Mand a toolkit value creation principles
- 1. M&A TOOLKIT Valuation: Value Creation principles © 2007-2013 IESIES Development Ltd. All Ltd. Reserved © 2007-2013 Development Rights All Rights Reserved
- 2. The value creation of the deal is the difference between the price paid and the value of the business bought by the acquirer DEAL VALUE CREATION $m 50 800 250 150 750 600 550 Current Market Acquisition Price Paid Value creation Value to Value of Base business Capitalisation Premium acquirer synergies value © 2007-2013 IES Development Ltd. All Rights Reserved
- 3. The synergies must exceed the acquisition premium if the target is accurately priced “as is” DEAL VALUE CREATION $m 100 850 250 150 750 600 600 Current Market Acquisition Price Paid Value creation Value to Value of Base business Capitalisation Premium acquirer synergies value © 2007-2013 IES Development Ltd. All Rights Reserved
- 4. There is no way to calculate the acquisition premium in a private deal DEAL VALUE CREATION $m 50 800 250 150 750 600 550 Current Market Acquisition Price Paid Value creation Value to Value of Base business Capitalisation Premium acquirer synergies value © 2007-2013 IES Development Ltd. All Rights Reserved
- 5. You can analyse the market estimate of value creation by watching the share price of acquirer and target during a deal First rumour On first rumour on 23rd May, Anheuser-Busch share price jumps $5 (+$4,000m market capitalisation) On the same day, Inbev share price drops by €3 (-$2,500m market capitalisation) © 2007-2013 IES Development Ltd. All Rights Reserved
- 6. When a deal is underway, share prices respond to events in the deal process First rumour PV($70) Credit crisis; Agreed Closure speculation that @$70 high % Inbev might walk Offer away @$65 Inbev cancels rights issue © 2007-2013 IES Development Ltd. All Rights Reserved
- 7. An annotated share price graph helps you understand the deal What conclusion would you reach if the stock traded above $12.2? Why doesn’t the stock Coke offer at trade at $12.2? HK$12.2/share Post- announcement, what drives stock price volatility? © 2007-2013 IES Development Ltd. All Rights Reserved