Re: Cash
Thanks again. I understand. But for an asset-sale type of transaction wherein target will sell asset only without working capital. Any project loan will include a working capital line/revolver, so we must make sure we are paying the "fair" multiple for this type of asset on a going concern basis. At... Thanks again. I understand. But for an asset-sale type of transaction wherein target will sell asset only without working capital. Any project loan will include a working capital line/revolver, so we must make sure we are paying the "fair" multiple for this type of asset on a going concern basis. At EV = Equity + Net Debt and Net debt = Amortizing Loan + Revolver - Cash. Although cash is fundamentally an amount that buyer will put in to bankroll the initial ~3 months of operating expenses so we can say its "operating cash". Since without the initial cash, EBITDA cannot be earned so to speak. On the other hand, if on Day 1, we would flip and sell it back to the market again, then we can technically free up those cash immediately and can be used to pay back those revolver line drawn and can be treated as excess cash. Thus, it can be argued both ways. What is your view? Read More

Re: Modeling a Serial Acquirer
For highly acquisitive companies, we would typically build the model assuming no acquisitions and then layer on acquisitions to split the core, organic growth business vs earnings/valuation from acquisitions. The tradeoff (if you recall from our M&A courses) is whether or not the acquisitions are ac... For highly acquisitive companies, we would typically build the model assuming no acquisitions and then layer on acquisitions to split the core, organic growth business vs earnings/valuation from acquisitions. The tradeoff (if you recall from our M&A courses) is whether or not the acquisitions are accretive to earnings or rather, if the "return" on the acquisition is greater than their own cost of capital. Back to Finance 101, if the ROI doesn't beat the acquirer's WACC, then they shouldn't acquire, hence the back of the envelope accretion/dilution analysis that Wall Street ends up relying on a bit too much.

So, to summarize:
1) build your regular financial model (Core Model) assuming NO acquisitions.
2) make educated acquisition assumptions with the following high level assumptions:
a) acquisition volume (be it Sales/EBITDA or TEV)
b) if your volume assumption is TEV, then assume an average EBITDA multiple and EBITDA margin (to back into Sales and EBITDA)
c) if your volume assumption is Sales or EBITDA, then assume an average multiple to arrive at TEV and applicable margins
d) assume a financing structure of cash vs stock mix (take the last few acquisitions and you'll likely see a trend)
3) integrate assumptions into merger model - we usually build a toggle for future acquisitions on or off (multiply by switch that is a 0 or 1)
4) build sensitivity of earnings, margins, value

For reference, our Core Model and Merger Model courses:
http://www.wallst-training.com/self-study/courses.html#package4
http://www.wallst-training.com/self-study/courses.html#package5
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Re: Ref Range Issues
Here's our assessment: 1) You must normalize the historical figures from CapIQ. They claim to adjust for one time items but not a good job of it. This is covered in our Complex Trading Comps course: http://www.wallst-training.com/self-stu ... l#package4 2) Are you using only EPS or Revenue, EBI... Here's our assessment:
1) You must normalize the historical figures from CapIQ. They claim to adjust for one time items but not a good job of it.
This is covered in our Complex Trading Comps course: http://www.wallst-training.com/self-stu ... l#package4

2) Are you using only EPS or Revenue, EBITDA and EBIT multiples as well?
This is covered in our Corporate Valuation Methodologies course: http://www.wallst-training.com/self-stu ... l#package4

3) Private company transaction data is tough to find especially if it's small enough that they don't have to disclose many details in the 8K and proxies. If no transactions and no data, end of story, yes. But you can ALWAYS find the data somehow.
This is covered in our Deal Comps Analysis (Precedent Transactions) course: http://www.wallst-training.com/self-stu ... l#package4

4) If the company is still in 6% - 7% growth mode, then the 2% - 4% perpetuity method doesn't really apply, although you have to do it to confirm it doesn't apply. Be prepared to justify the 6% - 7% growth in the future, although don't use the 6% - 7% growth in your gordon growth.

5) Correct. For more private company valuation: http://www.wallst-training.com/self-stu ... ml#private

Does it sound like we're referring you to our valuation courses? You bet ya. Not just a shameless self-advertising and upsell, but because these issues are all covered in our courses already and our free lifetime support is meant to help clarify as opposed to rehash the entire courses. Good news is, you're on the right track! Read More

Why is minority interest NOT included in M&A analysis?
Full Question:
I believe you characterized minority interest as a quasi-financing for earnings (which seems similar to interest-bearing debt). Therefore, it would seem that I should include minority interest in my enterprise value calculation.

Why arent lease payments considered future debt obligations?
Full Question:
What is the rationale for not placing lease payments in the category of "future debt obligations" on your analysis sheet?