To Sell or Not to Sell? a Case on Business Valuation (original) (raw)

Mergers and Acquisitions : A Review of Valuation Methods

2017

Globally, mergers and acquisitions (M&A) have grown dramatically in recent years. M&A offer companies the opportunity to grow rapidly and successfully. One of the most critical elements in M&A is the valuation of companies as the success of an M&A is closely related to determining the fair value of the companies. Determining the value of a company is one of the most complex and difficult subjects in financial management. Corporate executives face many choices and complications as they try to assess a company’s value. There are a variety of ways to value a company. In this study I discussed the main methods of business valuation and I analyzed how to use the Discounted Cash Flow Method in M&A. This Method determines a company’s current value according to its estimated future cash flows and is often used in the valuation of companies. Finally I tried to determine which method would be appropriate in an M&A.

Theory and practice in M&A valuations

Academics and practitioners are in relative agreement on what drives a company’s fundamental value, primarily it’s current assets and future cash flows. The practice of paying a premium may thus be due to the non-tangible factors associated with perceived value that currently are not incorporated into the assets of the company and the expected growth of the cash flows. This paper looks at the most common theoretical models used in the calculation of the value of a firm. It then explains how human factors can cause divergence in the original price set. Empirical evidence proves that the price paid for a company can easily reach 40-50 per cent above this calculation of the current value. Until valuation models can account for the factors that drive premium pricing, it is necessary to recognize that intangible and, in some cases, emotional aspects will have a great influence on the final price.

Understanding Business Valuation, Shares, and Proprietary Interests

This customized coaching module addresses business valuation practices from the standpoint of corporate managers, external financiers and investors, and valuation specialists. Users of valuation technologies seek to utilize all available knowledge to the extent that their resources, efforts, and exposures can be minimized. With unlimited access to the sources of internal information, corporate managers have employed an "economic-based valuation approach" to capture direct contributions of certain operating, investment, and financing activities on firm value. Creditors and shareholders who lack a direct control over the firm’s operations often rely on an "accounting-based valuation approach" to evaluate financial statements and establish the linkage between the firm’s performance and its market value. Valuation specialists such as corporate lenders, investment bankers, professional fund managers, and portfolio investment advisors have utilized a wide range of sophisticated valuation techniques subject to their unique analytical styles and resource limitations. With an advance in computer technology, however, many valuation specialists have turned their attention to a "quantitative-based valuation approach" that allow them to not only accurately measure the independent and joint impacts of internal business activities and external market events on firm value based on sophisticated mathematical models but also identify the mispriced assets or “valuation gaps” that may occur from persistent market imperfections and the sub-rational behavior of some groups of market participants.

Understanding Business Valuations, Shares, and Other Proprietary Interests

2004

This customized coaching module addresses business valuation theories and practices from the standpoint of corporate managers, external financiers and investors, and valuation specialists. Users of valuation technologies seek to utilize all available knowledge to the extent that their resources, efforts, and exposures can be minimized. With unlimited access to the sources of internal information, corporate managers have employed an "economic-based valuation approach" to capture direct contributions of certain operating, investment, and financing activities on firm value. Creditors and shareholders who lack a direct control over the firm’s operations often rely on an "accounting-based valuation approach" to evaluate financial statements and establish the linkage between the firm’s performance and its market value. Valuation specialists such as corporate lenders, investment bankers, professional fund managers, and portfolio investment advisors have utilized a wide range of sophisticated valuation techniques subject to their unique analytical styles and resource limitations. With an advance in computer technology, however, many valuation specialists have turned their attention to a "quantitative-based valuation approach" that allow them to not only accurately measure the independent and joint impacts of internal business activities and external market events on firm value based on sophisticated mathematical models but also identify the mispriced assets or “valuation gaps” that may occur from persistent market imperfections and the sub-rational behavior of some groups of market participants.

Valuations Case Study: Ahold - SARK7

biomatica.com

Royal Ahold (Koninklijke Ahold N.V.: www.ahold.com), publicly listed on the NYSE Euronext exchange (NYSE:AH) and US OTC market (OTC:AHONY), is a global retail supermarket group based in Europe and the United States with company headquarters in Amsterdam, The Netherlands. Chief competitors / peer group members include Carrefour, Delhaize, Metro AG, Kroger Co., Safeway Inc., Super de Boer, Wal Mart Stores Inc., Tesco PLC, and Supervalu Inc. The food retail sector is a highly competitive sector, with dependencies on geographic presence and sensitivities to consumer spending cycles, consumer loyalty, and material & supplier pricing pressures. The ability to retain market share via competitive pricing while safeguarding profit margins via passing-on material costs is thus a sensitive balance. This case study takes a broad and deep look at Royal Ahold, offering a valuation perspective on the company during a period of challenge and change to the supermarket retailing sub-sector. The analysis covers the following components: industry dynamics & firm strategy, historical performance analysis, DCF analysis (scenarios: standalone base case, standalone management guidance, and buyouts / LBO), alternative valuation perspective (trading multiples), and results interpretation.

VALUE OF THE COMPANY : A Review of Literature

2017

Each company aims to maximize shareholder wealth through increased value of the company. The value of the company is the market value of debt and equity securities outstanding companies and the investors' perception of the level of success of the company that are often associated with stock prices. Investor confidence in the company's financial performance and prospects of the company in the future can be built through the creation of value for the company. Various theories Financial Management that discusses are Corporate Value, Market Value of the Firm Theory. Besides Value Company also has links with some of the concepts and theories of the Agency Theory, Theory of Trading Volume of stocks, Theory Diversified Portfolio, Theory Ownership structure of the company, Free cash flow, Investments, Stock liquidity, Risk and Return, Operating Performance, and Corporate Governance.

Determination of the Company's Value under the Influence of Various Factors

Journal of Optimization in Industrial Engineering, 2021

The authors studied and analyzed various concepts and approaches to company value management. They described the advantages and disadvantages of the leading traditional approaches to assessing the value of an enterprise and proposed a model of the dynamics of the company's value, taking into account the ownership structure, explaining the mechanism of the influence of the company's ownership structure on the capital structure. Using an example, we examined the change in the company's value by individual factors and identified which factors have the most significant positive and negative impact.

Decision-oriented Business Valuation in Preparation for a Company Purchase

2013

A business valuation is based on the assessment of the future uncertain cash stream flowing between the company and its owners. For example, a purchase is not disadvantageous as long as the price paid in exchange for the obtained object (valuation object) does not exceed its value for the acquirer (valuation subject). The price expresses the negotia tion outcome, while the value – according to the subjective value theory founded by Hermann Heinrich Gossen and Carl Menger1 – results from its marginal utility regarding a predefined subjective aim. In consequence, the valuation process depends on the target function (usually prosperity maximization, i.e. wealth or income maximization) as well as on the decision field, which is constituted of all opportunities for action available to the valuation subject. A company should be purchased only if the purchase results in a target achievement level which is at least equivalent to that attainable when the transaction is not concluded. For thi...

Methods for share values assessment and shareholder value creation

Trendovi u poslovanju, 2018

This paper analyzes the methods of determining the value of the shares, which are among the most used financial instruments. The company's shares are transferable in the capital market, according to the regulations of a particular state, where the price is formed according to the principles of supply and demand. The interest of the investor will depend on a number of parameters-the length of the stock owning, its affinity to the shares of renowned companies that give stable dividends, the tendency to risk with new, growing companies, and the affinities for the shares of companies that are planning serious investment ventures, etc. Despite the fact that there are certain visible value parameters, such as bookkeeping or market price, they are often insufficient to properly evaluate the value and possible profit for investors who opt for their purchase. Therefore, models for evaluating higher or lesser complexity of the discounting dividends, discounting cash flows, as well as series of relative valuation models have been developed. These valuations are important during the life of a joint stock company, during the first emission, subsequent recapitalization, as well as when making investment decisions on the secondary stock market.