1. Make a summary of the case.

The Siemens company, whose origin is in Germany, presents a subsidiary called

Healthineers, which specializes in three areas: medical equipment, diagnostics and
therapies, these areas are far from the Siemens business model that specializes in
technological solutions.
Healthineers presents exponential growth on the continents, quickly becoming
one of the largest medical device companies, Siemens projects that the growth of
Healthineers will continue to increase, due to high demand. So you decide to present
greater flexibility in your operations and financing, to put a part of the company on the
stock exchange. Healthineers had been operating as an independent company for
several years, so the change was not going to be significant.
Deutsche Bank expected a sale of 30% of the share, however the true of the
company offered was 15%, those who intend to buy the shares, will have to know that
Siemens will be a long-term investor in regards to Healthineers.

2. What was the investment thesis for buying Healthineers?

Over the years, the company Healthineers presents a financial strength provided by
itself as it is a success in sales of medical products and at the same time for being part
of the Siemens company, in addition to that it presents a growth projection of its lines
of products related to medical equipment.
According to its financial statements, it presents solid cash operations and good
operating margins.
The main reason for investing in Healthineers was to build on their continued
success and encourage business independence. Also, expand the industrial portfolio and
strengthen the Siemens business.
In addition, Siemens complemented Healthineers well for having different sectors and
this took advantage of Siemens to apply its technology in health care. In addition,
Healthineers occupies leadership positions in large and growing markets in most of its
businesses.
3. Based on DB’s forecast of EBITDA in 2019 and the set of multiples for peer
companies, what was a reasonable estimate of Healthineers enterprise value? Its equity
value?
For this analysis, the data was used: P / E of each sector of healthineers (Imaging,
advance therapies and diagnostics), which include all the competitors of each sector,
and the percentage of the EBITDA per sector, both were provided in the reading. The
enterprise value based on DB forecast of EBITDA in 2019 is EUR 46,759.66 millions
and the equity value is EUR 45,397.66 millions. In the table 3.1 it can be seen the
analysis.
Table 3.1
Multiple valuation

4. What might lead to a different multiple? How might Franz explain that to an
investor? For instance, why was the multiple for Diagnostics higher than that for
Imaging and Advanced Therapies in the peer comparisons? How would he explain an
“appropriate” multiple for Healthineers?
- What might lead to a different multiple?
The multiples represent a single case of the situation of a company instead of a period
of time. As such, they do not easily show how a company grows or progresses. Also,
multiples reflect short-term rather than long-term data. Therefore, the resulting values
can only be applied in the short term and not in the long term.
- How might Franz explain that to an investor? For instance, why was the
multiple for Diagnostics higher than that for Imaging and Advanced Therapies in the
peer comparisons?
Among the companies within Imaging, it will be seen that all the companies except
Varian with less than the average which is 11.0. Lss which are very attractive that are in
growth for other companies to buy them. Varian would be considered a mature
company with low growth since it exceeds the sector average. On the other hand, in
EV / Sales, Philips, Varex they have the multiple lower than the average, this indicates
that their sales are higher with respect to the price. It can indicate that companies are
cheap (undervalued) and will tend to raise their prices.
In the case of Diagnostics, Qiagen and Hologics are less than the average in terms of
EV / EBITDA, we consider it good purchasing alternatives.
While EV / Sales Quiagen and Termo Fisher are overvalued companies, that is, in the
future their sales will grow.
Finally, in Advanced Therapies, it has a very high average because Intituitive Surgical
has an EV / EBITDA of 30.0. However, most of the competitors present a much smaller
multiple, while in EV / Sales all companies except Intuitive Surgical, the much higher
sales, could be undervalued.

- How would he explain an “appropriate” multiple for Healthineers?

Valuation multiples are financial measurement instruments that evaluate one financial
measure relative to another, so that different companies are more comparable. Multiples
are the ratio of one financial measure (eg, share price) to another financial measure (eg,
earnings per share). It is an easy way to calculate the value of a company and compare
it with other companies.

5. What was a reasonable discounted cash flow value for the company? And what
seemed to be the biggest value drivers?
For the discounted cash flow valuation, some data was modified in order to make a
good WACC method. For example in the data case, they add the invested working
capital in the next year, but in this analysis the invested working capital was considered
in the same year in which the difference between working capitals is evaluated.
Forecast was analyzed until the year 2022 because it is a explicit forecast based
on business analysis, a perpetuity growth rate of 4.4% was taken into account for the
year 2023, the case used a percentage of 2% but from the year 2032 onwards, which
was not used in this analysis because it is not so predictable to evaluate until 14 years
later. The Weighted average cost of capital was 8%, which was given as data and the
total debt was taken from Franz's analysis. , which was EUR 1,362 millions.
So the enterprise value is EUR 49,016.05 millions and the equity is EUR
47,654.05 millions. This means that Franz can buy all the shares of the company at that
price.
Table 5.1
Discounted cash flow WACC method

Offering a higher price to potential buyers was reasonable because the company's
positioning and projection for further growth supported it.

6. Looking at the divisional multiples, why were they different across segments?
Why might a Healthineers division command a higher or lower multiple than the
segment average?
There are many factors that can affect the difference between segments. For example in
the case of the EV/EBITDA, the higher values are due to a good market capitalization,
a high total debt, a low cash policy of the companies or a low level of operating margin.
In the case of the EV/Sales, the lower values are due to a poor market capitalization, a
low total debt, a high cash policy of the companies or a high level of sales. These values
may change by sector, for example Diagnostics sector should have a higher enterprise
value due to the necessity for leverage to pay the diagnostic machines, which are very
expensive and increases the total debt. Other sectors require machinery but they are not
so expensive.
 Market capitalization is a important factor because many times is the higher
value than total debts. It depends on the quantity of the total outstanding shares and the
price per share of the companies, so companies that have few outstanding shares or a
low price per share will have a low market cap.

7. Would you recommend any other method?

Yes, I would recommend the Dividend Discount Model (DDM) because dividends
represent the actual cash flows going to the shareholder, so valuing the present value of
these cash flows should give you a value of how much the shares are worth. In this
case, Franz is looking for be a shareholder and DDM analysis can give him an idea
about the present value of a share.
This model can only be used if there is historical information on dividends. In
the case it is not mentioned so it is assumed that dividends have already been
distributed previously.

8. Why do a sum-of-the-parts valuation? What was it telling him? Note: Franz

wanted to track down potential differences in multiples used by JPMorgan and DB but
decided he’d pursue that later—after he had completed his own analysis.

The valuation of the sum of the parts (SOTP) is necessary to value a company,
evaluating separately the value of each business segment or subsidiary and adding them
to obtain the total value of the company. It can be used in conjunction with various
valuation techniques such as the discounted cash flow model (DCF) and comparable
company analysis.
In the case of Healthineers, the use of this technique is convenient, since it is made up
of 3 segments and requires a high degree of financial details for its acquisition. With
this technique Franz obtained the total value of the company.

9. At this stage, did Healthineers appear to be a good buy? What key questions did
Franz want to explore in developing his analysis?

At this stage, did Healthineers appear to be a good buy?

Based on the valuation of the sum of the parts that Healthineers presented, your
purchase was convenient. Because it showed separately that it is a leader in each of its
sectors and with the creation of its new platform (Atellica) for one of its businesses
(diagnostic) it would increase its leadership position in the market.

What key questions did Franz want to explore in developing his analysis?

Among the key questions Franz developed for his analysis were:

Would it be a good addition of Healthineers to the Siemens portfolio?

Which technique would be better to obtain the appropriate price per share from
Healthineers, the use of discounted cash flow model or the valuation of the sum of the
parts?

10. Conclusions and recommendations.

❖ conclusion

- Initial public offer are public offers in which shares of a private company are
launched for the first time to the general public. By acquiring a share you become an
owner of a small part of the company.
- A company with a good financial history and a considerable future projection
can offer a high IPO.
- Investment bankers are key to companies wanting to promote themselves to
potential investors as they help them determine the number of shares for which they
would sell on the public market.
- To evaluate an investment, it is important to make
❖ recommendation
- This is recommended for start-ups, small companies or star-ups. In this case
Siemens Healthineers shouldn't launch an IPO despite being good in the Siemens group
as it has a long history in the market.
- Siemens should have considered other ways to increase the growth of
Healthineers, since due to the size of Siemens, the need for new capital by investors
would not be necessary, since the same company could have contributed to that, in
addition to the margin 15%, would not be such a high margin of support, due to the loss
of percentage of a company that had a great projection in the future.
- In order to have an optimal share price, discount cash flow techniques and the
valuation of the sum of the parts should be applied. With both methods a more precise
value of the company would be had.
- To evaluate an investment, it is important to analyze different valuation methods
because it gives us a clearer vision of what happens in the company, in the market, in
the shareholders and how it manages the cash flows brought at a present value.
- It is recommended to evaluate investments with different valuation methods in
order to obtain a return on the investment, from a general perspective of the company
where it will be invested.

11. References (if any).

EBITDA MULTIPLE=ENTERPRISE VALUE/EBITDA
ENTERPRISE VALUE=MARKET CAP + TOTAL DEBT - CASH