Valuation Comparables
The CEO of CatCo (a feline products company) is (believe it or not) in a friendly merger discussion with the CEO of DogCo (a canine products company). As one would predict, CatCo wants to be the acquirer and is willing to pay a premium (more than current market value) for DogCo because CatCo believes substantial revenue and cost synergies can be achieved by merging these two businesses. Here are CatCo's forecast of the how the firms would perform with and without the merger:
CatCo DogCo Cat'n'DogCo
Revenues 200 150 400
Cost of Good Sold* 120 90 240
Gross Margin 80 60 160
Selling, Gen & Adm Exp* 50 40 80
Operating Income 30 20 80
*Includes Depreciation
Expenses Totaling 40 30 60
Layman Brothers, the investment banking firm providing M&A advisory services to CatCo, has done a "comparable public companies" analysis and concluded that firms comparable to both CatCo and DogCo sell for approximately 7 time EBITDA (based on the median of a sample of TEV to EBITDA ratios).
(a) What are the values of Catco and Dogco on a stand-alone basis?
(b) What is the value of the combined Cat'n'Dog Co?
(c) What is the estimated value of the synergies if CatCo and DogCo are merged?
(d) DogCo has no debt. If Catco paid a 20 percent premium for Dogco, what fraction of the estimated value of the synergies would accrue to Dogco shareholders?
- Plain text response
- Attached file(s):
- CatDogCo.xls
- Your Information is Secure
- Best Online Academic Help Service
- Students find real academic Success
- Rate of return on gross book value - The asset section of the January 1, 20X9, balance sheet of Junction Company has only one machine (and nothing else) which was acquired on January 1, 20X5. The machine's original cost was $500,000, and ...
- Financial Analysis in Operations Management - The local university is accepting bids for the hot dog and cold drink concession at the new stadium. The contract is for a 5 year period. You believe that a bid of $40,000 will win the contract. A pre ...
- Harley Davidson - Harley Davidson------Use comparable firms for a PE analysis. Find three firms that can serve as comparables for your firm. Prepare a PowerPoint presentation (using both the slides and instructors n ...
- Depreciation Methods: straight line vs accelerated. Tax vs financial reporting - What is the difference between the straight-line method of depreciation and the accelerated methods? Why do companies use different depreciation methods for tax reporting and financial reporting?
- Accumulated Depreciation - File contains a real life example (from The Coca-Cola Company) of accumulated depreciation.
