URGENT: Need help with case challenge that's due tmrw evening!

Hey guys,

Me and a couple of my friends have been participating in a i-banking case challenge this week and we have been completely lost on what to do/how to approach some things, especially the more technical modeling and valuation parts that most of us have little to no experience with. If any of ya'll could help provide us with some guidance, as our presentation deliverable is due tomorrow evening, we would greatly appreciate it.

The general gist of the case is: we (my group) are advising the board of a large meat packaging/processing company that is looking to acquire another large player in the convenience meals & breakfast food categories. Our recommendation is to be supported with both qualitative and quantitative reasoning.

Some of my questions right now are:

1. In regards to the comparables company analysis, given that we calculated LTM EBITDA, what would be the best way to estimate 2014E and 2015E EBITDA for the EV/EBITDA calculation?

2. For the DCF, one of the key assumptions is “the first projection period is 2014”, does this mean we should start off with 2013 for our first column of the DCF? Also, how should we be thinking about estimating 2014 Revenue if we are only given information for Q1 of 2014?

3. We are unsure of how to exactly quantify potential synergies. How do you come up with possible estimates?

Any help would be greatly appreciated.

Thanks,
TGP

 
Best Response

Not sure I understand #1. Take the comps for 2014E and 2015E (use research consensus estimates) then compare these multiples to your forecast for your company and pro forma for the merger candidate and synergies. You should consider a control premium for the business you are acquiring

Also not sure on #2. I have no idea what parameters you have or don't have. If you only have a quarter of information and these are illustrative companies (not public cos where you can grab their financial information...) then there's a lot of assumptions to make in forecasting these businesses......

Technically your illustrative deal closes in December 2014. So you should be taking DCF cash flows to determine value only for post close December cash flows discounted back to 12/31/2014. If they want you to value it as of 12/31/2013 then you would take all of 2014 but you would also want to adjust your comps for estimates as of those dates...

On synergies, depends how big these companies are and what detail you have. Looks like they are moving into a new category so likely less synergies than buying a direct category competitor. Assume you can save on duplicate CEO CFO etc. $1mm right there. at a very high level swag, assuming these are similar companies, maybe take a look at the margin profiles and take the higher EBITDA margin business and apply that margin to the lower margin business and call it a day on synergies. (I.e. if the target has a 10% margin and base business is 20% assume you can bring the target up closer to 20%). If they are the same then start diving into the line items if you can.

Typically for synergies you would look at all aspects of the cost side. G&A likely highest. Then any facility consolidations, purchasing/vendor squeezing, freight and distribution savings, etc.

At the end of the day there is very little detail in your comment that you are giving us to work with. Good luck

 

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