Enterprise Value
893
VALUATION
Relative Valuation – Based on Multiples
Bharti Airtel and Zain Africa recently announced signing of the definitive merger agreement, wherein Bharti will acquire African operations of Zain Group. The deal was valued at an enterprise value of USD 10.7 billion or on an 8.2x EBITDA Multiple. Goldman Sachs has invested USD 450 million in online social networking portal Facebook, which is valued as the number one social networking network at USD 50 billion. At an enterprise value of USD 50 billion, Facebook is trading at a multiple of about 100 times of its earnings. Newspapers and television channels make it their headlines whenever a major deal (private equity, acquisition, etc.) happens. And we normally wonder how these valuations or multiples were calculated. “What is the worth of my company?” “How much funds can I raise via private placements, and how much stake I have to dilute?” “How much can I raise from the market if I decide to take my company public?” So, whatever the purpose is (acquisitions, private equity, joint ventures, IPOs, etc.), valuation remains the centre of the talks. The two most common valuation methodologies include (1) Discounted Cash Flows, and (2) Relative Valuation (Valuation Based on Multiples). Read on to know more…
CA. Tapan Jindal (The author is a member of the Institute. He can be reached at eboard@icai.org)
There is no one way to establish what a business is worth. That's because business value means different things to different people. There are numerous ways to value a company. In determining value, there are several basic analytical tools that are commonly used by financial analysts. The methods, to value a company, have been developed over several years of research and refinement and are based on financial theory and market reality. However, these tools/ methods are just the tools/methods and should not
THE CHARTERED ACCOUNTANT
december
2011
73
VALUATION
894
be viewed as final
VALUATION
Relative Valuation – Based on Multiples
Bharti Airtel and Zain Africa recently announced signing of the definitive merger agreement, wherein Bharti will acquire African operations of Zain Group. The deal was valued at an enterprise value of USD 10.7 billion or on an 8.2x EBITDA Multiple. Goldman Sachs has invested USD 450 million in online social networking portal Facebook, which is valued as the number one social networking network at USD 50 billion. At an enterprise value of USD 50 billion, Facebook is trading at a multiple of about 100 times of its earnings. Newspapers and television channels make it their headlines whenever a major deal (private equity, acquisition, etc.) happens. And we normally wonder how these valuations or multiples were calculated. “What is the worth of my company?” “How much funds can I raise via private placements, and how much stake I have to dilute?” “How much can I raise from the market if I decide to take my company public?” So, whatever the purpose is (acquisitions, private equity, joint ventures, IPOs, etc.), valuation remains the centre of the talks. The two most common valuation methodologies include (1) Discounted Cash Flows, and (2) Relative Valuation (Valuation Based on Multiples). Read on to know more…
CA. Tapan Jindal (The author is a member of the Institute. He can be reached at eboard@icai.org)
There is no one way to establish what a business is worth. That's because business value means different things to different people. There are numerous ways to value a company. In determining value, there are several basic analytical tools that are commonly used by financial analysts. The methods, to value a company, have been developed over several years of research and refinement and are based on financial theory and market reality. However, these tools/ methods are just the tools/methods and should not
THE CHARTERED ACCOUNTANT
december
2011
73
VALUATION
894
be viewed as final