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M A Multiples

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Dilyan Damyanov

The document discusses various metrics used to evaluate companies for mergers and acquisitions (M&A), including enterprise value (EV), EV/Sales, EV/EBITDA, EV/EBIT, debt levels, and debt/EBITDA ratios. It explains that EV/Sales measures the premium paid for annual revenues, EV/EBITDA and EV/EBIT measure how long before an investment pays for itself, and debt/EBITDA indicates a company's ability to service its debt levels. All these metrics are compared across industries to evaluate how attractive or expensive a potential acquisition target is.

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M&A Multiples A Crash Course Dilyan Damyanov November 11, 2009
Why are we doing it? First things first
Publisher strategy Target audience 1 Reached via aggregators Interested in content (stories) Accidental rather than loyal
Publisher strategy Target audience 1 Target audience 2 Reached via aggregators Interested in content (stories) Accidental rather than loyal Direct customers Interested in content but also in added-value info Loyal users
Now on to the multiples
How much does a business cost? Enterprise value (EV)
How much does a business cost? Enterprise value (EV) Equity value (= market cap for listed companies)
How much does a business cost? Enterprise value (EV) Equity value (= market cap for listed companies) plus Debt (aka Liabilities)
How much does a business cost? Enterprise value (EV) Equity value (= market cap for listed companies) plus Debt (aka Liabilities) minus Cash
How cheap/dear is a business? EV/Sales
How cheap/dear is a business? EV/Sales Basically, this measure gives you the premium you have to pay to buy a company's annual revenue
How cheap/dear is a business? EV/Sales Basically, this measure gives you the premium you have to pay to buy a company's annual revenue The lower this ratio, the more attractive (cheap) the business
How cheap/dear is a business? EV/Sales Basically, this measure gives you the premium you have to pay to buy a company's annual revenue The lower this ratio, the more attractive (cheap) the business The higher this ratio, the more expensive the business
How cheap/dear is a business? EV/Sales Basically, this measure gives you the premium you have to pay to buy a company's annual revenue The lower this ratio, the more attractive (cheap) the business The higher this ratio, the more expensive the business But things are never black & white, so compare
How long before an investment pays for itself? EV/EBITDA, EV/EBIT
How long before an investment pays for itself? The Enterprise Multiple (EV/EBITDA) Strips off distorting items such as tax and/or depreciation or amortisation Can be used for transnational comparisons Can be used for cross-company comparisons Should be compared with other industry businesses The Argos Soditic index measures a benchmark EV/EBITDA for the eurozone
How long before an investment pays for itself? The Enterprise Multiple (EV/EBITDA) Strips off distorting items such as tax and/or depreciation or amortisation Can be used for transnational comparisons Can be used for cross-company comparisons Should be compared with other industry businesses The Argos Soditic index measures a benchmark EV/EBITDA for the eurozone EV/EBIT Similar to EV/EBITDA but does not strip off depreciation or amortisation
How long before an investment pays for itself? The Enterprise Multiple (EV/EBITDA) Strips off distorting items such as tax and/or depreciation or amortisation Can be used for transnational comparisons Can be used for cross-company comparisons Should be compared with other industry players The Argos Soditic index measures a benchmark EV/EBITDA for the eurozone EV/EBIT Similar to EV/EBITDA but does not strip off depreciation or amortisation Again, the lower, the better
What am I getting myself into? Debt, Debt/EBITDA
What am I getting myself into? Debt & Debt/EBITDA Total debt VS net debt Total debt = all liabilities Net debt = total debt - cash EV = equity + total debt - cash = equity + net debt
What am I getting myself into? Debt & Debt/EBITDA Total debt VS net debt Total debt = all liabilities Net debt = total debt - cash EV = equity + total debt - cash = equity + net debt Payback period (Debt/EBITDA) A high ratio may signal a business's inability to service debt and lead to a credit rating cut A low ratio may signal a business can take on fresh debt, helping the buyer get some of their investment back As with other multiples, this is industry specific and should not be seen as an absolute measure
Q&A
Thanks! Now let's hunt for multiples

More Related Content

M A Multiples

  • 1. M&A Multiples A Crash Course Dilyan Damyanov November 11, 2009
  • 2. Why are we doing it? First things first
  • 3. Publisher strategy Target audience 1 Reached via aggregators Interested in content (stories) Accidental rather than loyal
  • 4. Publisher strategy Target audience 1 Target audience 2 Reached via aggregators Interested in content (stories) Accidental rather than loyal Direct customers Interested in content but also in added-value info Loyal users
  • 5. Now on to the multiples
  • 6. How much does a business cost? Enterprise value (EV)
  • 7. How much does a business cost? Enterprise value (EV) Equity value (= market cap for listed companies)
  • 8. How much does a business cost? Enterprise value (EV) Equity value (= market cap for listed companies) plus Debt (aka Liabilities)
  • 9. How much does a business cost? Enterprise value (EV) Equity value (= market cap for listed companies) plus Debt (aka Liabilities) minus Cash
  • 10. How cheap/dear is a business? EV/Sales
  • 11. How cheap/dear is a business? EV/Sales Basically, this measure gives you the premium you have to pay to buy a company's annual revenue
  • 12. How cheap/dear is a business? EV/Sales Basically, this measure gives you the premium you have to pay to buy a company's annual revenue The lower this ratio, the more attractive (cheap) the business
  • 13. How cheap/dear is a business? EV/Sales Basically, this measure gives you the premium you have to pay to buy a company's annual revenue The lower this ratio, the more attractive (cheap) the business The higher this ratio, the more expensive the business
  • 14. How cheap/dear is a business? EV/Sales Basically, this measure gives you the premium you have to pay to buy a company's annual revenue The lower this ratio, the more attractive (cheap) the business The higher this ratio, the more expensive the business But things are never black & white, so compare
  • 15. How long before an investment pays for itself? EV/EBITDA, EV/EBIT
  • 16. How long before an investment pays for itself? The Enterprise Multiple (EV/EBITDA) Strips off distorting items such as tax and/or depreciation or amortisation Can be used for transnational comparisons Can be used for cross-company comparisons Should be compared with other industry businesses The Argos Soditic index measures a benchmark EV/EBITDA for the eurozone
  • 17. How long before an investment pays for itself? The Enterprise Multiple (EV/EBITDA) Strips off distorting items such as tax and/or depreciation or amortisation Can be used for transnational comparisons Can be used for cross-company comparisons Should be compared with other industry businesses The Argos Soditic index measures a benchmark EV/EBITDA for the eurozone EV/EBIT Similar to EV/EBITDA but does not strip off depreciation or amortisation
  • 18. How long before an investment pays for itself? The Enterprise Multiple (EV/EBITDA) Strips off distorting items such as tax and/or depreciation or amortisation Can be used for transnational comparisons Can be used for cross-company comparisons Should be compared with other industry players The Argos Soditic index measures a benchmark EV/EBITDA for the eurozone EV/EBIT Similar to EV/EBITDA but does not strip off depreciation or amortisation Again, the lower, the better
  • 19. What am I getting myself into? Debt, Debt/EBITDA
  • 20. What am I getting myself into? Debt & Debt/EBITDA Total debt VS net debt Total debt = all liabilities Net debt = total debt - cash EV = equity + total debt - cash = equity + net debt
  • 21. What am I getting myself into? Debt & Debt/EBITDA Total debt VS net debt Total debt = all liabilities Net debt = total debt - cash EV = equity + total debt - cash = equity + net debt Payback period (Debt/EBITDA) A high ratio may signal a business's inability to service debt and lead to a credit rating cut A low ratio may signal a business can take on fresh debt, helping the buyer get some of their investment back As with other multiples, this is industry specific and should not be seen as an absolute measure
  • 22. Q&A
  • 23. Thanks! Now let's hunt for multiples