Dynamic valuation of the target without synergies
Task description
The valuation for the independent target is created. Assumptions and accounting selection rules of the target are taken into account. The valuation calculation can be based on comparison values (comps) or on a complete valuation calculation, e.g. on a net present value. The complete valuation is often carried out using the buyer's cost structures to achieve a suitable representation from the buyer's point of view. Values from companies in the same industry and/or of the same size are used for the evaluation using comparison values.
Attributes of the Task
The task is a decision task.
The task problem is structured.
The task has the following goal(s):
Target valuation: prepared
The task has the following objectives:
Information asymmetry: minimized
Risk: minimized
The task consists of the following actions
Obtain Financial Data from Data Room
Collect Supporting Documents
Review Quality of Earnings Information
Normalize Historical Financial Statements
Adjust for Accounting Selection Rules
Identify and Quantify Debt-Like Items
Define Peer Selection Criteria
Build and Validate Peer Group
Select Applicable Valuation Multiples
Calculate DCF Valuation
Calculate Trading Comps Valuation
Calculate Deal Comps Valuation
Apply Buyer Cost Structure to Model
Calculate Working Capital Requirements
Derive Equity Value from Enterprise Value
Assess Convertible Bonds and Stock Options
Run Sensitivity Analysis
Develop Scenario Models
Triangulate Valuation Results
Prepare Valuation Football Field Chart
Document Assumptions and Methodology
Present Valuation to Decision Makers
Commission Independent Valuation Review
The task works on the following data object types, among others:
Target valuation, Sales of the target, Revenue streams of the target, Cost of the target, Structure of the target costs, Target company tax, HR costs of the target, Production costs of the target company, GTM costs of the target, Target IT Costs, Tax costs of target, Costs of third party patent licenses, Cost Complementarity, Financial complementarity, Cost of the buyer, Buyer cost structure, Profitability of the target, Preferred convertible bond of the target, Target's liabilities, Target bank, Debts of the target, Convertible bonds,
Questions to be used during the execution of the task
The task is executed with the following questions, among others:
What is the normalized net working capital level, and how does actual working capital at closing compare to the agreed peg?
What terminal value methodology is most defensible exit multiple or perpetuity growth and what growth rate assumption is appropriate?
Which key assumptions, when varied, cause the greatest swing in enterprise value? Are those assumptions well-supported by evidence?
How does the valuation output compare across DCF, trading comps, and precedent transactions? Are divergences explainable and defensible?
What debt-like items exist beyond financial debt (e.g., pension underfunding, deferred revenue, earn-outs, environmental liabilities), and how are they treated in the equity bridge?
Under what scenario assumptions does the standalone value collapse, and does this affect deal viability?
Which accounting policies of the target are expected to change post-acquisition, and what is the financial impact of those changes?
What are the target's sales with each relevant product and service and how are they treated in accounting terms?
How high are the costs of the target and how are these treated for accounting purposes?
What is the working capital of the target?
How high are the target's liabilities and the associated debt service?
Which environmental factors influence the target's financial performance?
What are the costs of generating sales in different channels?
Which accounting selection rules should be followed? Which changes to the accounting selection rules must we expect when we take over?
Which cost rates of the buyer should be used for the valuation calculation?
Which cash benefits, convertible bonds and stock options will Target employees receive?
How is the pension scheme regulated?
How do historical performance and industry benchmarks inform the target valuation in a standalone scenario?
What is the projected sustainability and diversification of revenue streams of the target under current market conditions?
How do current and deferred target company tax obligations impact the net present value calculation?
What is the efficiency of production costs of the target company compared to industry peers, and how does this affect margin stability?
How do ongoing costs of third-party patent licenses influence the target s operating profitability and cash flow projections?
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