M&A

Target Valuation II

Building Competence. Crossing Borders.

Dr. Markus Braun 22 March 2023

Overview of Valuation Methodologies

Valuation Methods

Net Asset Value Cash Flow Based

(NAV) Methods

PV based Methods
Net Realisable Value - Dividends Growth Model
- DCF-Method

Comparable Companies
Analysis („multiples“)
Net Replacement Costs
- Price-Earnings Ratio
- Enterprise Value/EBITDA

- LBO Analysis
- Accretion/Dilution Analysis
- Real Options Theory

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Table of content

− Repeat: M&A process - private transaction vs auction process

− News of the week, 19 March 2023: UBS – Shortgun Wedding with CS

− Initial Public Offering – Case study Stadler Group

− Discounted cash flow analysis - growing perpetuity

− Target valuation II – Case study Zur Rose Group - Comparable transaction multiples
and discounted cash flow analysis (confidential, will be presented in class)

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Private Transaction between one buyer and one seller

Confidentiality Agreement

Negotiation of «Business
Points» /Memorandum of
Understanding (MoU)

Due Diligence

Contract Negotiation / Signing

of Contract

Obtaining of any approvals / Establishment of an acquisition

consents of third parties structure by the buyer

Closing

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Auction Process with many interested Parties

Invitation Letter / Teaser / Confidentiality Agreement

Procedure Letter 1 /
Information Memorandum – Corporate Documentation

Indicative Offer of the interested Parties

Procedure Letter 2 / Draft Share Purchase Agreement

Due Diligence

Binding Offer by the interested Parties

Final Negotiation with the interested Party

Approvals / Signing and Closing of Contract

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News of the week, 19 March 2023: UBS – Shotgun Wedding with CS

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Shareprice CS last 5 days

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News of the week, 19 March 2023: UBS – Shotgun Wedding with CS

How does this UBS acquisition of CS, which is called a Shotgun Wedding, differ from the
normal M&A process?
- Which are the stakeholders?
- Where are the opportunities?
- Where are the risks?

Contact Negotiation
Preliminary Preparation Post-phase
and contract
phase phase phase integration
phase

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Stadler Rail – IPO plan

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Stadler Rail - Advisers

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Stadler Rail - Valuation Considerations

− Competitors: Bombardier, Alstom, Siemens, CRRC (China Railway Rolling Stock Corp)
− Alstom is listed in Paris: Market cap: Euro 8.8 Mrd / Ebit 550 Mio = 16 Ebit-Multiple
4mrd x 8.5% x 16 = 5.4mrd
− Stadler

− Stadler Objective 2020: Turnover double of currently SFr. 2 Mrd; Ebit-Margin 8.5 %
− Question: Calculate the targeted IPO Value of Stadler Group, applying the
comparable transaction method/EBIT-multiple?

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Net Present Value – Valuation (Discounted Cash flow)

Content Goals
• Time Value of Money and 1. Refresh your knowledge on NPV
Net Present Value
Calculation 2. Understand why the most
common valuation methodologies
• Net Present Value as
are based on the NPV calculus
Investment Criterion
• Link between NPV
Calculation and Valuation
Methodologies

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Present Value (1/4): Introduction

• Present Value of cash flow CF received in one period from now

Present Value CF
PV =
(PV) 1+ r
• The expression 1/(1+r) is called discount factor; r is the discount rate

• Present Value of cash flow CFt received in t periods from now

CFt
PV =
Present Value: (1 + rt )t
Generalization
• For the sake of simplicity. we usually assume that the term structure
is flat and the discount rate is constant. i.e.
𝑟𝑎 = 𝑟𝑏 (for periods a and b). so we can replace 𝑟𝑡 by r

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Present Value (2/4): From Present Value to Net Present Value

Net Present Value • PV of a stream of cash-flows = sum of the individual cash flows’ PV
of a Project 𝑇
𝐶𝐹𝑡
(= Cash Flow 𝑁𝑒𝑡 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 = −𝐼0 + ෍
(1 + 𝑟)𝑡
Stream) 𝑡=1

𝐼0:= Initial Investment (absolute value of CF0)

• The discount rate r denotes the rate of return which investors

require for streams of cash flows with similar risk characteristics

• r therefore is the return investors expect to earn when investing in

Discount Rate
alternative investment opportunities with comparable risk
• r can be interpreted as “opportunity cost of capital”, “required rate
of return” or “hurdle rate” of a project

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Present Value (4/4): Perpetuity Formulas

Present value of infinite stream of (constant) cash flows CF

Perpetuity CF CF CF CF
PV = + + + =
1 + r (1 + r ) (1 + r )
2 3
r

Present value of an infinite stream of constantly growing cash flows

Growing
Perpetuity CF CF (1 + g ) CF (1 + g ) 2 CF
PV = + + + =
1+ r (1 + r ) 2
(1 + r ) 3
r−g

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Weighted average cost of capital (WACC)

The weighted average cost of capital (WACC) is a calculation of a firm's

cost of capital in which each category of capital is proportionately
weighted. All sources of capital, including common stock, preferred stock,
bonds, and any other long-term debt, are included in a WACC calculation.

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Zur Rose Group - Case study – Target Valuation

The valuation methods «Comparable Transaction Valuation» and «Discounted Cash

Flow» will be demonstrated and discussed.

Charts are confidential and can not be published, but will be discussed and presented in
class.

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Case Study Zur Rose – Planned IPO - Valuation

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Summary

− Different process steps in private transaction, auction process and IPO

− A public transaction is executed via the capital market

− An IPO is a public transaction – special disclosure rules apply

− Best practice in valuation is discounted cash flow analysis and a sanity check via
multiple valuation

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