11Valuation MethodologyACC Is Using LBO Approach
1.1. Valuation methodology
ACC is using LBO approach for its acquisitions and desires to maintain this acquisition policy for its latest target AirThread Connections (AC). According to this approach, AC will be financed significantly by debt which will obviously breach leverage ratios maintained by Air Thread/ACC. ACCs plans to bring down the leverage ratio to industry standards steadily to sustainable levels between the years 2008-2012.
Owing to the uneven capital structures between 2008 and 2012, it will be prudent not to deploy WACC to value the target but value the target using APV. Additionally, WACC computation might be difficult to use since an adjustment discount rate each year the capital structures change. Assuming that the project will de-lever after 2012, WACC valuation will be applied to determine the terminal value. factors the interest tax shields in its calculation and in the case of this acquisition, the Interest tax shield will be inconsistent because of year on year disbursement of the debt.
Once the debt is brought down to industry sustainable levels, we can estimate the terminal value using the WACC valuation, to estimate the Present Enterprise Value that may be suitable for the proposed acquisition.
1.2. Cash flows valued for 2008 through 2012
The present value of the UFCF is 1 255,3. Here after the details of how we come to this result. We need to determine the discount rate using the comparable company’s averages.
Equity
Net
Debt/
Debt/
Equity
Asset
Comparable Companies:
Market Value
Debt
Value
Equity
Beta
Beta
Universal Mobile
118 497
69 130
36,8%
58,3%
0,86
0,64
Neuberger Wireless
189 470
79 351
29,5%
41,9%
0,89
0,71
Agile Connections
21 079
5 080
19,4%
24,1%
1,17
1,02
Big Country Communications
26 285
8 335
24,1%
31,7%
0,97
0,81
Rocky Mountain Wireless
7 360
3 268
30,7%
44,4%
1,13
0,89
Average
72 538
33 033
28,1%
39,1%
1,00
0,82 Re-levering the asset beta on the constant capital
ACC is using LBO approach for its acquisitions and desires to maintain this acquisition policy for its latest target AirThread Connections (AC). According to this approach, AC will be financed significantly by debt which will obviously breach leverage ratios maintained by Air Thread/ACC. ACCs plans to bring down the leverage ratio to industry standards steadily to sustainable levels between the years 2008-2012.
Owing to the uneven capital structures between 2008 and 2012, it will be prudent not to deploy WACC to value the target but value the target using APV. Additionally, WACC computation might be difficult to use since an adjustment discount rate each year the capital structures change. Assuming that the project will de-lever after 2012, WACC valuation will be applied to determine the terminal value. factors the interest tax shields in its calculation and in the case of this acquisition, the Interest tax shield will be inconsistent because of year on year disbursement of the debt.
Once the debt is brought down to industry sustainable levels, we can estimate the terminal value using the WACC valuation, to estimate the Present Enterprise Value that may be suitable for the proposed acquisition.
1.2. Cash flows valued for 2008 through 2012
The present value of the UFCF is 1 255,3. Here after the details of how we come to this result. We need to determine the discount rate using the comparable company’s averages.
Equity
Net
Debt/
Debt/
Equity
Asset
Comparable Companies:
Market Value
Debt
Value
Equity
Beta
Beta
Universal Mobile
118 497
69 130
36,8%
58,3%
0,86
0,64
Neuberger Wireless
189 470
79 351
29,5%
41,9%
0,89
0,71
Agile Connections
21 079
5 080
19,4%
24,1%
1,17
1,02
Big Country Communications
26 285
8 335
24,1%
31,7%
0,97
0,81
Rocky Mountain Wireless
7 360
3 268
30,7%
44,4%
1,13
0,89
Average
72 538
33 033
28,1%
39,1%
1,00
0,82 Re-levering the asset beta on the constant capital