Session 12

Valuation of M&A for

Technology Company
@jsjxyz
Session Learning Outcomes :

1.    apply fundamental financial knowledge in the new financial

technology context
2.  identify how digitization is transforming finance and its
ecosystem.
 Agenda

• Class Discussion 45’

• Methods of valuation and the role of terminal values for startup and technology
firm, using TESLA Case

• Finding tangible and intangible value of technology

• Class workshop 60’

 Points Taken from the Workshop

• Value Creation can be tangibles and intangibles.

• There must be financial justification behind strategic decision that we choose.

• Almost anything has salvage value.

• Financial modeling can view some alternative FCF in the future.

 Strategy That Lead to Value Creation
All in good Financial Lingo, with Financial Modeling Mind

Value Creation
Measurable

Stream
DCF
TVM
FCF
Methods
Lowering Faster Big Data
Optimizing Liquidity
Cost Processing CRM

Stocks Bonds
NPV IRR Payback Other /IPO /Securities
Session 12 Raising Capital

Investment Banker
Corporate Finance

M&A
 Valuation

NPV = size
EXHIBIT 8.1

Indone-     Nether-   United United

sia* France Germany lands Sweden Kingdom States
Net present value 64% 39% 48% 70% 64% 47% 75%
Internal rate of return 64% 44% 42% 56% 26% 53% 76%
Payback period 86% 51% 50% 65% 57% 69% 57%
Discounted payback period 11% 31% 25% 13% 25% 30%
Average accounting return 41% 16% 32% 25% 22% 38% 20%
Profitability Index 42% 38% 16% 8% 11% 16% 11%
*Indonesia Data based on Leon 2008
Payback = Time IRR = %

© Cengage Learning 2015, only to be used with Hawawini and

Viallet, Finance for Executives 5/e with CourseMate, ISBN
1408093804
The Modified Formula
Modified NPV

NPV

Payback IRR

Discounted Payback Modified IRR

Leon 2008 Capital Budgeting Practices of
Listed Indonesian Companies
IDENTIFYING THE DRIVERS OF VALUE CREATION
LINKING VALUE CREATION TO ITS FUNDAMENTAL
DETERMINANTS
EXHIBIT 18.5

© Cengage Learning 2019, only to be used with Hawawini and Viallet,

Finance for Executives, 6e
TESLA Case
How do you Value TSLA?

https://www.youtube.com/watch?v=LCmXDOWII7c&t=2s
 Valuation by Comparable

• PER and PBR

• EV-to-EBITDA multiple
Tesla's PE Ratio for today is 678.90.

https://www.macrotrends.net/stocks/charts/TSLA/tesla/pe-ratio
 VALUING A FIRM’S EQUITY USING COMPARABLE FIRMS
INDIRECT ESTIMATION OF A FIRM’S EQUITY FROM
COMPARABLE FIRMS
EV to EBITDA
The valuation is a four steps procedure
EXHIBIT 14.4
1. Estimate the value of the business assets of
   
 
the comparables
Cash $70 million
Debt
 
 
2. Calculate the comparables’ EBITDA
 
  (earnings before interest, tax,
 
 
depreciation and amortization)
Enterprise value  
  3. Calculate the comparables’ EV-to-EBITDA
$1,360 million
Equity value multiple
 
$1,000 million
4. Apply the comparables’ average multiple to
the firm’s EBITDA to get its EV and then its
equity value

Enterprise value (EV) = Equity value + Debt – Cash and other financial assets (14.1) 15
Equity value = Enterprise value + Cash and other financial assets – Debt (14.2)

© Cengage Learning 2019, only to be used with Hawawini and Viallet,

Finance for Executives, 6e
EV to EBITDA: Tesla
(non profitable case)

https://youtu.be/uTNZiFgUa_Q
Valuation by DCF
Tesla by DCF

https://seekingalpha.com/article/4419396-tesla-not-expensive-as-it-might-seem-part-2-dcf-model
 What have you learned?
DCF modeling is not an ultra-precise tool. But this
method still gives a rough idea of a company’s current
rational value based on its development trends, the situation
in the debt market and current volatility. Of course, the
model does not give an exact result like any other
method.

Tesla is still at an early stage of growth with a very

uncertain potential. This confirms at least a wide variation
in analysts' forecasts regarding the future growth of the
company's revenue:

https://seekingalpha.com/article/4419396-tesla-not-expensive-as-it-might-seem-part-2-dcf-model
 Loyalty Economy -
customer-based corporate valuation
(CBCV)
 Customer-Based Corporate Valuation (CBCV).

• Customer Cohort Chart, or C3, which tracks

revenue by acquisition cohort over time and
shows how total customer spending changes as
each cohort ages.

• Many large, reputable firms (both subscription

and nonsubscription) have begun to disclose
their C3, among them Slack Technologies, and
Dropbox.

• A firm’s C3, along with the number of active

customers and the total number of orders, is
sufficient to give investors a good understanding
of customer behavior.
 Trending Toward Transparency
• Few companies currently provide all the data outsiders need to perform CBCV, for
a variety of reasons.

• First, disclosure of customer metrics is voluntary, and companies feel little to no

pressure to make them available.

• Second, there is little consensus about which customer metrics are the most
informative and how those metrics should be calculated and reported.

• And finally, policy makers and regulators have been largely silent about these
issues, leaving disclosure to companies’ discretion.
Class Workshop
Google - Motorola Mobile
 Class Workshop
• breakout 30 minutes

• As board of executive, how do you view the move by Google in buying

Motorola Mobile?

• Strategic decisions (Strategy Impact for Google)?

• Financial decisions (How do you value the Motorola Mobility from Google
POV)?

• Present your point of view in 5 minutes (1-2 person only)

 Points Taken from the Workshop

• Value Creation can be tangibles and intangibles.

• There must be financial justification behind strategic decision that we choose.

• Almost anything has salvage value.

• Financial modeling can view some alternative FCF in the future.