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RELATIVE VALUATION

-Parvesh Aghi
Fundamental Principles of Relative Valuation

2
Relative Valuation

In discounted cash flow valuation, the


objective is to find the value of assets,
given their cash flow, growth, and risk
characteristics.

In relative valuation, the objective is to


value assets based on how similar
assets are currently priced in the
market.

3
Two components to relative valuation

Standardizing Find similar


the prices* firms**

** risk, growth potential, and


* by converting prices into
cash flows
multiples of earnings,
book values, or sales

4
USE OF RELATIVE VALUATION

Most equity research reports and many


acquisition valuations are based on a
comparison of a company to comparable firms,
using a multiple such as PE as the basis.

In fact, firms in the same business as the firm


being valued are called comparable, though
that is not always true.

5
Reasons for Popularity

Less time &


It is easier to
resource
sell
intensive

Reflects the
It is easier to
current
defend
market mood
6
Potential Pitfalls

Comparable firms from the same industry : key


variables such as risk, growth, or cash flow potential
are ignored

Multiples reflect the market mood : Too high / low


valuations

Lack of transparency regarding the underlying


assumptions : vulnerable to manipulation : almost any
value can be justified.

7
STANDARDIZED VALUES AND MULTIPLES

» To compare the values of similar firms in the market ,


we need to standardise the values in some ways by
scaling them to a common variable.
1. To the earnings the firms generate ( EPS/EBIT
EBIDTA
2. To the book value
3. To the revenues that firms generate
4. To the Firm’s operational performance measures
that are specific to firms / sectors ( production
capacity/ subscribers / natural reserves)

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Multiples

Earnings Book Value


Multiples. Multiples.

Revenue Sector-
Multiples. Specific
Multiples.
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Earnings Multiples

Price/ Enterprise
Earning value* /
Ratio EBIDTA
PE ratio :
when buying a
* value of the
stock
Enterprise operating
assets of the
EV/ EBIDTA:
when buying a value / EBIT firm.
business

10
Book Value Multiples

Enterprise
Price / Book
Value/ Book
Value of equity
Value of assets.

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Revenue Multiples

Enterprise
Price –to
Value /
Sales ratio*
Sales

*Market value of equity / revenues.

12
Sector-Specific Multiples

EV / Ton of steel EV/Kwh EV / Subscriber


(Steel (electric (cable TV/
Producers) generation) Telecom)

EV / Per square
foot EV / Per
Employee.
(retailers)

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RIGHT MULTIPLES
Multiple Positive Limitation Conclusion

Can be used for the industry where profitability


1. Not effected by accounting policy differences Does not capture profitability part of is negative. Or where profitability margins are
EV/Sales in comaparable companies comaprable companies in a standard range.
2. Can be used for the industry where profitability
is negative. E,g, e commerce and electric
vehicles
3. EV based multiples are not effected by
differnces in capital structure

Can be used for almost every industry except,


1. Less effected by accounting policy differences Can not be used for the industry having loss making industry, banking and financial
EV/EBITDA than other profit margins negative ebitda companies
2. Captures picture of profitability of comparable This multiple is more useful specially in case of
companies, which is not the case with ev/sales capital intensive industry, compared to ev/ebit
multiple margin
3. EV based multiples are not effected by Huge D&A exp can distort earnings in capital
differnces in capital structure intensive industry if we use EBIT
4. Not effected by non operating items of income
and expenses.

1. Captures picture of profitability of comparable Can be used for almost every industry except,
companies, which is not the case with ev/sales Can not be used for the industry having loss making industry, banking and financial
EV/EBIT multiple negative ebitda companies
2. EV based multiples are not effected by We should avoid using this multiple for capital
differnces in capital structure intensive industry
3. Not effected by non operating items of income Huge D&A exp can distort earnings in capital
and expenses. intensive industry if we use EBIT

1. Captures picture of profitability of comparable Effected by capital structure differences


companies, which is not the case with ev/sales Can be applied in the industry having
P/E Multiple multiple intangible leverage.
Effected by non operating items of
income and expenses
Most effected by accounting policy
differences

Can be used for industry not having sales, but does not capture financial performance Eg, Whatsapp, and other app based
EV/operating matrix subscribers etc of comparable companies companies

14
MULTIPLES USED

104

Sector Multiple Used Rationale


Cyclical Manufacturing PE, Relative PE Often with normalized
earnings
Growth firms PEG ratio Big differences in growth
rates
Young growth firms w/ Revenue Multiples What choice do you have?
losses
Infrastructure EV/EBITDA Early losses, big DA
REIT P/CFE (where CFE = Net Big depreciation charges
income + Depreciation) on real estate

Financial Services Price/ Book equity Marked to market?


Retailing Revenue multiples Margins equalize sooner
or later
Thus, a firm which has historically traded at half the market PE (Relative PE =
Relative PE = PE of Firm / PE of Market . 0.5) is considered over valued if it is trading at a relative PE of 0.7.
What to control for

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FOUR BASIC STEPS TO USING MULTIPLES

DEFINE DESCRIBE

ANALYSE APPLY

17
FOUR BASIC STEPS TO USING MULTIPLES

Multiple is defined Distributional


consistently and characteristics of a
measured uniformly. multiple.

Finding the right


firms to use for
Analyse the multiple comparison, and
controlling for
differences.

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1.Multiple is defined consistently and measured uniformly

Even the simplest multiples can be defined


differently by different analysts.

Price-earnings (PE) ratio.


• There are a number of variants on the PE ratio.
• While the current price is used in the numerator
• The earnings per share in the denominator can be the EPS from
the most recent financial year (yielding the current PE), the last
four quarters of earnings (yielding the trailing PE), or expected
EPS in the next financial year (resulting in a forward PE).
• The first step when discussing a valuation based on a multiple is
to ensure that everyone in the discussion is using the same
definition for that multiple.

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Consistency

Every multiple has a numerator and a


denominator. The numerator can be either an
equity value (such as market price or value of
equity) or a firm value or enterprise value .

The denominator can be an equity measure


(such as earnings per share, net income, or
book value of equity) or a firm measure (such
as operating income, EBITDA, or book value of
capital).

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Consistency

The numerator and denominator are defined


consistently.

If the numerator for a multiple is an equity


value, then the denominator should be an
equity value as well.

If the numerator is a firm value, then the


denominator should be a firm value as well.

21
Consistency

To illustrate, the price-earnings ratio is a


consistently defined multiple, since the
numerator is the price per share (which is an
equity value) and the denominator is earnings
per share (which is also an equity value).

So is the enterprise value to EBITDA multiple,


since the numerator and denominator are both
firm value measures.

22
Uniformity

With both earnings and book value measures, there is another


component to be concerned about, and that is the accounting
standards used to estimate earnings and book values.

Differences in accounting standards can result in very different


earnings and book value numbers for similar firms.

Companies that use aggressive assumptions in measuring


earnings will look cheaper on earning multiples than firms that
adopt conservative accounting practices

This makes comparisons of multiples across firms in different


markets, with different accounting standards, very difficult.

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2.Distributional characteristics of a multiple

When using a multiple, it is always


useful to have a sense of what a high
value, a low value, or a typical value for
that multiple is in the market.

In other words, knowing the


distributional characteristics of a multiple
is a key part of using that multiple to
identify under- or overvalued firms.

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Distributional characteristics of a multiple

» It is difficult to look at a number and pass


judgment on whether it is too high or low without
the knowledge of cross distribution of a multiple.
»The table below summarizes the average and
standard deviation for three widely used multiples
US companies Current PE Price-to book Equity EV/EBITDA
Average 48.12 7.14 26.52
Median 23.12 2.53 8.64
Standard dev 235.64 65.44 250.54
Minimum .10 .00 0.00
Maximum 10,081 4,447 11,322

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Distributional characteristics of a multiple

The lowest value that any company can register on any


multiple is zero , whereas the highest values are unbounded.

As a result , the distribution for theses multiples are skewed


towards the positive values.

The average values for multiples will be higher than median


values

The median values is more representative

The median values should be used whether the stock is


cheap or overvalued instead of average

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Time variation in multiples

»Multiples can change over time


US Stocks Average Median % of firms
with PE ratios
Jan 00 52.16 24.55 65.33
Jan 01 44.99 14.74 63.00
Jan 02 43.44 15.50 57.06
Jan 03 33.36 16.68 49.99
Jan 04 41.40 20.76 58.18
Jan 05 48.12 23.21 56.43

»2000 was the peak of market bubble.


»Multiples during recession will decrease
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3.Analyse the multiple
»In discounted cash flow valuation the value of a
firm is a function of three variables , namely

Its capacity to generate cash


flows.

Its expected growth in these


cashflows

The uncertainty associated


with these cash flows

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Analyse the multiple

Every multiple, whether it is of earnings, revenues, or book


value, is a function of the same three variables—risk, growth,
and cash flow generating potential.

The assumptions in a relative valuation are implicit and


unstated, whereas those in discounted cash flow valuation
are explicit.

Intuitively, then, firms with higher growth rates, less risk, and
greater cash flow generating potential should trade at higher
multiples than firms with lower growth, higher risk, and less
cash flow potential.

32
Analyse the multiple

We can use simple discounted cash


flow models for equity and enterprise
value (EV) and use them to derive the
multiples.

In the simplest discounted cash flow


model for equity, which is a stable
growth dividend discount model, the
value of equity is:

33
Analyse the multiple

Where DPS1 is the expected dividend


in the next year, ke is the cost of equity,
and gn is the expected stable growth
rate.

Dividing both sides by the earnings,


you obtain the discounted cash flow
equation specifying the PE ratio for a
stable growth firm:

34
Analyse the multiple

Dividing both sides by


the book value of equity,
you can estimate the
price–book value ratio
for a stable growth firm:

35
MULTIPLES – Key driver

36
4.Application Tests

Finding the right firms


to use for comparison,
and controlling for
differences

37
Application Tests

Multiples are used in


conjunction with
comparable firms to
determine the value
of a firm or its equity.
38
What is a comparable firm ?

Firms with similar


Firms within the
cashflows
same
,growth potential
industry/businees
and risk

A telecom firm can be compared to a software firm , if two are


Identical in terms of cashflows , growth & risk

39
Controlling for differences across firms

No matter how carefully you construct your list


of comparable firms, you will end up with firms
that are different from the firm you are valuing.

The differences may be small on some variables


and large on others, and you will have to control
for these differences in a relative valuation.

There are three ways of controlling for these


differences: subjective adjustments, modified
multiples, and sector or market regressions.

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Subjective Adjustments

The multiple is calculated for each of the comparable firms, and the
average is computed.

To evaluate an individual firm, you then compare the multiple it trades


at to the average computed; if it is significantly different, you make a
subjective judgment about whether the firm's individual characteristics
(growth, risk, or cash flows) may explain the difference.

Thus, a firm may have a PE ratio of 22 in a sector where the average


PE is only 15, but you may conclude that this difference can be
justified because the firm has higher growth potential than the average
firm in the industry.

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Subjective Adjustments

»EPD

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Subjective Adjustments

If, in your judgment, the difference


on the multiple cannot be
explained by the fundamentals, the
firm will be viewed as overvalued
(if its multiple is higher than the
average) or undervalued (if its
multiple is lower than the average).

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Modified Multiples

In this approach, you modify the multiple to take into account the
most important variable determining it—the companion variable.

Thus, the PE ratio is divided by the expected growth rate in EPS


for a company to determine a growth-adjusted PE ratio or the
PEG ratio.

These modified ratios are then compared across companies in a


sector.

The implicit assumption you make is that these firms are


comparable on all the measures of value, other the one being
controlled for.

44
Modified Multiples
» The P/E ratios and expected growth rates in EPS over the next five years, based on
consensus estimates from analysts, for the firms that are categorized as beverage
firms are summarized in the following table:

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Modified Multiples

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Sector Regressions

When firms differ on more than one variable, it becomes


difficult to modify the multiple to account for the
differences across firms.

You can run a regression of the multiple against the


variables and then use this regression to find the
predicted value for each firm.

This approach works reasonably well when the number


of comparable firms is large and the relationship
between the multiple and the variables is stable.

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Market Regressions

Searching for comparable firms within the sector in


which a firm operates is fairly restrictive, especially
when there are relatively few firms in the sector or when
a firm operates in more than one sector.

Since the definition of a comparable firm is not one that


is in the same business but one that has the same
growth, risk, and cash flow characteristics as the firm
being analyzed, you need not restrict your choice of
comparable firms to those in the same industry.

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Market Regressions

The regression introduced in the previous


section controls for differences on those
variables that you believe cause multiples to
vary across firms.

Based on the variables that determine each


multiple, you should be able to regress any
multiple (PE, EV/EBITDA, PBV) against the
variables, using all of the firms in the market in
your sample.

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Market Regressions

You can then use the


market regression to
get predicted values
for individual
companies.
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Market Regressions

A company that trades at a


PE ratio lower (higher)
than the predicted PE from
the market regression is
undervalued (over valued)
relative to the market.

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Predicted PE vs Actual PE - Regression

52
Market Regressions

You can then use the market


regression to get predicted values
for individual companies.
A company that trades at a PE ratio
lower (higher) than the predicted
PE from the market regression is
undervalued (over valued) relative
to the market.

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Market Regressions

The first advantage of this approach over the


subjective comparison across firms in the same
sector is that it does quantify, based on actual
market data, the degree to which higher growth
or risk should affect the multiples.

It is true that these estimates can have error


associated with them, but this error is a
reflection of the reality that many analysts
choose not to face when they make subjective
judgments.

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Market Regressions

Second, by looking at all firms in the market,


this approach allows you to make more
meaningful comparisons of firms that operate
in industries with relatively few firms.

Third, it allows you to examine whether all


firms in an industry are under- or overvalued
by estimating their values relative to other
firms in the market.

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MULTIPLES – Key driver

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Steps in performing comparable company analysis

Find the right comparable companies

Gather financial information

Setup the comps table

Calculate the comparable ratios

Use the multiples from the comparable companies to value the


company in question

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»Limitations of Statistical Techniques
» Statistical techniques are not a panacea
for research or for qualitative analysis. They are
tools that every analyst should have access to,
but they should remain tools. In particular, when
applying regression techniques to multiples, we
need to be aware of both the distributional
properties of multiples that we talked about
earlier in the chapter and the relationship among
and with the independent variables used in the
regression.
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» The fact that multiples are not normally distributed can pose problems when using standard regression
techniques. These problems are accentuated with small samples, where the asymmetry in the distribution can be
magnified by the existences of a few large outliers.
» � In a multiple regression, the independent variables are themselves supposed to be independent of each other.
Consider, however, the independent variables that we have used to explain valuation multiples – cash flow potential
or payout ratio, expected growth and risk. Across a sector and over the market, it is quite clear that high growth
companies will tend to be risky and have low payout. This correlation across independent variables creates
�multicollinearity� which can undercut the explanatory power of the regression.
» � Earlier in the chapter, we noted how much the distributions for multiples changed over time, making
comparisons of PE ratios or EV/EBITDA multiples across time problematic. By the same token, a multiple regression
where we explain differences in a multiple across companies at a point in time will itself lose predictive power as it
ages. A regression of PE ratios against growth rates in early 2005 may therefore not be very useful in valuing stocks
in early 2006.
» � As a final note of caution, the R-squared on relative valuation regressions will almost never be higher than
70% and it is common to see them drop to 30 or 35%. Rather than ask the question of how high an R-squared has to
be to be meaningful, we would focus on the predictive power of the regression. When the R-squared decreases, the
ranges on the forecasts from the regression will increase. As an example, the beverage sector regression (from
illustration 7.3) yields a forecasted PE of 32.97 but the R-squared of 51% generates a range of 27.11 to 38.83 for the
forecast with 95% accuracy; if the R-squared had been higher the range would have been tighter.
»
»

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Limitations of Statistical Techniques
Statistical techniques are not a panacea for research or for qualitative analysis. They are tools that every analyst should have access to,
 The fact that multiples are not normally distributed can pose problems when using standard regression techniques. These problems are acce
 In a multiple regression, the independent variables are themselves supposed to be independent of each other. Consider, however, the indepe
 Earlier in the chapter, we noted how much the distributions for multiples changed over time, making comparisons of PE ratios or EV/EBIT
 As a final note of caution, the R-squared on relative valuation regressions will almost never be higher than 70% and it is common to see the

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»BACK UP SLIDES

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Find the right comparable companies

This is the first and probably the hardest (or most subjective)
step in performing ratio analysis of public companies.

The very first thing an analyst should do is look up the


company you are trying to value on Morning star or
valueresearch so you can get a detailed description and
industry classification of the business.

The next step is to search either of those databases for


companies that operate in the same industry and that have
similar characteristics. The closer the match, the better.

62
»The analyst will run a screen based on criteria
that include:
»Industry classification
»Geography
»Size (revenue, assets, employees)
»Growth rate
»Margins and profitability

63
Gather financial information

Once you’ve found the list of companies


that you feel are most relevant to the
company you’re trying to value it’s time to
gather their financial information.

Once again, you will probably be working


with Morning Star or Value research and
you can easily use either of them to import
financial information directly into Excel.

64
Gather financial information

The information you need will


vary widely by industry and the
company’s stage in the business
lifecycle. For mature businesses,
you will look at metrics like
EBITDA and EPS, but for earlier
stage companies you may look at
Gross Profit or Revenue.

65
Setup the comps table
» In Excel, you now need to create a table that lists all the
relevant information about the companies you’re going to
analyze.
» The main information in comparable company analysis
includes:
» Company name
» Share price
» Market capitalization
» Net debt
» Enterprise value
» Revenue
» EBITDA
» EPS
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» Analyst estimates
Calculate the comparable ratios
» With a combination of historical financials and analyst
estimates populated in the comps table, it’s time to start
calculating the various ratios that will be used to value the
company in question.
» The main ratios included in a comparable company analysis
are:
» EV/Revenue
» EV/Gross Profit
» EV/EBITDA
» P/E
» P/NA
» P/B
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Use the multiples from the comparable companies to value the company
in question

» Analysts will typically take the average or median of the


comparable companies’ multiples and then apply them to
the revenue, gross profit, EBITDA, net income, or
whatever metrics they included in the comps table.
» In order to come up with a meaningful average, they often
remove or exclude outliers and continually massage the
numbers until they seem relevant and realistic.
» For example, if the average P/E ratio of the group of
comparable companies is 12.5 times, then the analyst will
multiply the earnings of the company they are trying to
value by 12.5 times to arrive at their equity value.

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Interpreting the results

»Once the numbers are complete and the comps


table is finalized, it’s time to start interpreting the
results. One way to use the information is to look
for companies that are overvalued or
undervalued. Comps can help you uncover the
opportunities, but the results need to be
interpreted carefully as they don’t include any
qualitative factors whatsoever.

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»To properly evaluate the numbers in the comps
table you have to understand why numbers are
what they are. Why does Company A trade at a
discounted EV/EBITDA multiple to Company B?
»Is it because it’s undervalued and a good buying
opportunity?
»Or, is it because it has a much lower growth rate
and requires more capex spending?

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»Even though Company A trades at a lower
multiple, it might actually be “more expensive”
than Company B!
»The is where the art of being a great financial
analyst comes into play.
»

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Valuation
EV/Sales EV/EBITDA EV/EBIT P/E
Company Name x x x x
Infosys Ltd 3.7x 13.4x 14.6x 21.4x
Wipro 2.5x 10.5x 12.1x 16.7x
Tata
Consultancy 5.4x 18.2x 19.1x 25.7x
services
HCL
2.3x 9.4x 10.9x 14.2x
Technologies
Tech Mahindra 1.8x 8.9x 10.7x 14.6x

Average 3.2x 12.1x 13.5x 18.5x


Median 2.5x 10.5x 12.1x 16.7x

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Market Data Financial Data

Price Market Cap EV Sales EBITDA EBIT Earnings

Company
(Rs/share) (Rs crores) (Rscrores) (Rs crores) (Rs crores) (Rs crores) (Rs crores)
Name

Infosys Ltd 775 3,30,416 3,07,848 82,675 23,052 21,041 15,410

Wipro 249 1,50,461 1,48,948 59,574 14,232 12,284 9,022

Tata
Consultancy 2165 8,11,828 7,97,818 1,46,463 43,817 41,761 31,562
services

HCL
1063 1,43,998 1,39,982 60,427 14,869 12,796 10,120
Technologies

Tech
659 63,583 61,281 34,742 6,871 5,742 4,354
Mahindra

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Market Data Financial Data Valuation

Market EV/EBITD
Price EV Sales EBITDA EBIT Earnings EV/Sales EV/EBIT P/E
Cap A
Company
($/share) ($M) ($M) ($M) ($M) ($M) ($M) x x x x
Name
The Coca-
Cola 38.14 1,68,041 1,85,122 46,854 13,104 11,127 7,381 4.0x 14.1x 16.6x 22.8x
Company
Pepsico,
81.37 1,23,883 1,43,824 66,415 12,344 9,878 5,618 2.2x 11.7x 14.6x 22.1x
Inc.
Dr Pepper
Snapple
52.31 10,326 12,764 5,997 1,319 1,103 620 2.1x 9.7x 11.6x 16.7x
Group,
Inc.
Monster
Beverage
69.62 11,618 11,004 2,246 606 584 357 4.9x 18.1x 18.9x 32.5x
Corporatio
n
National
Beverage 20.81 964 968 645 78 66 41 1.5x 12.5x 14.6x 23.5x
Corp.

Average 2.9x 13.2x 15.3x 23.5x

Median 2.2x 12.5x 14.6x 22.8x

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Multiple Positive Limitation Conclusion

Can be used for the industry where


1. Not effected by accounting policy Does not capture profitability part of profitability is negative. Or where profitability
EV/Sales differences in comaparable companies comaprable companies margins are in a standard range.
2. Can be used for the industry where
profitability is negative. E,g, e commerce and
electric vehicles
3. EV based multiples are not effected by
differnces in capital structure

Can be used for almost every industry


1. Less effected by accounting policy Can not be used for the industry except, loss making industry, banking and
EV/EBITDA differences than other profit margins having negative ebitda financial companies
2. Captures picture of profitability of This multiple is more useful specially in case
comparable companies, which is not the case of capital intensive industry, compared to
with ev/sales multiple ev/ebit margin
3. EV based multiples are not effected by Huge D&A exp can distort earnings in capital
differnces in capital structure intensive industry if we use EBIT
4. Not effected by non operating items of
income and expenses.

1. Captures picture of profitability of Can be used for almost every industry


comparable companies, which is not the case Can not be used for the industry except, loss making industry, banking and
EV/EBIT with ev/sales multiple having negative ebitda financial companies
2. EV based multiples are not effected by We should avoid using this multiple for
differnces in capital structure capital intensive industry
3. Not effected by non operating items of Huge D&A exp can distort earnings in capital
income and expenses. intensive industry if we use EBIT

1. Captures picture of profitability of Effected by capital structure


comparable companies, which is not the case differences Can be applied in the industry having
P/E Multiple with ev/sales multiple intangible leverage.
Effected by non operating items of
income and expenses
Most effected by accounting policy
differences

does not capture financial


Can be used for industry not having sales, but performance of comparable Eg, Whatsapp, and other app based
EV/operating matrix subscribers etc companies companies

79
CASE STUDY

CAMPBELL TO
ACQUIRE SNYDER’S-
LANCE, INC. TO
EXPAND IN FASTER-
GROWING SNACKING
CATEGORY
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About Snyder’s-Lance

Snyder's-Lance, Inc.,
headquartered in Charlotte,
NC, manufactures and
markets snack foods
throughout the United States
and internationally.

Snyder's-Lance's products
include pretzels, sandwich
crackers, pretzel crackers,
potato chips, cookies, tortilla
chips, restaurant style
crackers, popcorn, nuts and
other snacks.

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About Snyder’s-Lance

Products are sold under the Snyder's


of Hanover®, Lance®, Kettle Brand®,
KETTLE® Chips, Cape Cod®, Snack
Factory® Pretzel Crisps®, Pop
Secret®, Emerald®, Late July®,
Krunchers! ®, Tom's®, Archway®,
Jays®, Stella D'oro®, Eatsmart
Snacks™, O-Ke-Doke®, Metcalfe's
skinny®,

Products are distributed nationally


through grocery and mass
merchandisers, convenience stores,
club stores, food service outlets and
other channels

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Campbell Soup Company

is a multi-national food
company headquartered
in Camden, N.J., with
annual sales of
approximately $8.1
billion.

They make a range of


high-quality soups and
simple meals, beverages
and snacks.

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Highlights

Campbell to acquire Snyder’s-Lance for $50.00 per share in an all-cash transaction

Combination of Campbell’s baked snacks portfolio and Snyder’s-Lance’s


complementary portfolio creates a snacking platform with approximately $4.7 billion
net sales on a pro forma basis

Campbell’s annual net sales expected to exceed $10 billion

Expects approximately $170 million in cost synergies by end of fiscal 2022;


additionally, expects to achieve a majority of Snyder’s-Lance’s existing cost
transformation program

Acquisition expected to be accretive to Campbell’s Earnings Per Share (EPS) in


fiscal 2019

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» CAMDEN, N.J. and CHARLOTTE, N.C., Dec. 18,
2017 - Campbell Soup Company (NYSE: CPB) and
Snyder’s-Lance (NASDAQ: LNCE) today announced
that the companies have entered into an agreement
for Campbell to acquire Snyder’s-Lance for $50.00
per share in an all-cash transaction.
» The purchase price represents a premium of
approximately 27 percent to Snyder’s-Lance’s closing
stock price on Dec. 13, 2017, the last trading day
prior to media reports regarding a potential
transaction. The acquisition, which has been
approved by the
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» Boards of Directors of both companies, will enable
Campbell to expand its portfolio of leading snacking
brands.
» Snyder’s-Lance is a leading snacking company that
manufactures and markets snack food throughout the
United States. The company’s portfolio includes well-
known brands such as Snyder’s of Hanover, Lance,
Kettle Brand, KETTLE chips, Cape Cod, Snack
Factory Pretzel Crisps, Pop Secret, Emerald and
Late July. Snyder’s-Lance has leading market
positions in its core categories including pretzels,
sandwich crackers, kettle chips, deli snacks and
organic and natural tortilla chips.1
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Acquisition and Snyder’s-Lance Highlights:

»Combines the strengths of both organizations to


drive sales growth and expand Campbell’s
footprint in the $89 billion U.S. snacking market,
which had a three-year compound annual growth
rate (CAGR) of nearly 3 percent2 Snyder’s-
Lance reported $2.2 billion in net sales for the
trailing 12 months ended Sept. 30, 2017 From
calendar 2012-2016, Snyder’s-Lance net sales
grew at an 11.5 percent CAGR; organic net sales
outpaced category growth with a 4 percent CAGR
»
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»The acquisition of Snyder’s-Lance will accelerate
Campbell’s access to faster-growing distribution
channels including the convenience and natural
channels

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COMPARABLE DEAL ANALYSIS
SNYDER Equity Enterprise ENTERPRISE VALUE EQUITY
Value Value

LTM LTM LTM LTM PE


sales EBIDTA EBIT

5,224 6,320 2.8x 22.2x 33.9x 74.9x

(All Numbers are in USD millions except per share data)

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DETAILS

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ENTERPRISE VALUE

91
KEY FINANCIALS

92
EQUITY CONSIDERATION

93
TREASURY STOCK METHOD

94

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