GETTING STARTED-agenda

1
GETTING STARTED-agenda

• Introduction
• Aim
• Means
• Literature
• Report
• What to do
• Exam
• Practicalities
• Lecture Background
• Next week

2
Aim

• Create an understanding for Corporate Valuation
  (C.V) and the thinking lying behind
• Obtain an insight into C.V. in theory and
  practice
• Practice skills in C.V.
• Via 4 elements
• Literature
• Lectures
• Workshop/Reports/Negotiations
• 2 Guest speakers focusing on essentials

3
Means

• 1 COACHED WORKSHOP (Monday, 8.55-9.40) 2
  LECTURES (Monday, 9.50-11.30) PER WEEK
• SATURDAY NOV 16TH WHOLE DAY (9.00 - 17.00)!
• GROUPS AND TEAMS
• REPORTS TO BE DELIVERED
• ACTIVE PARTICIPATION / DIALOG

4
Literature

• Copeland, Koller Murrin Valuation 3ed.
• Articles (see handout) - copy from SL

5
The report

• Purpose To evaluate the value of one corporation
  from a buyer or seller perspective
• Analyzing historical performance (accounts)
• Business strategy analysis
• Financial analysis (developments in stock market)
• Prospective analysis (forecast/value)
• To negotiate the price of the corporation with
  other buyers/sellers (16. November)
• Learnings from negotiations and the valuing
  process should be included in the final report
  (25. November)

6
Please do - THIS WEEK

• Form groups (3-4 persons per group, Danes and
  non-Danes together)
• and Teams (3 groups per team, and one company per
  team)
• Decide in the teams on which group is buyer and
  which is seller (1 against 2 / 2 against 1)
• Choose a company and inform me on Email
• and get my acceptance
• Mail group participants, group name and team
  name, contact-mail, company, buyer/seller to me
  (tom.hansen_at_postkasse.org) (at the latest on 13.
  September)
• Prepare a work plan
• To be formalized sep 16th

7
Please do - LATER

• Give a presentation during the workshops
  (exercises)
• Mid stage report (1 A4)
• Monday, Oct 21, evening
• Draft report price
• Wednesday, Nov 13, evening
• Negotiation on Saturday Nov 16th
• Final report
• incl. negotiation process and outcome
  description learning reflections
• Monday, Nov 25, evening

8
POSSIBLE TYPES OF COMPANIES

• QUOTED - NONQUOTED
• BIG - SMALL
• HIGH TECH- GOOD OLD LOW TECH
• BRANDED - MASS PRODUCTS
• B2B - B2C
• SUCCESFULL - CRISIS
• INTERNATIONAL-REGIONAL-LOCAL
• DANISH -FOREIGN
• SINGLE BUSINESS -MULTIBUSINESS

9
Exam

• Grades are given on the basis on
• the group report, and
• workshop participation on November 16
• There will be no normal examination.

10
PRACTICALITIES

• PHOTOCOPIES OF ARTICLES
• 1 cd (Excel Spreadsheet User manual)
• Charlotte Løchte, c102 (10.00-14.00)
• COOPERATE IN TEAMS ON COLLECTION OF BASIC
  INFORMATION MATERIAL BUT PLEASE DO NOT SPY
  !!!!!!!
• AND HAVE FUN !
• Email tom.hansen_at_postkasse.org

11
Background lecture

• Which value
• market
• owner / new owner
• fair / correct
• Valuation converts a forecast into a price -
  using a method and some data
• How do you get the forecast and how do you
  convert it into a prize ?
• Each method has its own focus and (data)
  requirements/ assumptions
• Should it be based on dividends, earnings, cash
  flow, or what ?
• How historic should it be ?
• Should the accounts be used ?
• How long into the future ?

12
The valuation-method tree

• ONE PERIOD
• MULTIPLES (e.g. P/E, Times revenues, Times
  EBITDA, Times EBIT, number of customers)
• NET ASSET VALUE (booked equity) (all assets? At
  what value?)
• going concern (immaterial / goodwill)
• realization / liquidation
• MULTIPLE PERIODS
• FLOWS
• direct 1 dividends
• indirect free cash flow - debt
• NET ASSETS AND FLOWS
• abnormal earnings book value (Edward-Bell-Ohlson
  )
• PEER GROUP (diff. in dividend, leverage, growth,
  risk?)
• on earnings and equity

13
STEPS in the valuation

• Business Strategy analysis
• industry structure
• corporate strategy
• Accounts analysis
• quality of earnings
• Financial analysis
• performance assessment
• Prospective analysis
• forecast
• valuation

14
New Foundations 1

• The nature of the firm has changed.
• Away from asset intensive, vertically integrated
  firms, with top down control over employees.
• Towards firms offering (almost) purely human
  capital (consultants and technology firms) -
  (where the (valuable) employees have the right
  and possibility of leaving).
• Because
• Physical assets have become less unique and
  valuable (improvement in capital markets, drop in
  communication costs)
• Increased worldwide competition have increased
  the demand for talented employees
• Firms grips for human capital is weakened (easier
  access to finance, many independent suppliers).
  Many alternative employment opportunities.

15
New Foundations 2

• This has consequences for the valuation of
  companies, because the growth options are up for
  grabs.
• We need a new approach to valuing firms that is
  consistent with the new nature of firms.
• Basis is a theory of the firm (ex
  complementarity, collection of growth options).
• What is the unit-of-analysis (are the firm
  boundaries stable) ?
• How is value generated ?
• How is this value distributed between equity and
  the other stakeholders ?

16
Corporate Architect (PWC)

• Increase shareholder value by value based
  management
• Shaping strategy and management (fig.2.2)
• Develop the concept (valuation of entities)
• Use it in strategic decision making (investments
  targets)
• And in operating decisions making (planning
  budgeting)
• Institutionalize it in culture,
  perf.measurements, and incentives
• Linking the management processes in a finance
  value line (fig.1.4)

17
Rationality

• 4 main decision making models
• rational
• bounded-rational
• political
• garbage can
• The profit max./SHV approach is declining in
  relevance down the models

18
Evode Group 1

• Andrew Simon is chairman of Evode Group with 5
  different divisions.
• After many years with profitable growth, the
  turnover in 1991 is 6 down from 1990 to m. 279
  and profit after tax is more than halved from m.
  15,2 to m. 7,3. The stock price is down to p. 43
  more or less equivalent to the intrinsic value of
  p. 46 calculated based on cash flows.
• Analysts forecast a 1992 profit of m. 8,9.
• What should Andrew Simon do ?

19
Evode Group 2

• A hostile takeover bid from Wassal of p. 80 turns
  up - calculated by its CEO Chris Miller based on
  Peer Group multiples, indicating a value of p.
  112. Evodes stock price rises to p. 103
•  
• Andrew Simons fights back signaling profit
  improvements in 1992 to m.10,2 - so Chris
  Miller quickly improves his bid to p. 95.
• Whats next ?

20
Evode Group 3

• A "white knight" Laporte and its CEO Ken Minton
  takes up 6,1 of the shares at 100 p. announcing
  it will make a bid above p. 100 for the rest. The
  offer is p. 120 paid in "paper" and gets the
  deal.
•  
• Its own shares falls 10 in total - although its
  assessment of the acquisition value of Evode is
  p. 240.
• Should anybody have acted otherwise ?

21
Next

• 3 hours
• Workshop (8.55-9.40)
• Groups, teams and companies
• Workplan presentation by each team - on Overhead
  please
• Exercise 2,7 2,9 2.10
• Dialog and coaching
• Lecture What to Measure and Manage
  CKM 1, 2, 3 Articles