Valuation will always be both an art and a science. This book will help you master both the science and the art. Concise, realistic, and easy to use, it brings together the field's best "rules of thumb, " helps you compare every key approach, and offers practical solutions for your most important valuation challenges. Leading practitioners Kenneth R. Ferris and Barbara S. Pecherot Petitt review the entire valuation process, offering real-world advice for both acquiring and valuing target companies. Next, they cover each of today's most important valuation techniques, including discounted cash flow analysis, earnings multiples analysis, adjusted present value analysis, economic value analysis, and real option analysis, as well as such related concerns as the accounting structure of a deal, accounting for goodwill, and much more.From traditional ROE analysis to the latest reporting and tax issues, this book doesn't just make valuation comprehensible: it gives you the tools and insight you need to make valuation work.
Hands-on advice for acquiring and valuing target companiesAvoiding the process errors that lead to inaccurate valuation Examples and case studies from a wide variety of industriesPharmaceuticals, manufacturing, chemicals, food, technology, and moreFinancial review and pro forma analysisWhat to calculate, how to calculate it, and how to intelligently project the futureTraditional and alternative methods: when to use eachDiscounted cash flow, earnings multiples, adjusted present value, real options and moreAccounting for mergers and acquisitionsIncome statement, balance sheet, and cash flow statement transformationsKey financial reporting and tax considerationsPooling, purchase accounting, goodwill, and other critical issuesValuing acquisitions: the concise, practical, easy-to-use guide for every decision-maker.
*Covers the entire valuation process, start to finish*Offers expert guidance for choosing among traditional and alternative methods*Covers reporting, accounting, and tax considerations in depth*Includes examples and case studies from widely diverse industries*Illuminates key points with actual data for the Nokia CorporationThe M A environment has never been more unforgiving, as target companies work harder than ever to maximize their worth, and acquiring companies fight to avoid overvaluation--the "winner's curse." In Valuation: Avoiding the Winner's Curse, two leading practitioners offer a hands-on, practical guide to valuation as it's practiced right now. The authors focus on the most crucial issues you face in valuing companies, offering expert advice and proven "rules of thumb" you simply won't find elsewhere. The authors introduce and illustrate both traditional and alternative valuation models, drawing on recent experience to illuminate the key accounting, reporting, and tax issues you must face in order to value a company accurately.
They walk through several examples and case studies, including Eli Lilly, Quaker Oats, and Air Products and Chemicals-and clarify many key points with actual data for the Nokia Corporation. Whether you've moved valuation in-house or you're scrutinizing the work of your outside consultants far more closely, Valuation: Avoiding the Winner's Curse gives you crucial skills for minimizing risk-and maximizing shareholder value. "The new economy-creation machine of US venture capital in the last decade has resulted in a lot of stranded technology assets. Consolidation and rationalization has stepped in to address the overly productive results of technology creation, but extreme caution should be used here. Valuation is one of the most essential determinants for separating road kill from productive assets. Valuation: Avoiding the Winner's Curse should be required reading for any manager and analyst concerned about valuation issues. It clearly presents the relevant issues that are just beginning to become evident to the larger community and does so by informing and educating the reader in a clear, concise, and easily understood manner."
--Samuel May, Senior Research Analyst, US Bancorp Piper Jaffray"Overall the quality of exposition is very high. There is a nice mix ofvaluation from a pure finance view as well as accounting issues that comeinto play but are often ignored by other books on valuation. The level ofdetail is not so much as to be overwhelming."--Scott Smart, Clinical Associate Professor of Finance, Indiana University
Table of Contents
Preface. 1. Valuation: An Overview. Why Firms Merge or Acquire: A Historical Perspective. Merger and Acquisition Premiums. The Process of Valuation. Alternative Valuation Frameworks. Summary. Notes. 2. Financial Review and Pro Forma Analysis. Financial Review. Pro Forma Analysis. Sensitivity Analysis: Alternative Scenarios. Summary. Notes. Appendix 2A: Nokia Corporation Financial Data. Appendix 2B: Preparation of Statement of Cash Flows. Appendix 2C: Displayed Formulas for EXCELA Spreadsheet. Appendix 2D: Account Forecasting Alternatives. 3. Traditional Valuation Models. Earnings Multiples Analysis. Discounted Cash Flow Analysis. Summary. Notes. Appendix 3A: Calculating the WACC for a Complex Capital Structure. Appendix 3B: Some Frequently Asked Questions and Answers About DCFA and Earnings Multiples Valuation. 4. Alternative Valuation Models. Valuation in the Absence of Earnings or Cash Flow. Valuation When Capital Structure Changes. Economic Value Analysis. Real Options Analysis. Summary. Notes. Appendix 4A: Discounted Cash Flow Analysis: GoAmerica, Inc. Appendix 4B: Capital Cash Flow Analysis. Appendix 4C: DCFA When a Firm's Capital Structure Changes. Appendix 4D: The Black-Scholes Model. 5. Accounting Dilemmas in Valuation Analysis. Assessing Economic Reality. Income Statement Transformations: Forecasting Permanent Earnings and Free Cash Flows. Balance Sheet Transformations: Forecasting the Equity Value of a Company. Cash Flow Statement Transformations: Forecasting CFFO and Free Cash Flow. Summary. Notes. 6. Financial Reporting and Tax Considerations in Mergers and Acquisitions. Financial Reporting: To Combine, or Not to Combine? Consolidated Reporting: Pooling versus Purchase Accounting. Pooling versus Purchase Accounting: The Effect on Firm Valuation. Tax Considerations of Mergers and Acquisitions. Minority Interest. Accounting for Goodwill. Summary. Notes. Appendix 6A: Negative Goodwill. 7. Some Final Thoughts. Valuation: A DebrieA ng. Some Caveats to Consider. Closure. Bibliography. Index.
KENNETH R. FERRIS is Distinguished Professor of World Business at Thunderbird, The American Graduate School of International Management. The author/co-author of ten books, he has served on the faculties of Ohio State University, Northwestern, SMU, and numerous institutions of higher learning throughout the Asia-Pacific region. He has served as director of five corporations, including three listed on the New York Stock Exchange. He currently serves as mergers and acquisitions consultant to small businesses in the southwest US. BARBARA S. PAeCHEROT PETITT is Assistant Professor of Finance at Thunderbird, The American Graduate School of International Management. She specializes in corporate finance, valuation, mergers, and acquisitions. Prior to joining Thunderbird, she spent two years with Financial Services Management Development Limited as a consultant, and worked for several banks and companies in London and abroad. She holds a Ph.D. in Finance from the University of Grenoble, France.