

So in terms of synergies we normally try to value the synergies and companies will normally announce, you know, quite some detail as you just saw for Britvic.

So we can actually do a mini DCF on the synergies themselves forecast.

So again, going back to Britvic, I would probably assume maybe in year one they have no synergies, because we might have integration costs year two, maybe they will have 40 million of synergies and then by year three 80 and then maybe another 10 million until we hit that 100 million by the end of year five.

So I can forecast this and that's nothing else than actually forecasting a cashflow because we get additional cashflow from those synergies, we then tax them and that will give us effectively our, our cashflow after tax.

Then we would discount those synergies at cost of capital.

We normally use the target company's cost of capital here, unless we know that the synergies are going to arise in majority at the acquirers site, but it tends to be, you know, more common that we're cutting costs at the target companies level.

Then obviously depending if you're using mid-year conventional or not for your DCF, you would then discount them back.

And for the terminal value, we often assume a long-term growth rate or pat, your growth rate of 0% maximum really is inflation.

Why would we assume 0%? Well, because businesses change, right? Business models change and at some point this cost might have gone anyway, so it's somewhat more conservative here.

But if you want to assume a growth rate, please do not not go beyond inflation because we're cutting costs, which means, you know, costs normally grow with inflation.

So just be a little bit aware of this and then you just discount everything back. Today's value compared to the control premium in million dollars, euros or whatever currency you are working in.

And we can identify if we've created value or not. Okay? And obviously we create value if we do not pay for all of the synergies.

Let me know if you have any questions, okay? Just put them into the Q&A chat.

Okay, let me move on to the next slide.

So I'm just going quickly run through the sites and then we have a look at a real example.

So types of consideration might have an impact and you really need to understand how the company paid for the transaction.

Okay? So we're going from all cash and most deals tend to be all cash to all shares and then anything in between.

Now if you're using all shares, then you need to recognize that the target shareholders effectively become shareholders in your own company.

So you're giving away, first of all, a certain amount of the company.

So you need to think about ownership post deal.

And that sometimes is an issue for the buyer's shareholders, right? They don't want to lose control.

They might not have, want to have someone with more than 25%, which of often is a blocking stake in their company.

Number two, if the target company has had quite a steady dividend policy when you are announcing the deal, because remember the target shareholders have to actually agree to the deal.

You might have to really communicate your future dividend policy, right? Because otherwise they might just say, I don't want shares in this new company, in the buyer, but I'd rather just have cash please and then make my own investment decision.

And then finally doing an all share deal cross border is very difficult, right? So unless the buying company has got shares listed in the same country as the target company, you often experience something called flowback i.e. where the target shareholders will just sell their shares because they Don't really want to hold those international shares and that obviously creates pressure on the share price.

So just be a bit aware on all of those discussions. Obviously if you're doing a mega deal, and particularly if you are in a sector where we are fast growing, so we are paying high prices and we don't have a lot of cash flow, we just can't finance with debt, we have to use shares.

So those huge tech deals have all been done based on a share basis.

All cash, most commonly used.

So you know, particularly for private companies, we normally use cash because effectively the shareholders are cashing out and then you can have anything in between.

So for instance, the deal and between buyer and Monsanto, I'm just going by write those two company's names on here.

One of the biggest cash deals ever.

Sorry, my handwriting isn't great.

So the German chemical company Bayer bought Monsanto, you might have heard of this, it was about $60 billion.

They used every single piece of instrument they could use.

They did about $39 billion in pure debt.

So across the entire yield curve, i.e. maturities, then they did a convertible bond for 5 billion euros and or dollars actually.

And they did around 14 billion of a secondary offering, i.e. selling more buyers share into the market to then raise the cash to pay to Monsanto shareholders.

Okay? So, so in the end somewhere the cash needs to come from, sometimes we might have an asset disposal to actually fund the acquisition, okay? So very much depends on market conditions.

What can you borrow? Preferably you would use debt to pay for it or excess cash and and then you know, what can you actually afford in terms of different instruments.

So that's the type of consideration.

Have a think about this when you're analyzing a deal, please.

Types of public M&A transactions. Just to give you a couple ideas, in general, we make a tender offer or an offer for the target company.

Okay? So we send out an official offer document and this is obviously all public companies at the moment.

And then there are some very specific rules.

What you need to do, timelines, you know, what you need to send to whom, et cetera.

That does depend on the country's takeover code or takeover law or company law.

So we have a new uk a takeover code which is very specific in terms of timeline.

And then you also have stock exchange limitations.

For instance, you need to make a mandatory bid as soon as you hit 30% ownership.

Okay? So that's actually true pretty much around the world.

So 30% ownership, I've bought shares up to that level and I'm now forced to make an offer for the remainder of the company.

However, you will have to pay the highest price you paid in the last 12 months.

So that's important to remember. So you can't suddenly say, oh I paid on average whatever, a hundred dollars over the last 12 months and you 70%, I'm just gonna offer $5 to that doesn't work at 30%.

You are a big shareholder, you are going to have quite a bit of influence on the company and basically, you know, the law wants to ensure that you're then, you know, making good on all the other shareholders.

And then the other thing that's important to remember, pretty much around all countries, some countries are at 95% such as Italy, but everywhere else pretty much 90% ownership means you can force or squeeze out the remaining 10% shareholders.

Again, you will have to pay the highest price you have paid in the last um, 12 months.

You can't go to them say, Hey guys, sorry, but you missed the deal and you're only gonna get $5.

This is obviously for the protection of minorities.

That rule makes a lot of sense because if you couldn't do this then you would have to continue to publish an annual report, invite them to a shareholder meeting.

You can normally delist the company before this, but it obviously is an additional cost, particularly in terms of investor relations.

So it might just be some shells forgotten to accept the offer.

Now in the UK and uh, in a lot of commonwealth countries such as Australia, Canada, a lot of you know Asian countries and then Bermuda, Cayman Islands, BVI, we actually have the circle scheme of arrangement, which means it allows us to squeeze out 25% of shareholders I ownership wise rather than just the 10%.

But it is done through a court system.

So you go to court and you apply for the shares effectively to be canceled in the target company.

The court now takes a fiduciary role, so looks after the minority shareholders.

So you need a fairness opinion for instance from a financial institution and and need to make sure that you know, everything is in order.

So you can't again go there and say I'm only gonna pay you $5.

You will have to, you know, offer them exactly the same price.

Pretty much all UK deals are done on this basis, right? So it's very popular in the UK just in case you are based in the UK.

Okay, so that's public transactions.

Now let's have a think about what type of information is required when we do the analysis.

And this is where you are often playing a little bit detective, right? And really trying to find all the relevant information.

You spread a deal once, if there was competition for the asset, then you would spread ultimately the winning bit.

We spread both transactions which have closed as well as announced transactions.

Because as soon as someone said publicly, we are willing to pay a hundred dollars for this company, you got an offer price.

Okay? Now, let me talk about the information sources you need.

And let's start first with public companies.

So information source us is always a lot easier.

So we have something called the 8 K, which reflects a material event outside the normal um, publishing season.

So outside the 10 Q, the 10 K and the announcement of the deal will be in there.

Then we have the 14 D 1 gives you the document detailing the offer to the shareholders.

So that's basically your offer document in the UK or in in on the continent or in AsiaPac.

The 14 D 9, you know, if it is a hostile bit we might have an answer from the target two, the shareholders, okay? And then the S 4 which is a super document because it's very, very detailed.

If you are issuing any securities as part of the transaction, so to raise funds or issuing shares, to the shareholders, then you get an S 4 or an F 4 if you're a foreign filer.

And that document, if you ever can get your hands onto one for a specific transaction actually details the deal in great detail.

So they will go through how the deal came about, right? So they will say CEO X met CEO Y at a conference, started talking and then they started a process, you know, invited whichever bank to advise them, et cetera, et cetera. So it's really interesting to read through and, and it also gives you the details of if a fairness opinion has been um, provided.

It gives you the details of that I what top analysis the financial services institution has has done the 10 K and 10 Q. You need to calculate LTM numbers as soon as we come outside the US it's a bit more difficult, right? Because we don't have the SEC filing requirements.

So in the UK we've got the takeover panel, you can get a lot of information obviously from the company's websites.

What we need is the offer document.

And again, this exists around the world scheme of arrangement already mentioned.

So this is again a document which details the scheme of arrangement.

And then again we need annual and interim reports.

So for public deals, not too difficult private deals create a headache, okay? So here, if the deal is relatively small, you might not be able to find any information because it was not disclosed.

So in terms of information hierarchy, what we always look at first is regulatory filings.

Because these are the official documents, particularly from the buyer's perspective.

Because then we get, you know, all of the background.

We need the financial statements.

Have a look at company presentations and press releases.

So what I've showed you on my screen, so this is a deal that was announced two weeks ago, Carlsberg, offer for Britvic.

It is the actual investor presentation.

It's got everything in there I need.

Which is fantastic news because I can do my analysis really easily.

Okay, so investor presentations super useful.

If you are doing this the first time for a sector then M&A databases, you know, for instance FactSet merger market and will give you some really good starting points in terms of which deals have been done in the sector as bankers and I'm an ex M&A banker, we normally don't trust these databases. We will then spread the transactions separately, right? So really go into the extra documentation and make sure we've got the right numbers.

If it's a private deal, have a look at e equity research reports.

So industry pieces, around the time of the deal they might have picked up some information and then alternate you might have to use a press articles but please make sure that you use, you know, a newspaper that's actually reputable.

So I probably wouldn't use us today but I might use the Wall Street Journal because I know they can, you know, they do pick up an awful lot on M&A and they also know how to analyze those transactions.

Sometimes industry publications are useful because they might have picked up something about the transaction.

But if it's not disclosed, then all you will do is you will just have the deal named and the description of the target company and absolutely no numbers.

But we will still include that in our analysis to know which companies have been taking over in the sector.

Okay? So that's the information required.

As I said, you become a little bit of a detective.

Cool, okay, so what do we need out of those documents? We need the offer price, right? If we're a publicly company.

So all the analysis we're doing really important. That's why it's on in red on this slide.

It's at the time of the offer.

So on the offer date, I was willing to pay this amount of money per share or in total for the company.

This is really important because if you're issuing shares directly to Target shareholders, you basically have a floating offer price, right? Because share posts move and between announcement and closing can be quite a lot of time, which means, you know that offer price might go from a hundred dollars to $80 or $120, you know, whatever way the market is viewing this deal, we want to know what were you willing to offer when you publicly announced this deal for the first time.

Okay? So really, really important. It's everything's at the time of the offer.

You know, deals can take 18 months, two years to close, particularly in highly regulated industries that I will then compare to the unaffected share price.

Okay? So unaffected share price means have a look at it.

You might look at something called VWAP.

So VWAP which is the volume weighted average share price, which again, you can get from lots of different systems.

You can get it off Felix, you can get it off Bloomberg fax at CapIQ.

But we need to really understand is the share price clean of any M&A noise? So it might be a day prior, a week prior, a month prior might be an average for the last three months.

It really does depend on the deal.

So again, what I would strongly suggest you do is have a look at price volume graphs where you can see if trading volume suddenly picked up, which normally means there are rumors in the market, right? So the shepherd suddenly starts creeping up despite the market or the sector not doing an awful lot.

And at that point, you know, there are probably rumors in the market.

You might even find some new press articles around this, okay? Really important. It needs to be the unaffected share price without any existing M&A noise date of offer. That's obvious. Date of completion be useful to know has the deal actually completed? How long did it take? Then we need diluted share outstanding.

We at the time of the deal and and obviously on the private transaction, that doesn't really exist even though we've put it in there. If we do a share deal, yes we might have this and then net debt to get to enterprise value unless we're in financial institutions, or in real estate because there we tend to focus on book value of equity and market, you know, whatever we're offering for the shares.

And then we ideally find recurring LTM EBITDA, okay? So everything is done on an LTM basis.

We might also include LTM sales as that BCG report slide I've showed you.

We might include LTM EBIT or obviously EPS if we're looking at financial institutions or real estate.

LTM means at the time of the transaction, this was the information in the market at the time I announced the transaction.

Sometimes we will also include forward multiples.

So based on research published around the time of the transaction but not including the transaction.

Okay? So that gives us an idea what the potential buyer has seen because obviously they will have had access to management forecasts, business plans, et cetera.

And in general, companies when they give guidance to research analysts on the next 12 months, they're not too far away from what might actually happen.

Then we calculate there are multiples, right? So as before you value divided by your value drivers.

So enterprise obviously divided by EBITDA.

EBITDA and ultimately we are going to create this transaction multiple script grid.

So we've got um, a couple of different transactions here.

So a public company in the first one, okay? So you can see a premium paid of 30% dire outstanding gives us the equity value.

Then we calculate the enterprise value at the time of the deal.

And LTM EBITDA multiples.

What I would also add to this is probably announced synergies, right? 7% of sales or you would express the 100 million from Britvic as a percentage of sales.

Then we have a private company transaction. Obviously no offer posts for any shares.

We just have an acquisition equity value and therefore an enterprise. So if you have access to the financials, an asset deal versus a company is just basically where I'm buying the assets.

And here we normally just have an enterprise value and then private equity you can see much lower multiple, right? In terms of so more mature business potentially.

Again buying a private company and finally merger of equals company, where we don't have a premium.

So you can see it just says 4.3%, right? I.e. no premium because we have a merger of equals.

Now a merger of equals don't happen very often, right? Often we use the word merger in a very generic way because it implies not a lot of job losses et cetera.

But true mergers of equals happen every couple of years, not very often because it means you are of equal size in terms of valuation.

So that's all I wanted to show you.

So what we're gonna do now is we're gonna have a look at a transaction.

So now what I thought we'd do, you have these materials in the resources section in the class, is we're gonna have a quick look at the acquisition of SodaStream by PepsiCo.

Okay? You probably all have heard of SodaStream, what an amazing company, okay? I mean growth went through the roof and obviously a fantastic business and and very useful for Pepsi.

Because you can now make at home Pepsi, you know, by just using some water under their concentrate.

So industry was an Israeli company, right? I mean again, Israel is known for some amazing tech companies and so it was acquired by Pepsi in 2018.

So what I'm gonna do is I'm just going to use the workout.

But you can just use an MT Excel spreadsheet.

I'm just gonna quickly show you how I pull the data out of the offer document to then calculate the implied LTM EBITDA multiple, okay? There are other workouts in here.

We obviously will give you the solution and um, and you can have a look through this, but I thought it'd be useful for you to actually see, okay, how do I actually do this, from scratch.

Okay? So the first thing I will need is the offer price.

So you will have a soda stream, public information book effectively, which has the offer document.

Now we have a 6 K here rather than an 8 K because it's an Israeli company with an ADR, okay? And that means it's a foreign filer and they file something called the 6 K.

Now if you go to the first page or I think it's page three, I've got some bookmarks in mind, but I will direct you through this now page two, then you can see the entry into a merger agreement.

So it's interesting they called it a merger, okay? But the deal value is about 3 billion dollars, but it's worth hundreds of billions, right? Or, or you know, a huge amount of money.

So it's not really a merger, but again, remember what I said, we quite generically used that word because it implies that we're all very friendly and we're not going cut any jobs.

So you can see the highlighted yellow text, they're offering $144 in cash to the shareholders of SodaStream.

So what I'm gonna do is I'm gonna just put the 144 in here, okay? As an input. The next thing I need to find out, what are the shares outstanding.

So in banking we are quite precise in terms of doing this analysis to make sure we get the correct value in terms of the equity value of the deal.

So shares outstanding.

If you jump to PDF page eight, okay? And you see on the very top it says as of December 31st, 2017, which was the latest information available, in terms of when the deal was happening, it was 22,122,935

So I'm just gonna copy that number with CTRL C and bring it over into Excel.

But I want this in millions. So I'm just going to make this into millions with putting a full stop inside.

Yeah, and that doesn't make any sense because I don't have a form there.

Okay, so shares outstanding.

So this is the basic number of shares, these are the shares which are freely available potentially, but have been issued to shareholders.

Now we now have something called change of control, okay? And as you might be aware, companies often issue options or restricted stock units as incentives to management or to the whole company, right? Can absolutely happen. It's a bit unusual.

You normally have it to senior management.

Now in the case of a transaction we have change control and these options and restricted stock units in general will automatically vest as part of that deal.

Basically I give management the opportunity to participate in that upside of the offer price.

So it's really important that we always calculate fully diluted number of shares outstanding.

Okay? So I need to find the option information.

So if you go to PDF page 65 for me please, then you have the table for the options and the RSUs.

Just go make that a little bit bigger so you can see this and on my screen, okay? So you can see outstanding options and RSUs.

Some of you might wonder what is in RSUs.

It stand stands for restricted stock unit.

It works the same way as an option.

The only difference is that the strike price is zero. Okay? So it's always in the money, but you still have to wait to exercise it, right? So it has a vesting period, it's not exercisable immediately.

But the only difference is it has a zero strike.

So you can see outstanding as of December 31 we had 1,022.83.

So I'm just gonna copy that number over.

So my options, let me just put the number in here, make it into million.

So just put that full stop in there and then this is my options and r RSUs outstanding.

Okay? 1.02.

Now the next thing I need is the strike price.

Because obviously I have some options.

So some of them are RSUs, others are options.

And if you go a little bit to the right in terms of the table, then you can see the weighted average exercise price in 2017 at the end of the year was 24 48.

Okay? So $24.48, 24.48.

Now if you think about it, that is way below the off price of 144, which means they're deeply in the money.

So no one is not going to exercise because what they do is they pay 24 and get $144 back for their shares.

Normally what happens, they actually get paid out the net.

Okay? So then I will use something called the treasury stock method.

So the treasury stock method, okay? If you dunno what that is then please have a look on Felix just in the Felix search bar, just put in treasury stock method or T stock method and it will direct you to the right video.

So this, the formula for this one is basically take the 144 minus the 24 divided by the 144 times the number of options.

Okay? So in terms of my hun 1.02 million options, the dilutive impact of those is oh 0.8 million additional shares, okay? Because obviously the company will receive some cash the 24.5 or 48, okay? So that's the treasury stock method.

So my fully diluted number of shares, so fully diluted number of shares, therefore my original number of 22.1 plus the 0.8 i.e. 23 million shares, okay? Which means now I can calculate the equity value.

So the equity value of the deal is 23 times $144, right? So no difference to trading comms.

The only thing we are now using the offer price really important, not the standalone share price to calculate the fully diluted number of shares.

Let me know if you have any questions.

Just put them into the Q&A box. Okay? So next thing I need is debt. I I need to cash.

Great question. So the question, the question is do companies always use proceeds to purchase stock back as treasury stock indicates? Not necessarily. That tends to be an assumption we're making.

What actually happens in real life, if I'm just thinking about a standalone company, they will manage their option schemes by going into the market on a regular basis and buying, buying back shares, right? To then fulfill the options and hold, hold that stock in treasury stock and then issue them to people when they, when they exercise their option.

Okay? So it is an assumption we're making, it's much easier to make this assumption rather than saying they're receiving a ton of cash and then having to assume a return on equity on that cash, right? So that's, that's a little bit more difficult.

But in general, you know, companies will go into the market and buy back shares and obviously in this case M&A you would just pay the difference.

So the option holders, so the RSU holders would get $144, right? And the option holders is, assuming this is the correct strike price, would get net 120 million.

Okay? So you have to differentiate a little bit between standalone and M&A great question. Hopefully that answered your question. Okay. Right? So I need debt and I need cash.

So my debt, I need to go into the latest balance sheet available, right? And the interim came out just after the deal had been announced.

So what I'm assuming here is that the comp that the buyer was actually aware of these numbers because remember there's a time lag between you finishing the quarter and you actually publishing your numbers, okay? So obviously when we do due diligence, so we look under the hood of the company and get a lot of information from the target company, we would've been aware of these numbers.

So we are using the latest balance sheet available.

So first of all, debt I can't see any debt, neither have I highlighted anything.

So we just um, have trade payables stewards, we don't touch, provision and we don't have any anyway in 2018.

Provisions, none of this is interest bearing financial liabilities, right? So no debt, but the company certainly had some cash and financial investments, right? So I'm going to get those two numbers over.

So my cash, I'm gonna copy this, bring that into Excel.

So no cash, sorry, no debt.

So I'm just gonna make that zero and I'm gonna make this, again into millions.

And then I have short term investments and they were all liquid.

So I would incorporate them into my numbers.

So we have 74,995 okay?

And bring this over with control V and then let's put, make this into millions.

And for whatever reason this is not blue any longer.

So I'm just gonna make that hard coded.

So my net cash, okay, is debt minus the two cash elements.

Oops, okay? Which means I can calculate the enterprise value of the deal, okay? Which is my, if you think about it, you are taking equity value plus debt minus cash.

Okay? So in this case we have active value plus the I minus the cash 3,136.2.

Okay? So that's the end plus value of the, so someone more unusual, you have a enterprise value, which is lower than the active value because we've got a lot of excess cash, right? No problem. Everyone happy with this and effect what you're doing is the buyer, you're paying for each dollar of cash, you pay a dollar of cash and you're getting that cash in the balance sheet unless the tag company has decided to dividend it out.

But that would then be part of the agreement between the two parties.

Okay? So that's the enterprise idea.

So the next thing I'm gonna do is I'm going to quickly calculate LTM EBITDA, okay? LTM because the information was known by the buyer and also is in the market.

So I want to use the latest information available.

So I'm gonna start with my operating profit and I need basically three periods, which is always the nightmare of doing LTM, right? So you have the full year, you have the new interim and you have the old interim.

Okay? So I'm gonna start with operating model.

I'm just gonna quickly do the full year first.

So I'm gonna go into the income statement page 12 in your PDF, okay? So if you do control shift n, we'll try that again.

No, that didn't work. Control shift, no I should actually hit um, hit controller and not function control shift n you get the go to page shortcut, okay? Control shift N for north. So I'm on a Windows machine. If you're on a Mac that might not work and you just type in 13, it will take you to the page I'm using.

Okay? So I'm going to focus on EBITDA rather than revenues.

It obviously depends what is driving the sector in terms of valuation.

So you can see the operating income in here for 2017 was 81,375.

So I'm just gonna bring this over into Excel, okay? At the moment I'm gonna leave it all in thousands. I'm gonna show you a super shortcut to make this all into millions in a minute.

Then to get to EBIT, I need to have a think about is there anything above the operating profit that needs to come out? And there isn't. There's no non-recurring item. Okay? The other expenses I've checked, there's nothing in there that I need to clean out.

So my operating income in this case, it's actually the same as my EBIT.

Okay? So that's the same as my EBIT.

Wonderful, nice and easy.

Then I need my depreciation and amortization.

And actually let me just do them separate because they are shown separately in the cashflow statement. Oops, not the and D depreciation.

Just depreciation and amortization. Okay? So here I go into the cashflow statement.

The cashflow statement you will find on PDF page 16.

Let me just zoom in a bit so you can see my screen.

Okay, so depreciation, PP&E amortization of intangible assets.

So all I need to do is scroll to the right and get my numbers.

So 19.36, 19,336 is my depreciation, whoops a daisy.

And finally 2,952 is my amortization and here we go.

Okay? And then I'm gonna do exactly the same for the new and the old interim.

Okay? So the new and the old interim, thank god the income statement will give me things side by side as will the cashflow so we don't have to move around quite as much.

So you can see again operating income you can see for the six months ended and for the three months ended.

So I will always take the longest period because this is the information available in the market.

So my operating income 2018, some amazing growth rates.

I mean what a cool company.

The new interim is 53, the old interim is 32.

Okay? And then I'm gonna do the same for depreciation amortization.

Let me zoom in. We are on PDF page 78. Okay? And again, I want the six months.

So depreciation in the new interim is 10,488.

You can also just type in the numbers off my screen because this is not rocket science.

And then the prior year exactly same period prior year is 8 million.

And then we do the same for amortization and prior year, amortization six months.

Okay? But now I have a problem because all these numbers are in thousands.

So let me show you a cool shortcut.

Type in a thousand somewhere on the side, okay? Wherever, doesn't matter which cell, just enter an empty cell, type in a thousand, then say Ctrl C.

So you now have the dancing ants, right? So it flick us a little bit, then go to the numbers which are want to make into millions, okay? Then use pace, special, great shortcut, alt E for echo, S for special, okay? So alt ES allows you on the bottom to divide by a thousand.

Okay? So I'm dividing the number I've copied into my number.

So if I hit divide, say, okay, all my numbers are in millions and I can delete the 1000.

Okay? Absolutely beautiful in terms of if you have numbers when you're bringing stuff over from A PDF or from a database, because normally I wouldn't wanna input anything, right? I just don't like inputting.

Then you can very quickly convert those numbers into actual denomination you want, right? You could also multiply, et cetera.

You can also make numbers positive and then if they're negative or vice versa.

So, I can now calculate EBITDA. Okay? So that's my sum of those items.

And then I can calculate my LTM. So my LTM, and again, if you've never heard of the concept of LTM, and this is amazing, that should not show up as a multiple.

Let me just put it back into normal formatting.

The idea is we're moving our financially forward by, in this case six months, right? So all of the information that's available in the market at the time of the deal, my valuation will always reflect 12 months worth of data when I'm calculating multiples. So I can't suddenly have 18 months. That just doesn't make any sense.

So what I'm gonna do here is I'm going to take my full year, add my new interim and deduct the old interim, okay? So my LTM EBITDA is 126.7 million.

I can finally calculate the EV to LTM EBITDA multiple for the deal and we will get a whopping, if I remember around 24 times.

So 3.1 million divided by 126.7 and that gives me 24.7 times EBITDA.

What a higher multiple. This is not a tech company, right? I mean obviously there's some technology involved in in Soda Stream, but what a fantastic multiple.

I would've expected at high multiple because it's a scarce asset. There are obviously some competitors, but no one has the same market share. SodaStream number two it is an amazing brand name, okay? And you will ultimately have to pay more if you, if you have these very strong brand names and I can now link this back to the company I want to value, okay? So I now think about the positioning of the company I'm buying either by side or sell side and trying to assess again as with any multiples growth rates, margins which drive our valuations.

And also in the context of the sector transactions.

Is it a very strong branded company, but is it a scarce asset? Either that qualitative aspect that's now the next step in terms of assessing how much one should pay for the company you're trying to sell or how much you need to pay to get a company.

Okay? So this is how we analyze transactions.

We look at control premier and at multiples you only have to spread a deal once because the deal's done.

Okay? That's the good news. Trading comms you have to update on an ongoing basis.

And we normally do this just within a sector. Sometimes you have to step outside the sector if we can't find something, which truly is comparable.

So think about underlying business models, how companies grow.

Maybe we have an adjacent sector where we have something similar.

Okay? Now, um, this is all I wanted to show you.

The solution will be also in the resources.

So exactly the same numbers will show up there in case this was a little bit too fast.

Thank you so much for joining me for the session.

If there are no questions, then I very much hope that you've number one, have a fantastic weekend.

And number two, I hope to see you soon again on our next Felix life session.

Thank you so much for joining me today and see you soon.

Goodbye.