Waltham Inc Case Study

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Waltham Inc Case Study

Waltham Case Study


This case study sets the scenario of an acquisition process where Waltham, Inc. Plans to acquire Artforevever.com. Waltham, Inc. is a public company that deals in vintage shoes restoration business and is seeking new opportunities to expand the business and grow. On the other hand, Artforever.com is a private firm that deals in vintage photographs and damaged artwork restoration business.

Now, Waltham, Inc. conducts an analytical review of different factors that would indicate whether the acquisition process should be carried out or not.

The practice of business valuation

The first method of business valuation, discounted cash flow (the "DCF"), is based on the idea that the economic value of the asset is equal to the amount of future cash flow Company updated to reflect its risk. The discount rate used is the weighted average cost of capital. Is calculated as follows:

cash flows discounted at the explicit forecast horizon (visibility of the company);

the terminal value from estimating a growth rate to infinity;

the value of equity is the difference between the asset value and the resulting economic value of the bank debt and net financial and possibly other elements.

The second evaluation method, the method of multiple analog approach is compared with other companies in the same sector. In this approach, the economic value of the assets of a company is the result of a multiple of its earnings: operating profit multiple or multiple of EBITDA. The multiple can be considered a multiple or a multiple stock transaction. It comes from the observation of the value of similar businesses. To obtain the value of equity, we subtract the value of the bank debt and net financial and possibly other elements. Alternatively, add value directly in equity as a multiple of the PER, the ACB or the multiple of cash flow.

The discounted dividends (DDM) is conceptually closer DCF but mostly unreliable. The evaluation method heritage returns to estimate separately the various assets, divisions or subsidiaries of the company, and to subtract the net debt. There are several types of assets (since the liquidation value to use value) and taxation is not neutral tax on capital gains or losses. The heritage value has meaning only if it incorporates the company's intangible assets (brand, customer?), which are particularly difficult to estimate.

It is essential to explain the differences obtained between the different methods that are often a significant source of financial engineering and change throughout the life cycle of the company.

For financial market firms and their control is a compartment of the capital market. There is therefore no real control value other than the strategic value associated with the existence of industrial synergies.

Because of industrial synergies, the strategic value of a business is generally greater than its financial value, often called stand-alone value. Any negotiations will be to share the increased value between the buyer and seller. Each course trying to get the largest share.

There is a distinction between enterprise value and price. As with any commodity, it is supply and demand determine the ...
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