M&A Premium Analysis
Hi guys,
Could you please describe me how this method works? For me, you take 30 precedent transactions (similar industry, size etc), then you estimate the premium paid over the share price for all these precedent transactions in comparison with the average share price during the 1 day, 7 day and 30 days before. Then let's say that you find that the premium is 40%. So you take the average share price of your target (during the last 30 days for instance) and multiply this average by 40%. You add this premium to the average share price of the target, multiply by the total share count and it give you the Equity Value right? Then you have to calculate the Enterprise Value.
Thanks
At a very high level, yeah.
But you shouldn't have 30 transactions. You should have ten. And then you should scrub their 10k's, look for volatility in the stock, look for legal settlements, look for anything that might cause you to make an adjustment or elimination.
And you don't need to multiply by share price and share count, that's just adding a step. Multiply by equity value.
Then get to Enterprise Value. And once you have that, divide by EBITDA (remember those adjustments from earlier?). Most people just care about how many turns of EBITDA you can get.
Thank you for your reply.
So you are saying that when I have found the premium paid over the equity value (and not the enterprise value right?) of the precedent transactions (here it was 40%), I just multiply the equity value of my target by (1+40%) to get its enterprise value? Hope it's not too confusing & thanks a lot
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