Mergers and Acquisitions – Using MarketBuilder to inform key decisions
What is the inherent value of the company you are buying or selling in light of price and market realities?
What is the value of a company? What is it worth? If you want to buy a company, what is the maximum amount you would be willing to pay for it? If you are selling a company, what is the minimum amount you would be willing to accept for it? Whether corporate acquisitions or dispositions involve share exchanges, debt assumption, cash, or other considerations, one of the key issues is the value of the company being sold and bought.
Traditional methods of valuation for Mergers and Acquisitions (M&A), such as comparable sales (“comps”) projected earnings or other multipliers have not been particularly effective because they do not explicitly consider market information --forward prices, basis differentials, quantities, capacity additions --for the businesses in which the target company is engaged. Comps involve somebody else's implicit market assumptions, which are typically not explicit or visible. Projected earnings are extrapolations from past and present markets, but take no consideration of future markets.
MarketPoint (Deloitte MarketPoint's premier decision-support software solution) helps companies utilize a method of valuing M & A targets that includes analysis of future markets and complements the foregoing valuation methods. This method estimates the value of a company by summing the profitability of the performing assets and businesses that the company owns. For example, if you were buying an electric company, you would want to know the sum of margin captures of each performing plant and transmission asset it owns. Using this method, you would estimate the company's value by determining the profitability of each of the company's plants, transmission assets and contracts and then adding these profitabilities. This intrinsic valuation of assets by summing profitabilities requires analysis of present and forward prices in the markets that are served by the company being acquired. MarketBuilder can help you analyze these future markets and forecast prices, assisting you in determining the profitability for each asset and an estimate of the value of the company.
Because it includes analysis of future markets, this method helps you to understand whether there is accretion or dilution of value over time, a crucial issue in an acquisition. With MarketBuilder's flexibility you are also able to include what-if analysis, including and altering potential market changes and analyzing their effect on the valuation estimates.
Deloitte MarketPoint helps companies estimate the intrinsic value of potential acquisitions, either from the perspective of a company being acquired (wanting to know its own value) or an acquirer (wanting to know the value of the target company). Including a market-based valuation and strategy using MarketBuilder can help you avoid paying too much, acquiring too little value, or failing to accumulate value.
As used in this document, ‘Deloitte’ means Deloitte LLP (and its subsidiaries). Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.