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Amos Limof Private company
Amos LimWe take the perspective of one considering purchasing
the private firm. All adjustments are therefore made to realign the
firms financials with the market (because those are the real
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Amos Lim1. Required return on WC: (0.05)(400,000) = 20,000
Required return on Fixed: 0.12(1,600,000) = 192,000
2. 225,000 - 20,000 - 192,000 = 13,000
3. RI(1 + g)/(r - g) = 13,000(1 + 0.03) / (0.18 - 0.03)
89,267
4. 400,000 + 1,600,000 + 89,267 = 2,089,267
Amos LimDone
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Amos LimPrivate firms are usually small, so a small stock
premium is added.
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Amos Lim1. 0.01 + 1.5(0.06) = .1
2. 0.01 + 1.5(0.06) + 0.04 + 0.015 = 0.155
3. 0.01 + 0.06 + 0.04 + 0.015 + 0.012 = 0.137
Amos Lim
Amos LimDone
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Amos LimNeed to make adjustments, especially for risk (business
and leverage) and control, in order to ensure a fair comparison.
Should use standardised FS.
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Amos LimStrategic: 9 * (1 + 0.20) * (1 - 0.18) = 8.8568.856 *
28,000,000 - 6,800,000 = 241,168,000
Financial: 9 * (1 - 0.18) = 7.387.38 * 28,000,000 - 6,800,000 =
199,840,000
The premium/discount is applied towards the multiple
Strategic buyers look for LT investment; if they buy the firm,
it is typically because they expect to benefit from synergy.
Therefore they will be looking to acquire a controlling stake in
the firm, and a control premium should be applied in valuing
it.
Financial buyers only make ST investment, typically w/o regard
for synergy. They will typically not care to acquire a controlling
stake in the firm, and so a control premium should not be applied
in valuing it.
Amos LimWe can also use the EV / EBITDA multiple
Amos LimREDO
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Amos LimMore appropriate for firms with more fixed tangible
assets. Less appropriate for firms with more intangible assets.
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Amos Lim(1 - 0.20) * (1 - 0.16) = 0.672
Amos LimREDO
