Comparable transaction multiples - For Rights issue, do we look at premoney valuation or post money valuation multiples (P/B)?
Basically, i'm doing transaction comps for a certain industry and i'm having trouble calculating the P/B multiple for a rights issue transaction and will appreciate some guidance.
I believe that if we're calculating the EV/EBITDA multiple, we'll calculate it based on post money EV (i.e. Enterprise value = market value of equity (Market cap) + net Debt + equity from rights issue) and EBITDA using either probably historical EBITDA or forecasted EBITDA if available.
For context, lets assume that a company increased its shares by 100% via a rights issue to an external investor (i.e. existing 100% shareholder will be a 50% shareholder post rights issue).
What i did was multiply the shares issued and the rights issue price for the total consideration, and did the math to get the implied 100% value of the company. Then I divided the total consideration by the implied equity value (existing equity + injected equity) to get the implied P/B.
However i was told by my Director i was wrong.
I was told that the correct way was to calculate the implied value of the existing stake (i.e. implied 100% consideration from rights issue * 50%, which is attributable to existing stake) and then divide this by existing equity to get P/B. (basically ignoring the P/B attributable to the rights issue, and only using the consideration ascribed by the rights issued)
let me know if i am mistaken or the logic behind this? thanks much everyone.
Shameless bump
last shameless bump i guess
Wrong to treat RI amongst Tx comps as they are non control transactions and nearly always priced at a discount (given need to underwrite and the fact they are generally last resort to raise capital) rather than a control premium…but if anything you would do pre money equity value (TERP x post RI shares - $ raised in RI) / pre money net asset value
If your director tried to pitch that to me as a relevant transaction comp I would laugh them out of the room and give the mandate to FTPartners
Voluptates in sed explicabo repudiandae. Hic ipsum quis accusantium ad ipsum quia quas. Id incidunt ducimus quia deleniti. Nostrum sed rem ab occaecati.
Molestias dolorem fugit tenetur veniam doloremque vitae. Debitis dolorem repellendus culpa rerum laborum. Molestias est sit corporis molestias labore debitis. Sapiente omnis ea exercitationem cum non. Itaque iusto voluptates ullam. Blanditiis ducimus quaerat impedit in voluptatem est. Eligendi soluta qui dolor in.
Totam error reiciendis eligendi. Qui officia voluptas doloremque harum nam. Earum eaque quo veritatis rerum quisquam voluptates.
Nobis ullam dolore possimus sint quo. Rerum omnis quo id id quos est. Inventore non maiores fuga repudiandae laudantium dolor quia.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...