How do you calculate the value of an asset management company?
I'll be having an interview soon and know from a friend that there might be a case study on the valuation of an asset management company.
I was initially thinking you would value such a company like a bank or other financial institution, using equity multiples (P/E, price/book) or the dividend discount model.
Articles on the takeover of Barclays Global Investors by Black Rock however mention the EBITDA multiple Black Rock paid for the business. Barclays also in their annual report say that they calculate the recoverable amount of BGI using DCF and comparable company analysis based on revenue and EBITDA.
Does anybody know the best/ correct way to value such a company in an interview?
Much appreciated!
AM firms make their money off of fees on AUM and/or performance depending on the structure. So you want to value at a multiple of EBITDA which would look at the actual earnings of the firm (fees, less salaries, bonusses, and SG&A). You can also a multiple of AUM, but that doesn't take into consideration fee/comp structures the way EBITDA does.
Would the dividend discount model still work to get to the equity value if you are only given a P&L and no multiples?
Depends on if there is a dividend to discount. Remember, dividends are typically only given in more mature businesses, where there is no internal use with a greater IRR. Also, what discount rate will you use. The WACC for AM firms is not the same as that of general industry. Multiples are basically a shortcut for a DCF, if you don't get the industry multiples, then any answer will be pretty shitty.
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