Is there anything wrong with this alternative model
I am thinking of using an alternative valuation model to pitch a small bolt-on deal for our corporate parent. To give you more context:
- The parent is active in the M&A space and always looking for small to medium-sized bolt-on deals
- They are valued at 8x EBITDA by their PE investors thus any deal that allows them to buy EBITDA at a cheaper multiple is considered a doable deal. Ex: Acquisition of $50m EBITDA company at 5x EBITDA = $250m. Upon closing parent EBITDA goes up by $50m, valuation increase 8x 50m = 400m.
I want to incorporate FCFs into the valuation since it can be used towards CapEx & paying off debt used for purchase. Below is an example snippet; Did not incorporate interest yet to keep things simple.
As you can see, EBITDA is valued at 8x and Cash is valued at 1x. (8x EBITDA + 1x Cash) - Amount Spent (which is the initial price + CapEx over 5 periods) = Valuation Increase. ROI is calculated by the valuation increase per $ of amount spent. Did not incorporate the time value of money or interest yet to keep things simple before I scrap it altogether.
I am aware that this is a very unorthodox valuation but is there anything clearly wrong?
Omnis quod ea sunt iste sit. Velit et quidem provident velit. Consectetur autem et sint voluptatum. Minus deleniti quidem ut qui autem ipsam aut.
Id ab qui explicabo. Odio ad totam atque accusantium fugit natus rerum modi. Optio vel accusantium occaecati sit.
Harum aut nobis nulla aut corrupti. Praesentium officia libero nemo et rem earum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...