Hi fellow analysts,
I have to do a sum of the parts analysis for a company, but my associate is not giving me any guidance at all on this (he's a first year).
Can the experienced analysts out there please give me some guidance on how I should approach this analysis? (Going into a bit more detail would be really helpful).
Thank you so much!
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I am not yet 'in the biz', so take this with a grain of salt. The extent of my knowledge on this comes from doing finance cases for class.
Generally, would want to break out EBITDA by division. Find relevant comparables for each division, and apply the multiple derived to the division's EBITDA. Add up all divisions.
Example: XYZ has the following divisions: Bakeries - $100m EBITDA Funeral homes - $50m EBITDA Golf clubs - $50m EBITDA Office supplies - $200m EBITDA
Analysis of comps shows that the following are relevant EV/EBITDA multiples for the divisions: Bakeries - 5x Funeral homes - 7x Golf clubs - 3x Office supplies - 9x
So, the value of the firm (EV) is (100m x 5)+(50m x 7)+(50m x 3)+(200m x 9) = $2.8B (did the math quickly in my head - may be off).
Hope this broad strokes explanations can at least help get you started.
yeah, that's what I did. Thanks.
please remember to capitalise and corporate costs as well and subtract that from the SOTP analysis.... quite an easy point to overlook as corporate usually break out corporate costs seperately...
Hi Ermen,
Quick question: if the segment EBITDAs already excludes corporate costs, we will have to subtract the capitalized corporate costs - is that right? I thought to subtract it again would be double counting.
Well depends on what you are doing.
If you are capitalising the pre corporate cost segmental EBITDA (which is what most companies will report - in practice they report EBIT more often than not), then you will have to subtract the capitalised corporate EBITDA (which will be a negative number) to get your SOTP valn.
So - if you are capitalising the EBITDA which already has corporate costs in- then don't subtract the capitalised corp cost out. From practice though i find most companies report a segment ebitda which is pre corp cost - hence you will need to deduct a capitalised corp EBITDA figure.
sorry for the ramblings...
Ermen,thanks. please check your inbox..
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