Finance 520

Valuation Techniques
W. P. Carey School of Business Professor Mark Simonson
Arizona State University mark.simonson@asu.edu
Spring 2023 BAC 542

This course focuses on applying valuation methods in a variety of contexts. We will review, extend, and apply
the valuation techniques discussed in Finance 502 using various case studies. Students will be required to build
models using Microsoft Excel to address specific issues in the case studies and solve problems related the case
studies using Excel on a midterm exam and a final exam.

The course begins with a discussion of LBOs and private equity firms, and we will develop an IRR model for a
lower middle-market LBO target. Next, we will discuss alternative discounted cash flow and comparable mul-
tiple valuation methods. These techniques are first applied in the valuation of an offer price in a horizontal
merger between two large public firms incorporating proposed synergies. Assignments to complete an LBO
analysis for an LBO target and a DCF valuation of a merger target will end the first part of the class.

The next part of the course focuses on valuing “Disruptive Innovation” firms in the context of venture capital,
active ETF portfolio management, IPOs, and SPACs. We will evaluate the valuation consequences of the terms
of late-stage venture capital securities, and complete valuation analyses for a fast-growing, but unprofitable firms
entering industries with potentially large addressable markets. Finally, students will be required to identify a
good M&A target, LBO target, or “Disruptive Innovation” portfolio company and prepare a pitch book.

COURSE POLICIES
Class meeting times will be primarily spent on case study discussions and developing various valuation models
using Excel. You should come to class prepared to discuss the case studies on the days indicated in the Class
Schedule below and the results of your case analyses on the days that case assignments are due. Exams will re-
quire the use of Excel on a laptop and cover applications related to the case study analyses completed and dis-
cussed throughout the course.

COURSE MATERIALS
There is no new textbook required for the course, but we will refer to a few select readings from the textbook
used in Finance 502 (Corporate Finance by Berk and DeMarzo). The following case studies will be used in the
course. Six of the cases are posted on the course Canvas site, the Brazos Partners: The CoMark LBO case is available
at: https://hbsp.harvard.edu/import/1002510
.
CASES Betting on DraftKings
Brazos Partners: The CoMark LBO
The MoneyGram LBO
Goodyear Tire & Rubber: M&A Synergies
Square, Inc.: Financing a Unicorn
The We Company: How Do You Like We Now?
The WeWork SPAC

READINGS JPMorgan, DCF Methodology

Goldman Sachs, Craft Brew Alliance
Perella Weinberg Partners, Project Heat
What do private equity firms say they do?
Do stocks outperform Treasury bills?

OTHER Microsoft Excel on a laptop computer

Capital IQ
 GRADES AND GRADING
The final grade for the course will be based on each student’s performance on two group case assignments, a
midterm exam, a final exam, and class participation, with each weighted as follows:

1. Midterm Exam 35%

2. Case Assignments 15%
4. Pitch Book Assignments 15%
3. Class Participation 10%
5. Final Exam 25%
100%

Grades for the course will be awarded on a scale as follows: A=90-100%, B=80-89%, C=70-79%, D=60-69%, E=less
than 60%. Final grades, including plus and minus grades, will be curved based on the final distribution at the
instructor’s discretion.

OFFICE HOURS
Office hours will be held Monday and Wednesday 4:15-5:15 and by appointment.

CLASS MEETINGS
This course is delivered to students by faculty in person and on campus. Excused absences for classes with prior
notice may be requested for: (1) a university-sanctioned event; (2) religious holidays; (3) work performed in the
line-of-duty according; and (4) illness, quarantine or self-isolation related to illness as documented by a health
professional.

GROUP CASES & ASSIGNMENTS

The group case assignments and the Pitch Book assignments, described at the end of the syllabus, will be ana-
lyzed in teams of about 4 students and are due on the dates indicated in the Class Schedule below. All group
members will receive the same grade for the submitted assignments. All work performed in completing the
assignments must be originally performed by the team.

EXAMS
The exams will consist of problems related to the case study assignments and will be held during class on the
dates indicated in the Class Schedule below. The exams will require the use of a prepared Excel workbook on a
laptop. Exams will also include short answer questions related to in-class case discussions. Makeup exams are
only allowed for excused absences with prior notification.

CLASS PARTICIPATION
Class participation will be evaluated based on the quality and frequency of contributions to class discussions.
Significant contributions in almost all of the class discussion opportunities will allow you to achieve a score of 9
or higher out of 10 points possible. Significant contributions in many of these discussions will allow you to
achieve a score of 8-9. Attending class, but not providing many contributions in most of the opportunities will
allow you to achieve the maximum score of 7.

LEARNING GOALS
The W.P. Carey School of Business has established the following learning goals for its graduate students. Items
in bold have significant coverage in this course.

1. Critical Thinking
2. Communication
3. Discipline Specific Knowledge
4. Ethical Leadership or Global Leadership

HONOR CODE AND PROFESSIONALISM POLICY

https://gradstudents.wpcarey.asu.edu/student-resources/professionalism-policy
 CLASS SCHEDULE
The following schedule is tentative and subject to slight changes.
(Optional readings are in parentheses.)

DATE CLASS TOPICS READINGS & CASES DISCUSSED DUE DATES

1/9 Introduction Betting on DraftKings

Capital IQ (Goldman Sachs, Craft Brew Alliance)
(Perella Weinberg, Project Heat)
(Macabacus: Valuation Methods)

Brazos Partners: The CoMark LBO

1/11 Financial Modeling The MoneyGram LBO
1/18 LBOs & Private Equity Firms (LBOs & Private Equity Firms slides)
(What do PE Firms Say They Do?)
(Macabacus: LBO Analysis)

Goodyear Tire & Rubber: M&A Synergies

1/23 Valuation Methods JPMorgan M&A: DCF Methodology
1/25 M&A Valuation slides
1/30 (Macabacus: DCF Valuation Multiples)

MoneyGram case analysis MoneyGram

2/1 Pitchbook Assignment 1 Pitch Book 1

2/6 Goodyear case analysis Goodyear

Pitchbook Assignment 2 Pitch Book 2

2/8 Midterm Exam

2/13 Venture Capital Square, Inc: Financing a Unicorn

(Venture Capital & IPOs slides)

2/15 ARK Disruptive Innovation ETF Stocks
Pitchbook Assignment 3
Betting on DraftKings Pitch Book 3
ARK ETF Holdings
Wall Street’s hottest investor…playing with fire
The academic who fired up moonshot investing
(Do stocks outperform Treasury bills?)

2/19 IPOs The We Company: How Do You Like We Now?

2/21 SPACS The WeWork SPAC

2/27 Pitch Book Presentations Pitch Book

3/1 Final Exam

 ACADEMIC INTEGRITY AND ETHICAL BEHAVIOR
A student who engages in academic misconduct as outlined in ASU’s academic integrity policy (http://prov-
ost.asu.edu/academicintegrity) while attending a W. P. Carey masters program will receive strict penalties.
Those penalties ordinarily will range from a letter reduction in final course grade to expulsion from the program
and School of Business. The penalty will be decided by the course faculty member and the Assistant Dean of
Academic Affairs. All allegations of academic misconduct must be reported to program administrators. Any
subsequent act of academic misconduct, regardless of severity, will result in dismissal from the program and the
School of Business.

PROHIBITION AGAINST DISCRIMINATION, HARASSMENT, AND RETALIATION

Title IX is a federal law that provides that no person be excluded on the basis of sex from participation in, be
denied benefits of, or be subjected to discrimination under any education program or activity. Both Title IX and
university policy make clear that sexual violence and harassment based on sex is prohibited. An individual who
believes they have been subjected to sexual violence or harassed on the basis of sex can seek support, including
counseling and academic support, from the university. If you or someone you know has been harassed on the
basis of sex or sexually assaulted, you can find information and resources at https://sexualviolencepreven-
tion.asu.edu/faqs. As a mandated reporter, I am obligated to report any information I become aware of regard-
ing alleged acts of sexual discrimination, including sexual violence and dating violence. ASU Counseling Ser-
vices, https://eoss.asu.edu/counseling, is available if you wish to discuss any concerns confidentially and pri-
vately.

RELIGIOUS ACCOMMODATIONS
Accommodations will be made for students with religious holidays. The calendar of official religious holidays
can be found here: https://provost.asu.edu/index.php?q=religious-holiday-calendar. Each holiday noted with
two asterisks denotes an observance for which work is not allowed.

UNIVERSITY-SANCTIONED ACTIVITIES
Accommodations will be made for students who miss class related to university-sanctioned activities according
to ACD 304-02. If you are participating in a university-sanctioned activity, please let your instructor know as
early in the course as possible so that accommodations can be made.

THREATENING BEHAVIOR POLICY

The university takes threatening behavior very seriously and these situations will be handled in accordance
with the Student Services Manual, SSM 104-02 http://www.asu.edu/aad/manuals/ssm/ssm104-02.html.

DISABILITY ACCOMMODATIONS
If you need an accommodation for a disability, you must register with the Disability Resource Center (DRC).
 Finance 520
Valuation Techniques
W. P. Carey School of Business Professor Mark Simonson
Arizona State University mark.simonson@asu.edu
Prerequisite Terminology

You should be familiar with the following terminology for this course. You can refer to your Finance 502
textbook, Corporate Finance by Berk and DeMarzo, to review any of these concepts.

Capital structure
Enterprise value
Equity value (market vs. book)
Interest-bearing debt (term loan, revolving line of credit, bond) vs. current liabilities
Leverage ratio (D/(D+E), D/E)

Free cash flow (unlevered vs. levered)

Income statement (basic structure)
Balance sheet (basic structure)
Operating cash flow
Working capital (current assets – current liabilities)
Capital expense (vs. operating expense)

Present value, DFC valuation

NPV, IRR (Excel)
Discount rate
Terminal value
Growing perpetuity

Cost of capital, WACC

Cost of equity
CAPM
Beta (equity/levered vs. asset/unlevered)
Systematic/market risk vs. unsystematic/diversifiable risk
Market risk premium (E[Rmkt] – rf)
Risk-free rate, rf
Cost of debt, default risk credit spread
Interest tax shield

Valuation multiples (EV/EBITDA, EV/Sales, P/E, market-to-book)

The efficient market hypothesis

 Finance 520
Valuation Techniques
W. P. Carey School of Business Professor Mark Simonson
Arizona State University mark.simonson@asu.edu
Pitch Book Assignments

Your group must prepare a pitch book which provides an analysis of the current valuation of a specified firm.

You can position your analysis however you want, but it must have an overall thesis supported by your analysis
for one of the following three types of firms: (1) a good LBO candidate for a private equity firm; (2) a good M&A
target by a specific acquirer; or (3) an ARK “Disruptive Innovation” ETF portfolio company that the fund should
buy or sell.

An example of basic books from Goldman Sachs for Craft Beer Alliance and Perella Weinberg Partners for Project
Heat are posted on the course Canvas site. (Here are a few way too long hedge fund pitch books that don’t have
the requisite valuation analysis as examples of more opinionated books: here, here, and here.) You can choose
to use a current announced deal.

Along with the main assignment, there are three short preliminary assignments.

[1] Brief assignment 1: Identify a good LBO candidate

Utilizing data from Capital IQ, provide a brief oral explanation in class (no written document required) based
on good LBO target characteristics identified here:
§ Strong, predictable operating cash flows allowing company to service and pay down acquisition debt
§ Mature, steady (non-cyclical), and perhaps even boring
§ Well-established business and products and leading industry position
§ Undervalued or out-of-favor
§ Moderate capex and R&D requirements so cash flows can be used to pay down debt
§ Limited working capital requirements so cash flows can be used to pay down debt
§ Strong tangible asset coverage
§ Seller is motivated to sell, perhaps under pressure to maximize shareholder value

[2] Brief assignment 2: Identify a good M&A target

Utilizing data from Capital IQ, provide a brief oral explanation in class (no written document required) based
on the following characteristics:
§ Standalone value relative to the firm’s peers
§ Specific synergies that could justify paying an acquisition premium

[3] Brief assignment 3: Identify an ARK Disruptive Innovation ETF holding that the fund should buy or sell
Utilizing data from Capital IQ, provide a brief oral explanation in class (no written document required) pro-
vide a preliminary explanation why you believe one of their holdings may be under- or over-valued.

[4] Main assignment: pitch book

The following is required:

1. You must have a clear thesis that is supported by your analysis.

2. You may use any information from your research; however, you must gather historical performance (income
statements, balance sheets, number of shares, etc.) directly from SEC filings. Make sure that all information
sources are clearly referenced in your presentation.

3. You must include a financial model that is fully described in your pitch book, and you must include a DCF
analysis or LBO model assessing value per share. For example, the audience must be able to see exactly how
future free cash flows were calculated in your presentation based on each line item used in the calculation for
at least a base case. You should consider basing revenue forecasts based on a TAM/SAM/SOM forecast.
4. You must include an industry analysis and comparable firm valuation analysis.

5. You must submit a presentation along with an accompanying Excel workbook with your calculations. Your
workbook will be graded on accuracy as well as organization and formatting.

Your group will make an approximately 10-minute presentation on the last day of class before the final exam.