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Valuing a Public to Private Deal
The move from public to private is not a fire sale. Nor is it a return to the hostile leveraged buy-out market of the 1980's, when equity sponsors targeted poorly managed companies with little or no debt and wrested control away from the existing owners. In today's financial climate, you know that to successfully complete the transaction the shareholders must accept the deal. If the offering price is too low, trusted shareholders will reject the offer. As a result, how can you determine a fair market multiple? This three-page white paper can assess that very issue as a first step to determining if this option is a viable alternative for your company. Putting the Company on the Block – Valuation The move from public to private is not a fire sale. Nor is it a return to the hostile leveraged buy-out market of the 1980's, when equity sponsors targeted poorly managed companies with little or no debt and wrested control away from the existing owners. In today's financial climate, equity sponsors are looking for strong management teams before choosing to invest. Their goal is to use the company as a platform for further acquisitions to build a stronger entity. Equity sponsors know that to successfully complete the transaction the shareholders must accept the deal. If the offering price is too low, trusted shareholders will reject the offer. As a result, companies are receiving five to eight times earnings before interest, taxes, depreciation and amortization. Teaming up with an equity sponsor to take the company private may sound like the perfect solution but it takes more than just a depressed stock to gain the attention of an equity sponsor. Cash Flow The company must have at least three years of consistent cash flow and projections of future earnings high enough to fund the company's operations with enough additional capital available to repay additional debt used to finance the acquisition. Proof of healthy cash flow going forward is critical since cash rather than stock must be used to make acquisitions. Management Is the company truly undervalued, or has management made serious mistakes? Recent decisions have probably been influenced by the company's lack of liquidity, forcing management to maintain shareholders' confidence with a series of quick fixes. Managers have also found it difficult to develop a long-term plan, working instead to provide quarterly results that aimed at gaining favorable reviews from market analysts. While this may have kept the company afloat, management should now take the time to clearly map out a strategy showing the optimum value investors can expect if and when funds become available. Barriers to Entry Who else does what you do and do they do it better? The manufacturing industry is full of niche players competing for a shrinking number of customers. Managers must show how their attempts to differentiate themselves in the market have succeeded. Can the equity sponsors use your company as a platform as they acquire the competition and build a larger entity? [continued...] Want to know more? Download the White Paper "Valuing a Public to Private Deal" for just $5.95. People who ordered this paper also ordered: |
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