Products/Services. Management/ Employees. Profitability

Transcription

1 4A 1

2 4A Value is determined by a proper assessment of the relationship between the future returns generated on an investment and the risk of attaining those returns The art of business valuation is to: Understand the potential returns to THEORY ART shareholders Assess the risk of attaining those returns Convert the concept into a value using various financial models and tools 2

3 Financial Advisor to ESOP Fiduciary ERISA requirement that plan sponsor stock held by an ESOP must be appraised by an independent third party Assist Fiduciary in establishing fair market value Initial valuation for purchase of employer securities Annual valuation for plan administration purposes Periodic valuations for subsequent transactions Transaction Role Analyze proposed transaction on Company and ESOP Assist Fiduciary in negotiating and structuring transaction Provide fairness opinion stating transaction is fair, from a financial point of view, to the ESOP Detailed Process 3

4 Sample Factors Qualitative Quantitative Products/Services Management/ Employees Facilities Growth Profitability Investment Needs Business Processes Capital Structure M&B Carriers 4

5 Company Background Headquartered in Whittier, CA Intermodal Drayage company specializing in Rail and Harbor using!owner/operators 15 employees Founded 1991 with 7 employees Expanded operations in California and Texas Closed Texas in early 2005 ESOP History B Established ESOP in December 2005 Elected S-corp status 18 employees at inception of the ESOP First valuation after the transaction declined about 30% Internal trustee Valuation process 5

6 Approaches to Value Valuation Approaches Income Discounted Cash Flow Capitalization of Income Method Market Mergers and Acquisitions Method Guideline Public Companies Method Asset Tangible Asset Method 6

7 Enterprise Value/Equity Value Income Approach Discounted Cash Flow Method DCF analysis captures company specific assumptions Project revenue, expenses, cash flow Management projections Use independent judgment Be consistent with industry outlook Capital investments Working capital investments 7

8 Income Approach Discounted Cash Flow Method Discount Rate Residual Value Terminal Value Weighted Average Cost of Capital Single year normalized cash flow Capitalization rate = discount rate less growth Income Approach Discounted Cash Flow Method Cost of Capital Illustration Capital may include equity and debt This illustration focuses on equity Cost of Equity (SBBI) identifies levels of risk Levels of Risk Rate Long Term Risk Free Rate of Rerun (20-year T-Bills) 4.2% Long Horizon Equity Risk 6.5% Micro Capitalization Equity Size Risk 3.7% Industry/Company (Specific Risk) 5.5% Discount Rate (Cost of Capital) 19.9% Less: Long Term Growth (4.0)% Capitalization Rate 15.9% 8

9 Income Approach Discounted Cash Flow Method Capitalization of Cash Flow Illustration Assume single year Cash Flow is $1,000,000 Assume Capitalization Rate is 15.9% Growth Rate = 4% Capitalization of CF $1,000,000 (1.04)/.159 = $6,541,000 Income Approach Discounted Cash Flow Method Illustration Two parts to DCF Forecasted Results Terminal Value Forecasted Results ($000) Cash Flow $1,040 $1,082 $1,125 $1,170 Present Value Factor (Discount Rate = 19.9%) Present Value of Annual Forecast $867 $753 $653 $566 Total Years 1-4 $2,839 9

10 Income Approach Discounted Cash Flow Method Illustration Residual Value & Total Result ($000) Cash Flow End of Year 4 $1,170 Long Term Growth 4.0% Cash Flow Adjusted for Growth $1,217 Residual Value Capitalization Rate 15.9% Estimated Value Stabilized Year ($1,217/15.9%) $7,654 Present Value Factor X Present Value of Residual Value $3,703 Add: Present Value Year 1-4 $2,839 Minority Value of Equity before Adjustments $6,542 Market Approach GUIDELINE PUBLIC COMPANY METHOD Study publicly held comparable companies for valuation insights MERGERS & ACQUSITIONS METHOD Study transactions of closely held companies 10

11 Market Approach Analysis of financial performance and qualitative characteristics Growth Margins Capitalization Analysis of Pricing Multiples Enterprise Value/Revenue Enterprise Value/EBITDA Simple Market Approach Outline 11

12 Market Approach Merger & Acquisition Trends Aggregate Deal Value & Number of Deals $1,600 12,000 $1,200 9,000 $800 6,000 $400 3,000 $ LTM 7/11 0 Aggregate Deal Value Number of Deals Source: Mergerstat Monthly Review Market Approach Merger & Acquisition Multiples EV/EBITDA Multiples By Transaction Size 12.0 x 10.0 x 8.0 x 6.0 x 11.1 x 7.7 x 7.7 x 6.3 x 10.3 x 8.5 x 6.2 x 5.1 x 10.6 x 7.9 x 9.2 x 9.1 x 7.5 x 7.7 x 6.7 x 6.1 x 5.4 x 4.8 x 4.0 x 3.8 x 3.1 x 2.0 x.0 x LTM 7/11 < $25M $25M - $50M $50M - $250M > $250M Source: Mergerstat Review 12

13 Market Approach Public Market Index 140% Equity Market Indices as of 7/31/11 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 S&P 500 NASDAQ Russell 2000 Asset Approach Tangible Asset Method Valuation a function of examining the net assets of the company Assets & liabilities restated to market value Net assets represent 100% of the Company s equity May require use of asset appraisers if certain asset categories are truly material E.g.: Real Estate, Machinery Often not a suitable method for ESOPs or going concern valuations 13

14 Levels of Value Acquisition / Strategic Value Issue of Control Premium for Strategic Synergies Control Value Control Premium Minority Interest Discount Minority, Marketable Value Issue of Liquidity Lack of Marketability Discount Minority, Non-Marketable Value Reconciliation of Methods Analyze relevancy of all methods utilized Consider non-operating items Apply appropriate discounts, if any Determine final per share value 14

15 Questions Presenters Pamela Steverango, Managing Director Chartwell Capital Solutions One Market Street, Spear Tower Suite 3600 San Francisco, CA Michael J. Farrand, Principal Higgins, Marcus & Lovett, Inc. 800 S. Figueroa Street, Suite 710 Los Angeles, CA! Richard Eidson, President M&B Carriers, Inc E. Whittier Blvd. Whittier CA! x236 15