AGUILA, PAULO TIMOTHY DR.

III - BSA

INTRODUCTION TO VALUATION

Merger, acquisition and divestitures

SITUATION: What is the deal-breaker price?

EXAMPLE:
Valuation of target organization
Valuation of synergies
Understanding of market expectations

CHALLENGE
Estimating and valuing synergies that are not yet fully defined
getting the buyer/seller to understand deal-breaker price vs. good price

Strategy development
SITUATION: What is the value-creation potential of the proposed strategic options?

EXAMPLE:
Discounted Cashflow (DCF) valuation of organization in different scenarios

CHALLENGE:
Adequately modelling market development as a baseline
Estimating impact of different options on that baseline

Portfolio strategy
SITUATION:
How much are my various entities worth?
How much will they be worth in 5 years?

EXAMPLE:
DCF valuation of entities within the organizatoin
Projection of growth rates and profitability

CHALLENGE:
Internal profitability might not be a clear indicator of real profitability, depending on treatment of costs
and revenues acroos the entire organization.

WHAT IS VALUE?
"I can't change the fact that my paintings don't sell. But the time will come when people will recognize
that they are worh more than the value of the paints used in the picture." -Vincent van Gogh (`1878)

"There is nothing on earth with an absolute value. We can only allocate a subjective perspective what
things mean to ourselves." -Charles Dudley Warner (1829-1900)
"Managers must have a criterion for evaluating performance and deciding between alternative courses
of action, and that criterion should be maximazation of long-term market value of the firm. This Value
Maximization proposition has its roots in 200 years of research in economics and finance." -Michael
Jensen (2001)

"Price is what you pay. Value is what you get." -Warren Buffet (1930-today)

CLARIFICATION OF THE DIFFERENT 'VALUE' TERM

Book value
-In accounting, book value or carrying value is the value of an asset according to its balance sheet. For
most assets, this is the historic purchase price less accumulated depreciation.

Market value
-The estimated amount of which an asset should exchange on the date of valuation between a willing
buyer and a willing seller. Its market value can be easily observed if the asset in traded in liquid market

Intrinsic value
-The value of an asset which is intrinsic to it or contained in the asset itself
-It is also frequently called 'fundamental value' and comes from the future income to be genrated by the
asset.

WHAT VALUE MEANS IN THE CONTEXT OF 'ORGANIZATION VALUE'

Enterprise value
-The value that is generated by the business activities of an organization, reflecting the value of the
entire business regardless of how it is financed
-enterprise value is one of the fundamental metrics used in business valuation, financial modelling,
accounting, portfolio analysis, etc.

Equity value
-This describes the value of an organization available to owners or shareholders

Net debt
-The sum of interest-bearing short-term and long-term debt less the sum of all cash, cash equivalents,
short and long-term investments

CLASSIFICATION OF DIFFERENT VALUATION METHODOLOGIES

Relative to other organizations(benchmarking)

Present or past
-Multiple-based valuation based on present/historical values
Future
-Multiple-based valuation based on forecast values

Standalone valuation
Present or past
-Asset valuation
Future
-Fundamental valuation/discounted cashflow

Multiple-based valuation values an organization based on a single key value driver:

-A multiple is the ratio of an organization's value to a user-selected parameter.