Valuation will always be both an art and a science. This book will help you master both the science and the art. Concise, realistic, and easy to use, it brings together the field's best "rules of thumb," helps you compare every key approach, and offers practical solutions for your most important valuation challenges.
Leading practitioners Kenneth R. Ferris and Barbara S. Pécherot Petitt review the entire valuation process, offering real-world advice for both acquiring and valuing target companies. Next, they cover each of today's most important valuation techniques, including discounted cash flow analysis, earnings multiples analysis, adjusted present value analysis, economic value analysis, and real option analysis, as well as such related concerns as the accounting structure of a deal, accounting for goodwill, and much more.
From traditional ROE analysis to the latest reporting and tax issues, this book doesn't just make valuation comprehensible: it gives you the tools and insight you need to make valuation work.
Hands-on advice for acquiring and valuing target companies Avoiding the process errors that lead to inaccurate valuation Examples and case studies from a wide variety of industries Pharmaceuticals, manufacturing, chemicals, food, technology, and more Financial review and pro forma analysis What to calculate, how to calculate it, and how to intelligently project the future Traditional and alternative methods: when to use each Discounted cash flow, earnings multiples, adjusted present value, real options and more Accounting for mergers and acquisitions Income statement, balance sheet, and cash flow statement transformations Key financial reporting and tax considerations Pooling, purchase accounting, goodwill, and other critical issuesValuing acquisitions: the concise, practical, easy-to-use guide for every decision-maker.
- Covers the entire valuation process, start to finish
- Offers expert guidance for choosing among traditional and alternative methods
- Covers reporting, accounting, and tax considerations in depth
- Includes examples and case studies from widely diverse industries
- Illuminates key points with actual data for the Nokia Corporation
The M&A environment has never been more unforgiving, as target companies work harder than ever to maximize their worth, and acquiring companies fight to avoid overvaluationthe "winner's curse." In Valuation: Avoiding the Winner's Curse, two leading practitioners offer a hands-on, practical guide to valuation as it's practiced right now. The authors focus on the most crucial issues you face in valuing companies, offering expert advice and proven "rules of thumb" you simply won't find elsewhere.
The authors introduce and illustrate both traditional and alternative valuation models, drawing on recent experience to illuminate the key accounting, reporting, and tax issues you must face in order to value a company accurately. They walk through several examples and case studies, including Eli Lilly, Quaker Oats, and Air Products and Chemicals-and clarify many key points with actual data for the Nokia Corporation.
Whether you've moved valuation in-house or you're scrutinizing the work of your outside consultants far more closely, Valuation: Avoiding the Winner's Curse gives you crucial skills for minimizing risk-and maximizing shareholder value.
"The new economy-creation machine of U.S. venture capital in the last decade has resulted in a lot of stranded technology assets. Consolidation and rationalization has stepped in to address the overly productive results of technology creation, but extreme caution should be used here. Valuation is one of the most essential determinants for separating road kill from productive assets. Valuation: Avoiding the Winner's Curse should be required reading for any manager and analyst concerned about valuation issues. It clearly presents the relevant issues that are just beginning to become evident to the larger community and does so by informing and educating the reader in a clear, concise, and easily understood manner." Samuel May, Senior Research Analyst, U.S. Bancorp Piper Jaffray"Overall the quality of exposition is very high. There is a nice mix ofvaluation from a pure finance view as well as accounting issues that comeinto play but are often ignored by other books on valuation. The level ofdetail is not so much as to be overwhelming."Scott Smart, Clinical Associate Professor of Finance, Indiana University KENNETH R. FERRIS is Distinguished Professor of World Business at Thunderbird, The American Graduate School of International Management. The author/co-author of ten books, he has served on the faculties of Ohio State University, Northwestern, SMU, and numerous institutions of higher learning throughout the Asia-Pacific region. He has served as director of five corporations, including three listed on the New York Stock Exchange. He currently serves as mergers and acquisitions consultant to small businesses in the southwest US.
BARBARA S. PÉCHEROT PETITT is Assistant Professor of Finance at Thunderbird, The American Graduate School of International Management. She specializes in corporate finance, valuation, mergers, and acquisitions. Prior to joining Thunderbird, she spent two years with Financial Services Management Development Limited as a consultant, and worked for several banks and companies in London and abroad. She holds a Ph.D. in Finance from the University of Grenoble, France.
Excerpt. © Reprinted by permission. All rights reserved.
PrefaceValuation is the essence of ^nance. It asks the question, "What is the 'fair' price to pay for an asset that has a set of uncertain future cash _ows?" In the past, the answer to this question was provided by time-tested methods. In recent years, however, new approaches have emerged as practitioners have sought improved ways to assess value. New approaches have also evolved in response to the development of the "new economy" and the many e-commerce companies that were privatized without a history of either earnings or cash _ows.
With the backdrop of a rapidly changing valuation environment, this book presents a practitioner-oriented view of the fundamentals of ^rm valuation. The focus is on valuation for acquisition purposes. In large measure, an acquisition is viewed herein as equivalent to the purchase of any productive asset, namely, as a capital budgeting exercise. Furthermore, valuation is considered to be an art, not a science. Consequently, the reader will ^nd that there are many "rules of thumb" but few inviolable principles to guide them.
The metrics used for valuing companies are not well de^ned, varying often according to the objectives of the valuation and often with the companies themselves. Consequently, executives and equity analysts face many choices and dilemmas as they try to assess value. Throughout this book, practical solutions are suggested for dealing with these dilemmas and for helping the reader make informed choices. The methods discussed are principally for use in non^nancial companies; the topic of valuing ^nancial companies is beyond the scope of this book.
To use this book effectively, the reader will need an understanding of the fundamentals of accounting and ^nance. Furthermore, a background in spreadsheet software, such as EXCEL, is also bene^cial.
Excerpt. © Reprinted by permission. All rights reserved.
Preface
Valuation is the essence of finance. It asks the question, "What is the 'fair' price to pay for an asset that has a set of uncertain future cash flows?" In the past, the answer to this question was provided by time-tested methods. In recent years, however, new approaches have emerged as practitioners have sought improved ways to assess value. New approaches have also evolved in response to the development of the "new economy" and the many e-commerce companies that were privatized without a history of either earnings or cash flows.
With the backdrop of a rapidly changing valuation environment, this book presents a practitioner-oriented view of the fundamentals of firm valuation. The focus is on valuation for acquisition purposes. In large measure, an acquisition is viewed herein as equivalent to the purchase of any productive asset, namely, as a capital budgeting exercise. Furthermore, valuation is considered to be an art, not a science. Consequently, the reader will find that there are many "rules of thumb" but few inviolable principles to guide them.
The metrics used for valuing companies are not well defined, varying often according to the objectives of the valuation and often with the companies themselves. Consequently, executives and equity analysts face many choices and dilemmas as they try to assess value. Throughout this book, practical solutions are suggested for dealing with these dilemmas and for helping the reader make informed choices. The methods discussed are principally for use in nonfinancial companies; the topic of valuing financial companies is beyond the scope of this book.
To use this book effectively, the reader will need an understanding of the fundamentals of accounting and finance. Furthermore, a background in spreadsheet software, such as EXCEL, is also beneficial.
