Can you guys run me through a couple examples of when you have done this, or an example of what exactly this type of valuation is. Want to make sure it aligns with what I've done at my internship before I put it on my resume.
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It's used when a company has unrelated business segments or when a company could sell itself division by division instead of wholly. Could use multiples or DCF to value each division, then simple add them together at the end.
If you're actually spinning a segment then yes; you don't generally do this when just doing an SOTP valuation though.
The whole crux of the SOTP argument is "x Company is undervalued because the performance of one unit is obscuring another, or the market doesn't understand how to value these disparate businesses as one target Company"
e.g. HighGrowthUnit should trade at 20x EBITDA based on comps / DCF / etc....LowGrowthUnit should trade at 6x EBITDA based on the same....so WholeCo should trade at 13x (assuming same size) but is only trading at 10x....WholeCo is undervalued
http://macabacus.com/valuation/sotp
Run a DCF or Comps on the entirety of GE. I'm sure you'll have a blast.
This valuation method is most relevant when a large conglomerate has numerous unrelated lines of business. GE is the textbook example here, just like someone already mentioned. They produce everything from refrigerators and dishwashers to literal rocket engines, but they also have a medical services division, a very famous finance arm, and a dozen other businesses as well.
You can't expect to get the same multiples or find any precedents that remotely fit a company with such broad operations, so instead you can either value each of the firm's businesses using one of the common valuation methodologies, sum up the value of the parts, and derive a total value ... or read the corporate filings for a revenue breakdown by each division, apply a relevant industry multiple to each division, then sum up the values of each division's revenue percentage times its appropriate multiple.
Hope this is helpful.
Question about sum of parts valuation (Originally Posted: 01/17/2014)
Suppose I have a parent company who owns 25% of a tech company, 60% of a media company and 10% of a medical company.
How should you value this using Sum of Parts? Do we just use ratios and then multiplied by the percentage the parent company owns?
you could do that or a DCF. Basically, do a standalone valuation for each separate division then weight it all together.
I actually have the same question - should we consider using (1) consolidation (2) equity method (3) cost method when adding them together to get the implied EV of the parts? Any monkey can double check my understanding?
Equity Stakes and Sum of Parts Valuation HELP (Originally Posted: 10/14/2008)
Future Bankers,
I am trying to find a book or some sort of a source which could teache me about on the folowwig topics:
Sum of PArts valuation: How is it done & with examples?
Equity Stakes: The process of acquiring and negoitating and Valuation
I am in the middle of a project and I really need to know some basics. I looked all over the web but there is nothing I could find which could provide me with a detailed background.
Your help will be appreciated.
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Sum of the parts question (Originally Posted: 11/18/2009)
Hello fellow monkeys,
I need some help here. I am doing a sum-of-the-parts analysis using a multiples approach, but there are no good comps for some of the divisions. How do I pick multiples to value such divisions? Would appreciate some advice.
Thanks!
...look at the comparative margins and growth to the other divisions and ballpark it
Mr. Snake, thanks for your reply.
I can understand the adjustments for growth part, but not sure that you need to adjust the multiple for different margins. Also, the divisions fall in pretty different industries. Suppose both divisions have $100mm of sales each, and division A has $30mm of EBITDA and division B has $50mm of EBITDA. Even if you apply the same multiple, you still come to a higher EV for division B. Not sure that you need to double compensate division B by giving it a higher multiple.
Please help if any one has further suggestions on how to make this work. Thanks.
Sum of the Parts valuation (Originally Posted: 12/15/2014)
Would anyone be willing to take a quick look at my go at an intrinsic SOTP valuation?
Please & thank you
I'll take a look. PM me
You can PM me.
I could take a look also. I'm no expert, but I'm actively building my knowledge base on the method.
Same goes for me!
Can we do a Sum of the parts for a company like Apple? (Ipad, iPhone, iPod, etc)?
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