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mba1morten beyer & agnew
mba | morten beyer & agnewBusiness Valuation:
How to Make the Most of Your Business
Pooja Gardemal, CPA/ABVVice President – Business Valuation & Economic Analysis
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About mbamba is a global consulting firm with offices in the U.S. and Asia, providing a broad
spectrum of services to airlines, governments, and investors since 1992.Industry Expertise | Integrated Teams | Credentials |
• Aerospace Engineers
• MBAs
• Pilots
• CPAs
• Legal Background
• Government
• Airline Operations
• Aircraft Maintenance
• ISTAT Certified Appraisers
• ABV / CVA Certified Valuators
• IATA Audit / Training Org.
• SMS Licensed Training Org.
Consulting Services Include |• Valuations
• Market Analysis & Evaluation
• Cost Benefit Analysis
• Due Diligence
• Asset Management
• Technical / Audit Services
• Financing Support Alternatives
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serv
ices
incl
ude
Valuation Solutions Modeling & Analysis
Asset Management Technical Support
Training Expert Witness
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Intangible Asset Valuations Business Valuations Market Study &
Trend Analysis Route Analysis
Fleet Planning Due Diligence Cash Flow Modeling
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AgendaReasons to Obtain a Business ValuationReasons to Obtain a Business Valuation
• Purpose of Engagement
Raising CapitalRaising Capital• Sale Options• Market Options• Avenues for Sale
Industry TrendsIndustry Trends• Airline Industry Overview• Aviation-Related Company Ratios & Multiples
How Value is DerivedHow Value is Derived• Valuation Approaches: Income, Market, Asset• Asset Approach Methodologies: Net Assets• Market Approach Methodologies: Comparable Transactions, GPC• Income Approach Methodologies: DCF, Capitalization of Earnings
Valuation MethodologyValuation Methodology
Valuation Exercises Valuation Exercises
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REASONS TO OBTAIN A BUSINESS VALUATION
Today’s challenging global environment has raised the significance of valuations that aid in financial reporting requirements, tax planning, litigation, and mergers and acquisitions.
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Purpose of Engagement
Litigation
• Divorce• Bankruptcy• Intellectual Property
(IP)• Shareholder, Owner,
Employee Disputes
Financial & Tax Reporting
Compliance
• Corporate Reorganization
• S Corporation Conversions
• Income Tax• Estate Tax• Gift Tax
Planning
• Income Tax• Estate Tax• Gift Tax• Mergers &
Acquisitions• Personal Financial
Planning
Transactions
• Mergers• Acquisitions• Buyout • Initial Public Offering
(IPO)• Employee Stock
Ownership Plans (ESOP)
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Options
DEBT• Private Banks• Capital Markets
EQUITY• Minority Interest Sale• Joint Venture• Earn-Out• Merger• IPO• 100% Sale
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Avenues for Sale
CompetitorCompetitor Complimentary Business
Complimentary Business
Consulting Firm
Consulting Firm
Private Equity
Hedge Fund
Bank
Private Equity
Hedge Fund
Bank
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Industry Volatility
‐10%
‐8%
‐6%
‐4%
‐2%
0%
2%
4%
6%
8%
10%
‐$30
‐$20
‐$10
$0
$10
$20
$30
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Percen
t Growth, Passengers &
Crude
US$
Billions
Airline Industry Net Profit Scheduled Passenger Growth World GDP Growth
Sources: IATA & World Bank Data
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Profitability & Efficiency Ratios
4.7%
17.9%
6.0%7.9%
6.2%
16.7%
6.1%
11.9%
4.1%
8.4%
18.4%
53.9%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Return on Asset Return on Equity Profit Margin Operating Margin
Manufacturer Airline Leasing Company Sources: Yahoo Finance, Google Finance 12/31/2014 Financials
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Leverage & Liquidity Ratios
117.4
82.7
290.6
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
Debt /Equity
0.7
1.2
2.1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Current Ratio
Sources: Yahoo Finance, Google Finance 12/31/2014 Financials
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Valuation Multiples
4.7
1.2
10.1
1.4
4.4
0.9
7.6
1.11.12.4
20.2
9.1
Price/Book Price/Sales EV/EBITDA EV/Revenue0.0
5.0
10.0
15.0
20.0
25.0
Manufacturer Airline Leasing Company Sources: Yahoo Finance, Google Finance 12/31/2014 Financials
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• Type or definition of value.
Standard of ValueStandard of Value
• Circumstances under which the business will be analyzed.
Premise of ValuePremise of Value
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Asset Approach
• Method Typically Utilized: Net Assets− Adjust Assets and Liabilities to FMV− Liquidation Costs (if applicable)− Apply Discounts
• Provides Floor for Value
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Market Approach: Comparable Transactions
• Arm’s - Length Sales• Sale of Entire Enterprises• Qualitative and Quantitative Measures are
Used for Comparability• Dates of Transaction and Relevance of
Market are KEY
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Market Approach: Guideline Public Company
• Publicly Traded Company Multiples• Benchmarking for Balance Sheet and
Income Statement Items• Typically Provides a Minority Interest
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Income Approach
Discounted Cash Flow v.
Capitalization of Earnings
Equity Valuev.
Enterprise Value
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Income Approach: Capitalization of Earnings
• Expected Benefits are Capitalized into Perpetuity Using a Capitalization Rate
Cap Rate = Discount Rate – Long-Term Growth Rate
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Income Approach: Discounted Cash Flow
• Future Benefit Streams are Forecasted for Typical Business Cycle or Expected Period of Volatility and then Discounted Back to Today
• Used When Historic Earnings and/or Market Conditions are not Indicative of Future Earning Capabilities
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Where to Begin?1. Financial Statements: Income Statement, Balance Sheet,
Cash Flows for Past 5 Years
2. Tax Information
3. Corporate Structure and Key Persons
4. Competitors and Customers
5. Internal Forecasts, Projections, and Strategy
6. Industry Projections
7. Industry Ratios
8. Site Visit
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Then What?
1. Review Financial Statements Through Common Sizing and
Year Over Year Growth
2. Perform Ratio Analysis to Establish How the Company
Operates Within its Own Industry
3. Forecast Revenues & Expenses, Depreciation &
Amortization, Capital Expenditures
4. Determine a Discount Rate
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Analyze & Employ JudgementReasonability of
Internal Projections
Reasonability of Internal
ProjectionsFuel PricesFuel Prices SalesSales
Economic ForecastsEconomic Forecasts Political ClimatePolitical Climate InflationInflation
Inventory ChangesInventory Changes TaxesTaxes Exogenous
EventsExogenous
Events
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Forecast Cash FlowsRevenuesLess: ExpensesOperating EarningsLess: TaxesAfter Tax IncomeAdd back: DepreciationLess: Capital ExpendituresAdjust for: Changes in Net Working CapitalNet Cash Flow
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Assess Specific Company Risk• Key Person Risk
• Reliance on Related Parties
• Depth of Management
• Competitive Position
• Quality of Earnings
• Financial Strength
• Financial Leverage
• Diversification of Products
• Diversification of Customers
• Diversification of Suppliers / Subcontractors
• Company Reputation
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Recap• If You Are in Need of Cash, There Are Many
Avenues to Obtain it• Be Reasonable in Your Expectations• Understand How a Business Valuation is
Derived1. Income Approach2. Market Approach3. Asset Approach