Christian Aarosin Ernst

1
Christian Aarosin Ernst Young Transaction
Advisory Services
What spices does it take to get the right
valuation of your company?

• 2009

2
What spices does it take to get the right
valuation of your company?

• - a discussion of the key value drivers in
  MA-transactions and how the financial crisis is
  influencing the pricing

3
The impact of the financial crisis

• Focus on cash rather than income
• Limited access to funding
• Lower gearing
• Falling prices on companies
• Fire sales
• Illiquid capital markets difficult to use
  benchmarks
• Sectors are hit very differently

4

• There is only one right price for a company

The one a buyer is willing to pay!
5
The value of a company

• There is only one right price for a company the
  one a buyer is willing to pay!
• Calculation models do not always provide the one
  and only truth
• Assess the general saleability before determining
  the value
• Always assess the other partys situation if
  known

6
Adjustment of corporate mission
7
Synergies / Potential synergy areas

• Market
• Production
• Purchase
• Product development
• Administration
• Financing
• Organisation
• Management

8
The importance of synergies (1)

?
9
The importance of synergies (2)
Possible
Impossible/Possible
10
Valuation approach
The Human Touch
Information
Information
Information
Information
Information
Technical background
Experience Assessment Common sense
Information
Information
Information
Information
Information
Information
Information
Information
11
Valuation approach
12
Valuation approach

• The quality of a valuation depends on
• Information quality
• Understanding of the industry and its financial
  structure

13
Necessary information

• Track record
• Business activities
• Market situation
• Management
• Accounting policies
• Income statement
• Assets
• Cash flow
• The future

14
Valuation methods
15
Valuation approach
What should be considered?
Price
16
Shareholders rights

• Access to detailed information about the shares
  to be valued
• Title to other shares
• Limitations of, e.g., the right to sell, vote or
  receive dividend
• Access to detailed information about
  shareholders agreements

17
Business activities

• Important to understand the business segment
• Positioning in the industry
• The companys history in summary
• Present business areas - changes?
• More than one division?
• Products
• Major investments or participations in group
  enterprises
• Market share
• Potential for development or declining market
  share

18
Historic results

• Thorough analysis of recent years results
• Discontinued operations
• Investment or rental income quality?
• New business segments without contribution margin
• RD
• One-off items
• Taxation
• Accounting policies

19
Outlook

• The most important aspect of valuation
• The historic results support the assessment of
  the expectations of the future
• Be convinced that the past and the future can be
  bridged

20
Balance sheet items

• Surplus assets
• Low-yield assets
• Underestimated assets
• Strength of the business segment (gearing,
  liquidity)

21
Management

• Ability to manage or adapt to change
• Key persons
• Successors
• Quality and timing of management information
• Is there an open, trustworthy and motivating
  approach?

22
The impact of the financial crisis

• Focus on cash rather than income
• Limited access to funding
• Lower gearing
• Falling prices on companies
• Fire sales
• Illiquid capital markets difficult to use
  benchmarks
• Sectors are hit very differently

23
Thank you!