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Valuation of mergers and acquisitions: the case study of a Greek listed

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26 Int. J. Decision Sciences, Risk and Management, Vol. 7, Nos. 1/2, 2017

Valuation of mergers and acquisitions: the case study

of a Greek listed company

Dimitrios S. Zavitsanos
School of Social Sciences, MBA Program,
Hellenic Open University,
18 Parodos Aristotelous Str.,
26335 – Patra, Hellas, Greece
Email: zavi@tee.gr

Abstract: The purpose of this research is to estimate the value of two listed
companies in the process of their merger and the investigation of the financial
synergy value; a comparison of the results to those of the published valuation is
also presented. The valuation method applied is the discounted free cash flow
to the firm. The method’s inputs were decided by comparing the firms’
financial ratios to the industry’s for a limited period of time (time series and
cross-sectional analysis), as part of the strategic analysis. The models applied in
the strategic analysis are the Boston Consulting Group Matrix and the Strategic
Group Map Analysis. For the calculation of the discount rate, the capital asset
pricing model is used. A combination of both the capital asset pricing model
and the discounted cash flow to the firm is used in the valuation of synergy.
Finally, the results reveal that both firms are divesting wealth instead of
creating it. We also demonstrate that synergy value does exist in the merger;
however the fiscal and financial conditions under which the Greek aquaculture
firms operate may prevent them from surviving the competition in the long run.

Keywords: corporate finance; valuation; aquacultures; value of firm;

discounted cash flow; merger; acquisition; listed company; return on invested
capital; ROIC.

Reference to this paper should be made as follows: Zavitsanos, D.S. (2017)

‘Valuation of mergers and acquisitions: the case study of a Greek listed
company’, Int. J. Decision Sciences, Risk and Management, Vol. 7, Nos. 1/2,
pp.26–47.

Biographical notes: Dimitrios S. Zavitsanos studied Structural Engineering at

the National Technical University of Athens and received his Master in
Engineering in 2003. He has been working since 1998 in several public and
private construction projects as a freelancer. During 2010–2014, he attended
successfully the MBA course of the Hellenic Open University. He enjoys the
implementation of valuation approaches in the global market and he is
experimenting in financial projects as a private investor.

This paper is a revised and expanded version of a paper entitled ‘Valuation of

mergers and acquisitions: the case study of a Greek listed company’ presented
at International Conference on Business & Economics of the Hellenic Open
University 2015, Titania Hotel, Athens, Greece, 7 February 2015.

Copyright © 2017 Inderscience Enterprises Ltd.

 Valuation of mergers and acquisitions 27

1 Introduction

Many methods of valuation have been proposed, implemented and accepted by the
financial community. However there is not a rigid method to value a company.
Eventually, the forces of supply and demand are those that determine the value under
negotiation (Lazarides, 2005). Mergers and acquisitions, apart from achieving functional,
productive and strategic synergies between the companies, also form financial synergies
in most of the cases. Therefore, financial synergy value, if any exists, should also be
studied in the valuation process (Damodaran, 1996).
This research estimates the value of two of the largest competitors in the aquacultures
industry in the process of their merger; Interfish (target firm) and Selonda (acquiring
firm). Both firms are listed in the Athens Stock Exchange (ASE) market.

2 Literature review

The value of an asset is considered the price an investor pays for an asset for the cash
flows he expects them to generate (Damodaran, 2011). As Vadapalli (2007) states, a
business valuation report generally begins with a description of national, regional and
local economic conditions existing as of the valuation date, as well as the conditions of
the industry in which the subject business operates. The financial statement analysis
generally involves common size analysis, ratio analysis (liquidity, turnover, profitability,
etc.), trend analysis and industry comparative analysis. This permits the valuation analyst
to compare the subject company to other businesses in the same or similar industry, and
to discover trends affecting the company and/or the industry over time. By comparing a
company’s financial statements in different time periods, the valuation expert can view
growth or decline in revenues or expenses, changes in capital structure, or other financial
trends. How the subject company compares to the industry will help with the risk
assessment and ultimately help determine the discount rate and the selection of market
multiples (WasteBusinessNews, n.d.).
Concerning the choice of the valuation model and method, Damodaran (1996) argues
that firms which have a very high leverage –or in the process of changing their leverage –
are best valued using the free cash flow to the firm (FCFF). Under this approach, the
value of the firm is obtained by discounting expected cash flows to the firm, i.e., the
residual cash flows after meeting all operating expenses, reinvestment needs and taxes,
but prior to any payments to either debt or equity holders, at the weighted average cost of
capital (WACC). The reason is that the calculation of free cash flow to equity (FCFE) is
much more difficult in these cases because of the volatility induced by debt payments (or
new issues) and the value of equity, which is a small slice of the total value of the firm, is
more sensitive to assumptions about growth and risk.
In the current research, free cash flow to firm is estimated each year for a forecast
period and calculated per each forecasted period as FCFF = EBIT × (1 – t) – reinvestment
needs (Damodaran, 1996), where EBIT stands for the respective period’s Earnings
Before Interest and Taxes and t the firm’s effective tax rate. At the end of the forecast
period, FCFF is assumed to grow at a constant rate forever. This assumption allows us to
bypass year-specific estimates beyond that point in time, and a terminal value (TV) is
estimated. Both the forecast period FCFF and TV are then discounted back to today and
28 D.S. Zavitsanos

summed to obtain the value of the operating assets, also called the ‘enterprise value’
(EV). To get from that value to the value of equity (E), we add back the firm’s cash
balance (C) and subtract the debt (D) that is outstanding today: E = EV – D + C.
(Damodaran, 2011)

3 Greek aquacultures firms and market sector data (Stochasis Business

Consultants, 2012)

• Number of units (2010): 44 (hatcheries), 330 (fattening units).

• Number of enterprises (2011): About 85.
• Number of employees (2011): Approximately 10,000.
• Domestic production (2011): 405 million fish of which 80 thousand tons are bream
and 43 thousand tons are bass.
• Exports (2011): 98.4 thousand tons, worth €500 million (sea bream and sea bass).
• Domestic market size (2011): 24.6 thousand tons, €115 million (sea bream and sea
bass).

3.1 Demand
The key factors affecting demand in the industry are:
• The fiscal environment and especially the disposable income of households in
Greece and in foreign markets. The deep recession, the rising unemployment and the
increased taxation have led to a reduction of the disposable income of households
and private consumption in Greece.
• Eating habits; the last decades’ trend for a healthier diet encourages the consumption
of fish, thanks to its high nutritional value. Aquaculture farmed fish have higher
content of fatty acids (omega-3) and lower content in saturated fat, compared to the
open sea fish.
• Occasional nutritional scandals (i.e., red meat, poultry)
• Conditions prevailing on the open sea fish market. The open sea fish are usually
more expensive, which is their major competitive disadvantage.

3.2 Exporting orientation (Stochasis Business Consultants, 2012)

The industry is significantly extroverted (80% of production). The large companies have
invested abroad in order to expand and strengthen their distribution network (e.g., Italy,
UK), as long as their productive capacity (e.g., Turkey, Spain). They are also investing in
research and development, aiming to improve the production cycle (decrease in time) and
to reduce the mortality rate.
 Valuation of mergers and acquisitions 29

3.3 Financial issues (Milonas, 2010)

The financial planning becomes necessary due to the large production cycles and to the
high working capital requirements. The sector companies finance their operations mainly
by bank loans.

3.4 Market growth

The industry’s average annual growth rate in the period 2006–2011 was 2.1% (Stochasis
Business Consultants, 2012). Considering that the world production of free fishing will
remain constant, aquacultures should increase their production by 40% over the next
20 years to meet this demand (Milonas, 2010). These two sources combined together give
us an expected average annual growth of 2% for the next 20 years.

3.5 Competition, strategic group map

Despite its remarkable growth in the past, the industry is burdened by low profit margins
and high debt. It is also characterised as highly concentrated, as only eight firms are
responsible for 70% of total industry turnover. The need for significant economies of
scale combined with the pressure of working capital led to the gradual predominance of
large groups through acquisitions or closures of smaller firms (Milonas, 2010). Most of
the large groups aim at vertical integration, in order to achieve significant economies of
scope and reduce raw material costs. The competition is fierce mainly due to:

• equal capacity and size firms

• low capability of product differentiation

• firms’ effort to increase their international market share, focusing on pricing and
promotions

By gathering financial data for the 25 major competitors (Stochasis Business Consultants,
2012) and putting them on a bubble chart with:

• X axis representing each firm’s relative market share comparing to NIREUS

(sector’s leading competitor)

• Y axis representing each firm’s firm growth during the 2009–2010 period (point zero
on Y axis is considered to be the 2009–2010 market growth, i.e., 17.21%)

• size of bubble representing each firm’s 2010 sales.

We get two major strategic chart presentations in one; the aquacultures’ Strategic Group
Map in 2010 and the Boston Consulting Group Matrix (Figure 1).
30 D.S. Zavitsanos

Figure 1 Strategic group map-BCG matrix (see online version for colours)

There are three distinct groups of firms that compete:

• Group 1: Firms with larger sales (bubble size) comparing to the other two groups,
which have managed to capture a respected market share (0.20–0.60) relative to the
sector’s leading firm (NIREUS). Interfish and Selonda (the merger companies) are
placed on this exact group.
• Group 2: Firms with significant smaller sales that group 1 but with the ability to
exceed the sector’s market growth by far (22%–85%).
• Group 3: Firms with smaller sales than group 1 which did not manage to exceed the
sector’s market growth; there also are firms that did not even manage to sustain their
2009 sales.
According to Mihiotis (2005, p.72), the closer strategic groups are on map, the stronger
the competitive rivalry among member firms tends to be. It is more likely for a firm to
pursue a strategy against a closer positioned group rather against a group positioned
much further. Aaker (2001, p.60) also verifies that each strategic group has mobility
barriers that inhibit or prevent businesses from moving from one strategic group to
another.
Mihiotis (2005, pp.85–86) states the best performing company will be the one that
generates the greatest customer value and sustains it over time. Hence, group 1’s
opportunities mainly depend on the firms’ growth financed by loans. Interfish could turn
into a major competitor if it was purchased by a firm that can reduce its weaknesses,
Selonda in this case.
Regarding the Boston Consulting Group Analysis, firms that exceeded the 2009–2010
market growth are classified as ‘questionmarks’ and firms placed below the X axis bold
line (shifted towards 17.21%) are classified as ‘dogs’. Based on the results of 2009–2010
period, Interfish is a ‘questionmark’ with a growth of 18.09% > 17.21% whereas Selonda
is marginally a ‘dog’, capturing a 15.25% of growth.
 Valuation of mergers and acquisitions 31

Loundon et al. (2005, p.141) in the case of ‘question marks’ consider that ‘the
potential exists for them to become ‘stars’ but their low relative share represents a major
challenge to management to create strategies capable of increasing relative market share.’
They also suggest that ‘question marks’ should either develop and test strategies for
improving their market share, or divest and use the cash to support other more promising
Strategic Business Units.
Mihiotis (2005, p.38) suggests that the appropriate marketing strategies in the case of
‘question marks’ are:
• heavy investments to get a disproportionate share of new sales
• acquisition of existing market shares by buying out competitors
• alternatively, the company can harvest, divest or abandon the market.
Kotler (2003) states that ‘question marks’ require a lot of cash to raise their market share
in order to overtake the market leader.
Thus, Selonda and Interfish in 2011 could follow either of the following strategies: to
keep pouring money into the business by expanding and investing in plant, equipment
and personnel in order to become a ‘star’ in the long run, or to exit the business and sell
their assets by gradually becoming a ‘dog’. The sector’s trend indeed proves that in the
long run mergers and acquisitions will form a few major groups competing each other.

4 Financial statements’ analysis

We consider this chapter as a part of the strategic analysis for both firms so as to decide
the firms’ future performance; thus ending up to the valuation inputs. We gathered the
firms’ financial statements (Athens Exchange S.A., 2014) published through the years
2005–2011 and calculated their ratios (Tables 1 and 2). Two sectorial studies provided us
with the industry average ratios (Table 3); Hellastat (Hellastat S.A., 2013) and Stochasis
(Stochasis Business Consultants, 2012).
Table 1 Interfish financial ratios

Interfish 2005 2006 2007 2008 2009 2010 2011

Leverage Debt/Equity - 5.86 4.15 3.26 3.50 3.39 10.23
Total debt - 0.85 0.81 0.77 0.78 0.77 0.91
Capital structure - 5.63 4.68 4.38 4.44 6.00
leverage
Times interest - 1.93 3.72 1.44 1.47 1.04 –3.19
earned
EBITDA/Sales - 0.12 0.18 0.11 0.09 0.06 –0.14
Cost of debt - - 5.40% 6.05% 5.00% 4.81% 7.36%
Liquidity Current ratio 1.08 0.99 1.27 1.50 1.46 1.73 1.14
Acid-test 0.52 0.48 0.57 0.43 0.32 0.38 0.32
Cash ratio 0.09 0.14 0.10 0.07 0.05 0.03 0.02
32 D.S. Zavitsanos

Table 1 Interfish financial ratios (continued)

Interfish 2005 2006 2007 2008 2009 2010 2011

Efficiency Average - - 109 98 58 56 57
collection period
Asset turnover - 0.67 0.65 0.53 0.59 0.68 0.80
Gross sales to - 3.60 3.36 2.50 2.58 3.03 4.79
equity (GSE)
Sales to capital - 1.32 0.80 0.76 0.86 0.94 1.37
employed
Profitability Return on equity - 0.11 0.16 0.13 0.05 0.01 –1.23
(Stochasis)
Gross profit - 15.63% 23.27% 15.01% 15.37% 9.36% –8.94%
margin
Net profit 3.09% 3.03% 4.72% 5.35% 2.01% 0.22% –25.68%
margin
(Stochasis)
Return on sales - 7.60% 14.82% 7.50% 6.15% 3.62% –16.44%
(operating
margin.
EBIT/Sales)
Profitability Net profit - 4.05% 4.27% 5.30% 3.83% 1.19% –21.33%
(interest margin
expense taken
into account) Return on equity - - 5.92% 8.11% 0.87% 0.47% –105.71%
(Pratt, 2009) Return on assets - - 2.45% 2.82% 2.26% 0.81% –17.04%

Table 2 Selonda financial ratios

Selonda 2005 2006 2007 2008 2009 2010 2011

Debt/Equity 1.10 1.51 2.33 2.82 2.98 2.95 6.17

Total debt 0.52 0.60 0.70 0.74 0.75 0.75 0.86

Capital structure leverage - 2.32 2.97 3.58 3.89 3.96 4.92

Leverage
Times interest earned 3.84 2.92 3.21 1.31 1.52 1.16 –2.15

EBITDA/Sales 0.18 0.20 0.23 0.18 0.16 0.14 –0.18

Cost of debt - - 4.30% 7.07% 5.46% 5.49% 7.37%

Current ratio 1.80 1.42 1.56 1.62 1.58 1.82 1.24

Liquidity Acid-test 0.97 0.67 0.66 0.67 0.59 0.60 0.50

Cash ratio 0.27 0.18 0.11 0.06 0.04 0.09 0.05

Average collection period 113 163 203 232 221 200 164

Asset turnover - 0.40 0.33 0.33 0.36 0.34 0.41

Efficiency
Gross sales to equity (GSE) - 0.93 0.98 1.20 1.40 1.36 2.03

Sales to capital employed - 0.48 0.38 0.42 0.51 0.45 0.66

 Valuation of mergers and acquisitions 33

Table 2 Selonda financial ratios (continued)

Selonda 2005 2006 2007 2008 2009 2010 2011

Return on equity (Stochasis) - 0.12 0.07 0.03 0.04 0.00 –0.87
Gross profit margin 1.74% 4.45% 31.65% 56.73% 17.63% 28.15% 20.11%
Profitability Net profit margin (Stochasis) 12.47% 12.56% 7.62% 2.30% 2.66% –0.01% –43.14%
Return on sales (operating 12.82% 13.80% 18.30% 12.82% 11.31% 9.48% –21.16%
margin. EBIT/Sales)
Profitability Net profit margin 12.87% 14.69% 7.33% 5.60% 4.25% –1.45% –29.57%
(interest
Return on equity - 4.18% 1.39% 0.36% 0.40% –0.50% –15.92%
expense
taken into - 5.87% 2.42% 1.87% 1.53% –0.50% –12.20%
account)
(Pratt, 2009) Return on assets

Table 3 Greek aquaculture industry financial ratio

Greek aquacultures industry ratios

2005 2006 2007 2008 2009 2010 2011
Leverage Debt/Equity (Hellastat) - - - 1.84 1.78 2.08 1.92
Total debt (Stochasis) - - - - 0.73 0.78 0.85
Capital structure leverage - - - - 4.39 4.48 5.13
(Stochasis)
Times interest earned (Hellastat) - - - 3.53 2.61 2.17 2.71
EBITDA/Sales (Hellastat) - - - 0.11 0.08 0.07 0.09
Liquidity Current ratio (Hellastat) - - - 1.30 1.31 1.32 1.30
Acid-test (Hellastat) - - - 0.51 0.52 0.53 0.63
Cash ratio(Stochasis) - - - - 0.0600 0.0532 0.0538
Efficiency Average collection period - - - 149 135 129 129
(Hellastat)
Asset turnover (Stochasis) - - - - 0.55 0.67 0.69
Gross sales to equity (GSE) - - - - 2.79 3.17 3.59
(Stochasis)
Profitability Return on equity (Hellastat) - - - 0.0281 0.0182 0.0098 0.0208
Gross profit margin (Hellastat) - - - 13.01% 10.64% 8.97% 9.98%
Net profit margin (Hellastat) - - - 1.69% 0.81% 0.30% 0.87%

4.1 Leverage
Interfish has higher Debt/Equity and Total Debt Ratios relative to the industry average.
Consequently we could expect a high leverage. However, the Debt/Equity and Total Debt
Ratios gradually decreased in the years 2006–2008 and remained relatively stable in the
years 2008–2010. This proves a relatively conservative policy in how the firm managed
its sources of funds during the fiscal recession. The firm reduces its Debt to Equity and
Leverage is reduced respectively, to reach the industry average in 2009 and 2010. The
‘times interest earned’ ratio shows that despite the firm’s high levels of borrowing, its net
income is not high enough to cover effectively the interest expense. In sum, the firm
34 D.S. Zavitsanos

finances its growth mostly through debt. We could expect a short period of growth in the
future; the firm seems to be either in its last stage of high growth, or in the first steps of
its stable growth stage. Either way, we may consider the firm capturing at least the
market growth.
Selonda seems to be in worse condition. However, the EBITDA/Sales show a
remarkable constant 5% above the average, proving that the firm operates well enough
regarding the COGS and the development of its assets. It seems that the firm is
overdebted and struggling to reduce its debt. Hence, Selonda is either in its stable growth
stage, or declining.

4.2 Liquidity
Interfish current ratio steadily increased from 2005 to 2010. Therefore, the firm’s ability
to cover its short-term obligations increased. However, the acid-test and cash ratio are
declining from 2005 through 2009 and finally placed below the average.
Selonda current ratio and acid test are above the average, proving that the firm is in
position to pay its current obligations better than the average firm.

4.3 Efficiency
Interfish operates well below the average collection period of the industry. This time
interval reveals the credit policy of the firm; the opportunity cost of credit funds is
minimised. These funds entail opportunity cost, as they could be invested in various
operations and not remain idle at the disposal of the firm’s customers. The asset turnover
ratio also verifies that the firm uses its assets intensively in order to accomplish its sales;
Interfish is close to the sector’s average and in fact it exceeds it. A high GSE ratio close
to industry’s indicates that Interfish is able to create sales without a high level of
investment from stakeholders.
Regarding operating efficiency, Selonda does not perform well enough. The average
collection period is way above the industry average and the firm’s asset turnover and
GSE ratios are way below. The firm utilises inefficiently its assets inefficiently; the high
opportunity cost shows a waste of capital that could be used in creating sales instead.
This drives the firm to seek operating capital in borrowing.

4.4 Profitability
A relatively high gross profit ratio provides positive information about the firm’s
situation; Interfish manages to cover its operating and non-operating expenses, while
simultaneously allowing relatively high net profit achievement concerning its sales and
equity. However, a firm might prefer a low gross profit margin, in order to increase its
sales and its marketing share. The firm’s ratio is above and close to the industry’s
average, indicating that the firm is still in the stage of capturing market share. The decline
of on this ratio after 2010 indicates that the firm may have made investments higher than
the sales that it can obtain, causing a high cost of production.
ROE also proves that Intefish is much more profitable than the average firm, but this
profitability declines over time to finally reach zero in 2010. This exact point is another
indication that the firm’s high-growth stage is possibly close to its end, entering a stable
growth stage.
 Valuation of mergers and acquisitions 35

The Return on Assets shows that Interfish from 2007 to 2010 utilised its assets more
effectively than Selonda, making Interfish a target for acquisition.
Regarding profitability outcomes for Selonda, the firm’s ratio is fluctuating above the
industry’s average. We cannot say that the firm does not control its cost of production; in
fact it is actually performing well enough.

4.5 Time-series and cross-sectional results for valuation inputs

The analysis performed assisted us to classify both merger firms in matters of growth.
Although the studied firms share characteristics with all types of companies concerning
their growth stage (young growth, growth, mature, declining and distressed (Damodaran,
2011), based on the time-series and cross-sectional analysis we can infer that both firms
are actually growth firms.
Growth firms in any business will tend to carry less debt than more stable firms in the
same business, simply because they do not have the cash flows from existing assets to
support more debt (Damodaran, 2011).
Both firms are overlevered and overdebted compared to the industry. In addition,
growth companies tend to present their statements in a state of flux. As Damodaran
(2011) states, not only can the numbers for the latest year be very different from numbers
in the prior year, but they can also change dramatically even over shorter time periods.
Therefore, we consider both firms to be in their stable growth stage, with both firms
having reached their limits of borrowing.
According to Damodaran (2013a), one simple proxy for the nominal growth rate of
the economy is the risk-free rate. In addition, the stable growth rate cannot exceed the
growth rate of the economy but it can be set lower. We indicated that the expected
growth rate of aquacultures’ industry is 2%. We also saw that the industry is composed of
high growth and stable growth firms. As we calculated in the following section, the risk-
free rate on valuation date is 2.82%. We can conclude that both firms are in a stable
growth stage, and their growth rate is 2%. Based on the above, this seems to be a safe and
reasonable assumption.

5 Discount rate: the WACC

WACC derives as a weighted proportion of the firm’s sources in financing its operations;
cost of equity and cost of interest-bearing debt. We proceeded on the calculation of each
variable.

5.1 Risk free rate

For an investment to be risk-free, it has to have neither default risk, nor reinvestment risk
(Vasiliou, 2005). In our research government securities (i.e., bonds and T-bills) are used
as risk free rates. At this point there is a conflict; the Greek currency is the Euro (€). In
Greece at the period of the merger studied, the fiscal crisis along with the austerity
measures had led the market to a violent recession, shifting the country’s default spread
upwards; hence the assumption that the Greek ten-year government bond has no default
risk is considered as biased. However, none of the Eurozone governments technically
36 D.S. Zavitsanos

control the Euro money supply; hence there is some default risk in all of them. The
market steadily sees more default risk and less liquidity in the Greek and Portuguese
Government bonds than it does in the German and French issues. Moreover, the purchase
of Eurozone Government Bonds is not under any financial restrictions for a potential
Greek investor. To get a risk-free rate in Euros, we use the lowest of the ten-year
government Euro bond rates as the risk-free rate (Damodaran, 2008). We collected the
ten-year German bond yield 12-month trailing data (01.07.2010–01.07.2011)
(Investing.com, 2014). We use the geometric mean (2.82%) as the risk-free rate during
the merger studied to smoothen the fluctuation even more; we are also bound to assume
for reasons of non-prejudice that the smoothened value (2.82%) remains constant in the
long run.

5.2 Equity risk premium

The equity risk premium (ERP) cannot be directly observed in the market as it is the
difference between the market index return and the risk free rate. The standard approach
to estimating ERPs remains the use of historical returns, however this approach in the
Greek market is simply impossible to implement; during the period studied in this
research the Greek market index return was constantly negative (a downfall of ASE index
after the October of 2009 up to date), on the other hand in Greece during the fiscal crisis
there was no such thing as a risk free entity. Nevertheless, the risk premium should
measure what investors demand as extra return for investing in their portfolio relative to
the risk-free asset. However, Damodaran (1996) argues that the key question in this case
is whether this risk is diversifiable or non-diversifiable. If the investor does not have a
global portfolio, the likelihood of diversifying away the country risk declines
substantially. As he concludes, if the additional risk of investing in a country can be
diversified away, then there should be no additional risk premium charged. If it cannot,
then we should estimate a country risk premium. The simplest way of estimating an
additional risk premium is the country’s default spread (Damodaran, 2013b). This default
spread is added on the mature market premium to arrive at the total ERP for Greece in
2011, assuming the mature market premium being Germany’s for the reasons explained
above. To get to the historical risk premium of Germany (considered as a mature market)
we used the values presented in Table 3 of Dimson et al. (2006) as cited in Fernández
(2006), specifically the geometric mean of the yield of a ten-year German Government
Bond; that is 5.28%. Greece’s default spread for the year 2011 was 7% (Damodaran,
2014b), hence the total ERP for Greece in 2011 was ERP = 5.28 + 7 = 12.28%.

5.3 Firms’ stock betas

Betas are estimated by regressing the firms’ stock returns against market returns. The
benchmark index to which the stock is regressed is often chosen to be similar to the assets
chosen by the investor. However, betas do not measure the risk of an investment held on
a stand-alone basis, but the amount of risk the investment adds to an already-diversified
portfolio. Based on the above, we considered as more appropriate to use the Athens’
Stock Exchange (ASE) index as the benchmark proxy index. Weekly historical
market data were collected regarding the firms’ stock price (Capital.gr, 2014a, 2014b) as
well as the ASE (Yahoo! Finance, 2014) for an approximate five-year period
 Valuation of mergers and acquisitions 37

(10.03.2006–01.07.2011). We avoided using daily data in order to reduce regression’s

noise; moreover it is a common practice to use at least five-year data for the beta
calculation. Hence, we considered the use of weekly data as a safer practice; this choice
reduced the regression noise compared to the daily data and it also provided a larger
sample compared to the annual data. By regressing Interfish stock weekly change
(dependent variable) over the ASE weekly change (independent variable), we get the beta
of Interfish, β = 0.82; the Selonda beta is β = 1.05. The slope of the linear least squares
line is the stock’s beta (Figures 2 and 3).

Figure 2 Interfish stock % change over % change of ASE (see online version for colours)

Interfish Stock % Change over % change of ASE (5-year period)

80.00%

60.00%

40.00%
y = 0,8199x + 0,0014 Interfish Stock % Change
20.00%

0.00% Linear (Interfish Stock %

Change)
-30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00%
-20.00%

-40.00%

-60.00%

Figure 3 Selonda stock % change over % change of ASE (see online version for colours)

Selonda Stock % Change over % change of ASE (5-year period)

40.00%

30.00%
y = 1,0518x + 0,0025
20.00%

10.00% Selonda Stock % Change

0.00%
Linear (Selonda Stock %
-30.00% -20.00% -10.00%
-10.00%0.00% 10.00% 20.00% 30.00%
Change)
-20.00%

-30.00%

-40.00%

5.4 Cost of equity

Using the CAPM, the calculations are presented below:
Cost of equity (Interfish) = 2.82 + 0.82 × 12.28 = 12.89%

Cost of equity (Selonda) = 2.82 + 1.05 × 12.28 = 15.71%

38 D.S. Zavitsanos

5.5 Tax rate

Greece’s marginal tax rate in 2011 is 26% (Damodaran, 2014a). To calculate the firms’
effective tax rate we used the geometric average of the Net Income after Taxes divided
by the Pre-Tax Net Income for a five-year period (2006–2011) as presented in Tables 4
and 5. Therefore, the effective tax rate for Interfish is 37.2% and for Selonda 27.8%.
Table 4 Interfish valuation parameters (see online version for colours)

Geometric
2006 2007 2008 2009 2010 2011
average
EBIT 2.683.735.73 6,272.453.32 3,720,340.28 3,321.660.48 2,309,832.22 –10,901,934.92
(in €)
Effective 31.64% 61.14% 39.26% 83.27% 29.65% 14.14% 37.20%
tax rate
EBIT/Sales 0.076 0.148 0.075 0.061 0.036 –0.164 0.072
Sales to 1.32 0.80 0.76 0.86 0.94 1.37 0.92
capital
ratio
Cost of 5.85% 4.35% 5.54% 5.14% 4.61% 7.79%
debt
Debt to 0.89 0.73 0.72 0.70 0.71 0.89
capital
ratio

Table 5 Selonda valuation parameters

Geometric
2005 2006 2007 2008 2009 2010 2011
average
EBIT 5,673.00 9,306.00 15,483.00 15,417.00 15,382.00 11,483.00 –27,231.00
(in thousand
€)
Effective 18.59% 16 44.67% 53.64% 58.01% - 10.52% 27.76%
tax rate
EBIT/Sales 0.13 0.14 0.18 0.13 0.11 0.09 –0.21 0.1282
Sales to - 0.48 0.38 0.42 0.51 0.45 0.66 0.48
capital ratio
Cost of debt - 4.51% 3.29% 6.26% 5.53% 5.39% 8.01%
Debt to - 0.55 0.65 0.66 0.69 0.71 0.83
capital ratio

5.6 Market value of equity

To get to the market value of each firm’s equity, we multiply the number of each firm’s
common stock by their current market price (Damodaran, 2011). Based on the firms’
annual reports (Interfish Aquaculture S.A., 2011; Selonda Aquaculture S.A., 2014) and
historical stock prices (Capital.gr, 2014a, 2014b), on the 1st of July 2011, Interfish equity
constituted of 28.892.804 common stocks valuing 0.14 € each and Selonda of 29,281,594
common stocks valuing 0.73 €. Thus, the equity market value of Interfish and Selonda is
4,044,992.56 € and 21,375,563.62 € respectively.
 Valuation of mergers and acquisitions 39

5.7 Adjustment of data: 12-month trailing periods

Account values taken from the Cash Flow or Income Statement were adjusted. Book
values of Equity, Interest-Bearing Debt and Cash were taken directly from the firm’s
statements. We calculated the 12-month trailing data for Revenues, EBIT, Depreciation
and Interest Expense. We adjusted the EBIT as follows:

Trailing 12-month EBIT (30 June 2011) = EBIT ( annual 2010)

+ EBIT (in 2nd quarter of 2011)
− EBIT (in 2nd quarter of 2010),

where EBIT = EBITDA – Depreciation – Amortisation. EBITDA and Depreciation were

taken directly from the published financial statements. Neither firm states any
amortisation costs. Respectively, we worked in the same way to acquire the 12-month
trailing Interest Expenses.

5.8 Cost of interest-bearing debt

In order to estimate each firm’s cost of debt we divided the Interest Expenses by the
Average of (Long + Short Term Debt). The results are presented on Tables 4 and 5.

5.9 WACC calculation

Finally, by implementing the WACC formula

⎡D ⎤ ⎛E ⎞
WACC = ⎢ × (1 − Tc ) rdebt ⎥ + ⎜ × requity ⎟
⎣V ⎦ ⎝V ⎠

for each firm we get the following results:

WACCINTERFISH : 6.40%, WACCSELONDA : 7.09%

6 Estimation of future cash flows

Food processing is a sector that requires minor R&D annual expenses compared to other
sectors (i.e., technology products), the product (fish) is considered stabilised as there is
no need for product differentiation and the demand for fish is considered growing in the
long run. Based on these facts we assume that there is no direct need for major capital
restructuring of the firm in the short run. Therefore, we chose to project the future free
cash flows to the firms for a ten-year period.
In our model, Reinvestment expenses are calculated based on the Sales to Capital
ratio, which is Year’s Sales / (Equity + Debt – Cash) (Damodaran, 1996). Based on the
previous five-year period, the firms’ geometric average of this ratio was calculated as
0.92 for Interfish and 0.48 for Selonda (Tables 4 and 5).
 40

Table 6
1 2 3 4 5 6 7 8 9 10
Base year Terminal year
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Revenue growth rate 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Revenues 72,421,392.84€ 73,869,820.70€ 75,347,217.11€ 76,854,161.45€ 78,391,244.68€ 79.959.069.58€ 81,558,250.91€ 83,189,415.99€ 84,853,204.31€ 86,550,268.39€ 88,281,273.76€ 90,046,899.24€
EBIT (operating) margin 3.53% 3.90% 4.26% 4.26% 5.00% 5.36% 5.73% 6.10% 6.47% 6.83% 7.20% 7.20%
EBIT (operating) income) 2,555,525.22€ 2,877,834.86€ 3,212,014.68€ 3,558,410.55€ 3,917,377.46€ 4,289,279.67€ 4,674,491.03€ 5,073,395.12€ 5,486,385.59€ 5,913,866.31€ 6,356,251.71€ 6,483,376.74€
Tax rate 37.20% 32.20% 37.20% 37.20% 37.20% 37.20% 34.96% 32.72% 30.48% 28.24% 26.00% 26.00%
EBIT (1 – t) 1,604,869,84€ 1,807,280.29€ 2,017,145.22€ 2,234,681.83€ 2,460,113.04€ 2,693,667.63€ 3,040,288.96€ 3,413,380.24€ 3,814,135.26€ 4,243,790.47€ 4,703,626.27€ 4,797,698.79€
–Reinvestment 1,574,378.11€ 1,605,865.67€ 1,637,982.98€ 1,670,742.64€ 1,704,157.49€ 1,738,240.64€ 1,773,005.46€ 1,808,465.56€ 1,844,634,88€ 1,881,527.57€ 1,310,846.66€
D.S. Zavitsanos

FCFF 232,902,19€ 411,279.55€ 596,698.85€ 789,370.40€ 989,510.14€ 1,302,048.32€ 1,640,374.78€ 2,005,669.70€ 2,399,155.59€ 2,822,098.69€ 3,486,852.13€
NOL -€ -€ -€ -€ -€ -€ -€ -€ -€ -€ -€ -€

Cost of capital 6.40% 6.40% 6.40% 6.40% 6.40% 6.40% 6.58% 6.77% 6.95% 7.14% 7.32% 7.32%
Cumulated discount factor 0.9398 0.8833 0.8302 0.7802 0.7333 0.6880 0.6444 0.6025 0.5624 0.5240
PV(FCFF) 218,893.03€ 363,290.35€ 495,370.70€ 615,905.85€ 725,624.79€ 895,832.77€ 1,057,065.31€ 1,208,451.54€ 1,349,251.20€ 1,478,856.16€
Terminal cash flow 3,486,852.13€
Terminal cost of capital 7.32%
Terminal value 77,485,602.82€
PV (terminal value) 40,064,554.69€
PV (CF over next 10 years) 8,408,541.70€
Sum of PV 49,013,096.40€
Probability of failure = 0.00%
Proceeds if firm fails = 24,506,548.20€
Value of operating assets = 49,013,096.40€
–Debt 42,388,297.00€
–Minority interests -€
+Cash 3,785,419.00€
+Non-operating assets 70,803.00€
Value of equity 10,481,021.40€
-Value of options -€
Valuation results for Interfish (see online version for colours)

Value of equity in common stock 10,481,021.40€

Number of shares 28,892,804
Estimated value/share 0.36€
Price 0.14€
Price as % of value 38.59%
Implies values After year 10
Sales to capital ratio 0.92 0.92 0.92 0.92 0.92 0.92 0.92 0.92 0.92 0.92
Invested ratio 59,501,894.00€ 61,076,272.11€ 62,682,137.77€ 64,320,120.75€ 65,990,863.39€ 67,695,020.89€ 69,433,261.53€ 71,206,266.99€ 73,014,732.55€ 74,589,367.43€ 76,740,895.00€
ROIC 2.70% 2.96% 3.22% 3.47% 3.73% 3.98% 4.38% 4.79% 5.22% 5.67% 6.13% 7.32%
 Table 7
1 2 3 4 5 6 7 8 9 10
Base year Terminal year
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Revenue growth rate 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Revenues 132,154,063.00€ 134,797,144.26€ 137,493,087.15€ 140,242,948.89€ 143,047,807.87€ 145,908,764.02€ 148,826,939.30€ 151,803,478.09€ 154,839,547.65€ 157,936,338.60€ 161,095,065.38€ 164,316,966.68€
EBIT (operating) margin 8.65% 9.07% 9.49% 9.90% 10.32% 10.74% 11.15% 11.57% 11.99% 12.40% 12.82% 12.82%
EBIT (operating) income) 11,434,554.00€ 12,225,019.96€ 13,042,530.74€ 13,887,851.94€ 14,761,768.98€ 15,665,087.56€ 16,598,634.17€ 17,563,256.61€ 18,559,824.50€ 19,589,229.80€ 20,652,387.38€ $21,065.435.13
Tax rate 27.80% 27.80% 27.80% 27.80% 27.80% 27.80% 27.44% 27.08% 26.27% 26.36% 26.00% 26.00%
EBIT (1 – t) 8,255,747.99€ 8,826,464.41€ 9,416,707.19€ 10,027,029.10€ 10,657,997.20€ 11,310,193.22€ 12,043,968.95€ 12,807,126.72€ 13,600,639.39€ 14,425,508.82€ 15,282,766.66€ 15,588,422.00€
–Reinvestment 5,506,419.29€ 5,616,547.68€ 5,728,878.63€ 5,843,456.20€ 5,960,325.33€ 6,079,531.83€ 6,201,122.47€ 6,325,144.92€ 6,451,647.82€ 6,580,680.78€ 4,259,131.69€
FCFF 3,320,045.12€ 3,800,159.52€ 4,298,150.47€ 4,814,541.00€ 5,349,867.89€ 5,964,437.12€ 6,606,004.25€ 7,275,494.47€ 7,973,861.01€ 8,702,085.89€ 11,329,290.30€
NOL -€ -€ -€ -€ -€ -€ -€ -€ -€ -€ -€ -€

Cost of capital 7.09% 7.09% 7.09% 7.09% 7.09% 7.14% 7.18% 7.23% 7.27% 7.32% 7.32%
Cumulated discount factor 0.9338 0.8720 0.8142 0.7903 0.7100 0.6627 0.6183 0.5766 0.5375 0.5009
PV(FCFF) 3,100,238.23€ 3,313,629.82€ 3,499,732.57€ 3,660,658.49 3,798,38047€ 3,952,659.86€ 4,084,481.86€ 4,195,197.70€ 4,286,117.80€ 4,358,510.97€
Terminal cash flow 11,329,290.30€
Terminal cost of capital 7.32%
Terminal value 251,732,006.73€
PV (terminal value) 126,097,062.63€
PV (CF over next 10 years) 38,249,607.80€
Valuation of mergers and acquisitions

Sum of PV 164,346,670.42€
Probability of failure = 0.00%
Proceeds if firm fails = 82,173,335.21€
Value of operating assets = 164,346,670.42€
–Debt 166,126,108.00€
–Minority interests 23,924,607.00€
+Cash 10,122,575.00€
+Non-operating assets 26,649,228.00€
Value of equity 11,067,758.42€
-Value of options -€
Valuation results for Selonda (see online version for colours)

Value of equity in common stock 11,067,758.42€

Number of shares 29,281,594.00
Estimated value/share 0.38€
Price 0.73€
Price as % of value 19.13%
Implies values After year 10
Sales to capital ratio 0.48 0.48 0.48 0.48 0.48 0.48 0.48 0.48 0.48 0.48
Invested ratio 242,137,381.00€ 274,643,800.29€ 253,260,347.97€ 258,989,226.60€ 264,832,682.80€ 270,793,008.13€ 276,872,539.97€ 283,073,662,44€ 289,398,807.36€ 295,850,455.18€ 302,431,135.95€
ROIC 3.41% 3.56% 3.72% 3.87% 4.02% 4.18% 4.35% 4.52 4.70% 4.88% 5.05% 7.32%
41
 42

Table 8
1 2 3 4 5 6 7 8 9 10
Base year Terminal year
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Revenue growth rate 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
Revenues 204,575,455.84€ 208,666,964.96€ 212,840,304.26€ 217,097,110.34€ 221,439,052.55€ 225,867,833,60€ 230,385,190.27€ 234,992,894.08€ 239,692,751.96€ 244,486,607.00€ 249,376,339.14€ 254,363,865.92
EBIT (operating) margin 6.84% 7.24% 7.64% 8.04% 8.44% 8.83% 9.23% 9.63% 10.03% 10.43% 10.83% 10.83%
EBIT (operating) income) 13,990,079,22€ 15,102,755.95€ 16,254,343.73€ 17,445,953.91€ 18,678,726.76€ 19,953,832.14€ 21,272,470.25€ 22,635,872.35€ 24,045,301.54€ 25,502,053.56€ 27,007,457.53€ 27,547,606.68€
Tax rate 33.00% 33.00% 33.00% 33.00% 33.00% 33.00% 31.60% 30.20% 28.80% 27.40% 26.00% 26.00%
EBIT (1 – t) 9,373,353.08€ 10,118,846.49€ 10,890,410.30€ 11,688,789.12€ 12,154,746.93€ 13,369,067.53€ 14,550,369.65€ 15,799,838.90€ 17,120,254.70€ 18,514,490.88€ 19,985,518.57€ 20,385,228.94€
–Reinvestment 6,032,785.50€ 6,276,510.03€ 6,276,510.03€ 6,402,040.23€ 6,530,081.04€ 6,660,682.66€ 6,793,896.31€ 6,929,774.24€ 7,068,369.72€ 7,209,737.12€ 5,569,734.68€
D.S. Zavitsanos

FCFF 4,086,060.99€ 5,412,279.08€ 5,412,279.08€ 6,112,706.69€ 6,838,986.49€ 7,889,686.99€ 9,005,942.58€ 10,190,480.46€ 11,446,121.16€ 12,775,781.45€ 14,815,494.26€
NOL -€ -€ -€ -€ -€ -€ -€ -€ -€ -€ -€ -€

Cost of capital 7.04% 7.04% 7.04% 7.04% 7.04% 7.04% 7.10% 7.15% 7.21% 7.26% 7.32% 7.32%
Cumulated discount factor 0.9342 0.8728 0.8154 0.7618 0.7117 0.6645 0.6201 0.5785 0.5393 0.5025
PV(FCFF) 3,817,321.55€ 4,134,360.57€ 4,413,080.83€ 4,656,387.94€ 4,866,998.85€ 5,242,712.24€ 5,585,025.24€ 5,894,723.41€ 6,172,670.89€ 6,419,801.40€
Terminal cash flow 14,815,494.26€
Terminal cost of capital 7.32%
Terminal value 329,233,205.75€
PV (terminal value) 165,438,944.34€
PV (CF over next 10 years) 51,203,082.92€
Sum of PV 216,642,027.26€
Probability of failure = 0.00%
Proceeds if firm fails = 108,321,013.63€
Value of operating assets = 216,642,027.26€
–Debt 208,514,405.00€
–Minority interests 23,924,607.00€
+Cash 13,907,994.00€
+Non-operating assets 26,720,031.00€
Value of equity 24,831,040.26€
-Value of options -€
Value of equity in common stock 24, 831,040.26€
Number of shares -
Estimated value/share
Price -€
Price as % of value
Valuation results of the combined firm (see online version for colours)

Implies values After year 10

Sales to capital ratio 0.68 0.68 0.68 0.68 0.68 0.68 0.68 0.68 0.68 0.68
Invested ratio 301,639,275.00€ 307,672,060.50€ 313,825,501.71€ 320,102,011.74€ 326,504,051.98€ 333,034,133.02€ 339,694,815.68€ 346,488,711.99€ 353,418,486.23€ 360,486,855.86€ 367,696,593.08€
ROIC 3.11% 3.29% 3.47% 3.65% 3.83% 4.01% 4.28% 4.56% 4.84% 5.14% 5.44% 7.32%
 Valuation of mergers and acquisitions 43

We consider this value stable throughout the projected decade, hence each projected
year’s reinvestment expenses come out as (Year’s Sales) × (Sales to Capital Ratio), and
Year’s Salesn = Growth Rate × Year’s Salesn–1, where n is the projected year. We also
make the following assumptions suggested by Damodaran (1996) when valuing firms:
1 in terminal year (2021) the firms will have a cost of capital similar to that of mature
companies; that is (risk free rate + 4.5%) = 2.82 + 4.5 = 7.32% and sustain it forever
2 in terminal year the firms will earn a return on invested capital (ROIC) equal to their
cost of capital and sustain it forever
3 the firms have no chance of insolvency over the projected period (fiscal conditions
set aside)
4 the firms’ effective tax rate (37.2% and 27.76%) will adjust to their marginal tax rate
(26%) by the terminal year
5 there are no losses carried forward from prior years (NOL)
The firms’ target pre-tax operating margin in year ten (EBIT as % of sales) equals the
geometric mean that comes out from their five previous years of operation (7.2% and
12.82%). For the ten-year projections we used the spreadsheet ‘fcffsimpleginzu2014.xls’
(Damodaran, 2014c). The model’s results along with the inputs are presented in Tables 6
and 7.

7 Valuation of synergy

In mergers and acquisitions, synergy is the potential additional value from combining two
firms. However, the more important issue is whether that synergy can be valued and, if
so, how to value it. We already valued the firms involved in the merger independently, by
discounting expected cash flows to each firm at the WACC for that firm. To proceed, we
estimate the value of the combined firm, with no synergy, by just adding the values
obtained for each firm in the first step. Finally, we build in the effects of synergy into
expected growth rates and cash flows and we revalue the combined firm with synergy.
The difference between the value of the combined firm with synergy and the value of the
combined firm without synergy provides a value for synergy (Damodaran, 1996).
For the calculation of the expected WACC of the combined firm we used the
spreadsheet ‘synergyvaluation.xls’ (Damodaran, 2014c). Debt to Capital Ratio for the
combined firm is Debt / (Equity + Debt – Cash). Debt, Equity and Cash of the combined
firm derives from the sum of each firm’s respective financial element on valuation date
and the 12-month trailing data. The result is 69.13% (Table 9).
At a first glance we notice that the Debt capacity of the merger firms increases at least
by 14%–20% compared to the individual firms. This is considered as a characteristic of a
financial synergy. This allows firms to borrow more than they could have as individual
entities, which creates a tax benefit for the combined firm (Damodaran, 1996). Hence, we
make a conservative assumption that the effective tax rate of the synergy will be 33%. In
addition, Revenues and EBIT of the combined firm comes as a sum of each firm’s
respective financial element.
44 D.S. Zavitsanos

Table 9 WACC of the combined firm

Current risk free rate = 2,82%

Risk premium = 12,28%
SELONDA INTERFISH After merger
Beta 1,05 0,82 0,54665
Pre-tax cost of debt 8,00% 7,79% 8,00%
Marginal tax rate 26,00% 26,00% 26,00%
Debt to capital ratio 83,00% 89,00% 69,13%

Revenues $132,15 $72,42 $204,58

Operating income (EBIT) $11,43 $2,56 $13,99

Computed values SELONDA INTERFISH Value of firm

with synergy
Cost of equity = 15,71% 12,89% 9,53%
After-tax cost of debt = 5,92% 5,76% 5,92%
Cost of capital = 7,09% 6,40% 7,04%

We proceed on the cash flow forecast of the combined firm. Each input was considered
as the sum of the respective financial element of each firm on valuation date. The Sales to
Capital Ratio [Sales / (Equity + Debt – Cash)] was calculated only once based on the sum
of each firm’s respective financial element published on valuation date. Regarding the
EBIT as % of Sales, we make the assumption that it comes as a weighted average of each
firm’s EBIT to Sales, weighted on Sales:
EBIT / Sales= [ (7.2% × 72,421,392.84€) + (12.82% × 132,154,063.00€) ]
(72,421,392.84€ + 132,154,063.00€) =10.83%

Finally, for reasons of consistency, we make the same assumptions regarding the firm’s
future operation
The difference between the value of the combined firm with synergy and the value of
the combined firm without synergy provides a value for synergy. The equity of the
combined firm is estimated at 24,831,040.26€ (Table 8). The value of the combined firm
with no synergy is the sum of each firm’s value: 10,481,021.40 + 11,067,758.42 =
21,548,779.82€. Therefore, the value of synergy is:
Value of combined firm − Sum of value of independent firms = 24,831,040.26
−21,548,779.82 = 3,282,260.44€

8 Official published results

The official valuation of the two firms was published on Interfish Report of Directors
dated on the 10th of February 2012 (Selonda Aquaculture S.A., 2014). The valuation
revealed the following estimation of each firm’s Equity: Interfish Equity has an estimated
value between 6,000,000€ and 7,300,000€, whereas Selonda Equity stands between
 Valuation of mergers and acquisitions 45

9,100,000€ and 11,600,000€ (Selonda Aquaculture S.A., 2012). No synergy value was
calculated.

9 Outcomes

The value of the acquiring firm which resulted from the chosen model lies within the
interval given by the official published statement. This may justify that the strategic
analysis performed, the expected sectorial growth, the choice of FCFF model and its
inputs in general were reasonable enough.
In the case of Interfish once again we proved that a single valuation approach does
not provide solid results; several methods must be applied and a researcher should be
very careful in his model choices.
It also came out that synergy value does exist in the current merger and is actually a
form of financial leverage. In fact, research (Hellastat S.A., 2013) shows that mergers are
actually a way of survival in the competitive business environment and may prevent
major competitors from bankruptcy.
Finally, the most intriguing results in this research are that both firms project a ROIC
less than the WACC in the long run. Neither firm shows a ROIC > WACC in any of the
ten forecasted years of operation. This in fact yields that both firms are divesting wealth
instead of creating it.
Further research could be made based on all of the above conclusions. A valuable
continuation of this work could be an investigation of the fiscal and financial conditions
under which the Greek aquaculture firms and/or EU firms in general may survive the
competition in the long run. Such conditions may be a potential improvement in the
classification of the Greek Bond default spread, expectations in the fluctuation of the
Bund resulting in lower risk-free rates and an extensive risk analysis concerning the
solvency of Greek aquaculture firms in the long run. Finally, a crucial condition which
could be investigated may be the Greek/European regulatory framework concerning the
amount of loans a firm can service.

Acknowledgements

The author gratefully acknowledges the support and guidance of Academic Supervisor
Dr. Panayiotis Artikis while writing this research. The author also would like to thank
and congratulate Dr. Athanassios Mihiotis and the International Journal of Decision
Sciences, Risk and Management for the initiative and the opportunity they gave to the
author to present this work in special issue.

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