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STEP 1 Size Up (Qualitative)

Done for both acquirer and target company - Company and Opportunity Overv

Acquirer Company
Name of the company
Nature of operations
Nature of industry
SWOT Analysis

Organisation Vision, Mission,


Objectives and Strategy
Company Management and
structure
Financial Strategies -
Explanation in depth
Profitability Status

Liquidity Status (Ability to


cover short term financial
needs)
Working Capital Analysis

Summary - Qualitative
Analysis ( Good/ Bad?
Merger / Acquisition)

Step 2: Quantitative Analysis

WACC Calculation for target


company

Free Cash Flow / Discounted


cash flow calculation for
target company
Calculation of Value of firm using DCF
Find terminal Value
Find value of firm
Value of equity

Sensitivity analysis

Change ratio of Debt/Value -> change


in beta equity -> change in WACC ->
change in value of firm
Change the long term EBIT growth
rate-> change in firm's value

PV (syngergies) if it is a merge
Add increased in revenue or cost
savings of syngergy -> new value of
firm

Multiples valuation
using Revenue multiple, EBIT multiple
and EBITDA multiples to calculate
firm's value
forecast WC by using percentage of WC/EBIT
ompany - Company and Opportunity Overview

Target Company

uantitative Analysis
Year 1 Year 2 Year 3
Revenue
Expenses (excluding Depreciation & Amortization)
EBITDA
Depreciation & Amortization
EBIT (operating Profit)
Interst Expense
EBT
NOPAT or EBIT*(1- Tax rate)
Plus Depreciation
Minus Capex
Minus change in WC
FCFF
Terminal Value
PV of FCFF (DCF)
PV of TV
Value of the firm=PV of FCFF + PV of TV
Value of Debt (if there is any debt information)
Value of firm's equity
How to calculate WACC Formulation
Beta asset of comparable companies
Firm's beta asset
Firm's beta equity Beta equity = Beta assets*(1+(D/E)*(1-tax))
Ke Ke=Rf+Be*(Rm-Rf)
We: check capital structure assumption
Wd
Kd
Tax rate tax rate =tax paid/EBT
WACC WACC=Ke*We+Kd*Wd*(1-tax rate)

Sensitivity analysis
Change ratio of Debt/Value -> change in beta equity -> change in WACC -> change in value of firm
Change the long term EBIT growth rate-> change in firm's value

PV (syngergies) if it is a merge
Add increased in revenue or cost savings of syngergy -> new value of firm

Multiples valuation
using Revenue multiple, EBIT multiple and EBITDA multiples to calculate firm's value
Year 4
ssets*(1+(D/E)*(1-tax))

Wd*(1-tax rate)

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