Synergy Value of Suitwars
Autor: BEI HUANG • February 26, 2018 • Case Study • 622 Words (3 Pages) • 459 Views
VALUATION MERGERS AND ACQUISITIONS
SUITWARS
Q1. What is the value of Synergies?
The DCF Valuation
We took the individual valuation of both JOS and MW and then calculated the Synergy value by combining them both.
- Estimated future cash flows = (Discounted present value of Terminal value)= $1238.32M(JOS) and $450.88M(MW)
- Total value = $1688.89M
- Terminal Value of JOS+ MW + Synergy =$ 3639.72M
- Gains from Synergy = $3639.72M-$1688.89M=$1950.83M
- Most that bidder can bid for target = $450.88M+$1950.83M =$2401.71M
Share Price for MW = 450.88/45.0483871 = 10.01
Share Price of JOS = 1238.32/28.01 = 44.21
ASSUMPTIONS (NOTES):
- The synergy benefit take cost reduction and growth increase.
- The new cost of goods sold after merging is 85%.
- The new growth rate in the next 5 years after merging is 8.5%.
- The new growth rate after year 5 is 5%.
- The new Beta after merging is 1.12. Because the scale of the company after merging will become larger, it's easier to borrow money from the market.
Risk free rate 3.55%
Risk premium = 4.96%
Beta of stock = 1.12
JOS Current Financial Information | MW Current Financial Information | ||
Revenues in current year = | $1,049.31 | Revenues in current year = | $2,488.00 |
COGS as % of Revenues = | 80.00% | COGS as % of Revenues = | 90.00% |
Tax Rate on income = | 38.00% | Tax Rate on income = | 38.00% |
Interest Expenses = | $0.00 | Interest Expenses = | $0.00 |
Current Depreciation = | $25.00 | Current Depreciation = | $38.00 |
Current Capital Spending = | $58.86 | Current Capital Spending = | $137.00 |
Working Capital as % of Revenue = | 54.51% | Working Capital as % of Revenue = | 22.55% |
Projections of growth in earnings |
| Projections of growth in earnings |
|
Expected growth rate - next 5 years = | 9.00% | Expected growth rate - next 5 years = | 5.00% |
Expected growth rate - after 5 years = | 4.00% | Expected growth rate - after 5 years = | 3.00% |
Risk measures |
| Risk measures |
|
Beta of the stock = | 1.12 | Beta of the stock = | 1.32 |
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