M&A Case Study question, pls help
Hi,
I am currently working on an M&A deal as part of an insight programme with an Investment Bank. We have been tasked to come up with a presentation and will be advising a PE firm on whether they should sell a company they are holding.
We have been asked to look at a specific precedent transaction and we need to identify why it is useful to use a precedent transaction and key metrics we should benchmark.
As the transaction was an acquisition and our case is a potential sale, what would be the lessons one could perhaps learn? Also what key metrics would you consider? Wouldn't an acquisition not tell you much as we are advising a potential sale?
Any help would be appreciated. Thanks
They ask you to look at precedent transaction to see what the valuation of those transactions was. Look at enterprise value : EBITDA and to EBIT. Apply that valuation to the current performance of the target company and calculate the returns for the PE fund since their investment (IRR and money multiple on their equity investment).
To add on what Rover-S said, you should present the IRR and MoM (Money on Money) multiple that the PE fund has received. How has this been compared to the overall market? Hopefully, it has been better than the public market, the S&P500 or Dow Jones, but that doesn't matter. To put it bluntly, you, the banker, is paid to do transactions, not advice people what the best thing to do is. If a company does poorly; Great, it's time to get rid of that headache. If a company does good; Great, it's time to realise your gains and look for new opportunities.
The banker advice to "holding" a portfolio company would be to expand the business through M&A.
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