UFC Valuation

Techniques in Finance & Valuation

1

What is Valuation?
Valuation: Methods of quantifying how much money something should be exchanged for today, considering future benefits.

We will teach 4 valuation methods
Trading Comparables
Transaction Comparables
Sum-of-the-Parts Valuation
Discounted Cash Flow Analysis (DCF)

$

2

Why is Valuation important?
Acquisitions:
How much should we pay for the company?
Divestitures:
How much should we sell our company for?

Sell-side Research:
Should our clients buy, sell or hold a given stock (fixed income security, option etc.,)?

Valuation
Initial Public Offering
(IPO):
Hostile defense:

How much is the company worth?
(price per share )

Is our company undervalued/vulnerable to a hostile bidder?
Debt offerings:
What is the value of the company against which debt is being issued?
(collateral)

3

Trading Comparables
Relative Valuation Technique

4

Agenda
Multiples: Comparables Trading (transaction comparables will be covered by Mike)
Theory: Similar companies (all else equal) should have similar valuations
Defining a Peer Group (“similar companies”)
Picking the right multiples
Calculating CLX’s multiples
Spreading Peer Group multiples
Calculating CLX’s implied value

First day on the job… (potential interview question)
Your boss thinks shares of Clorox Co. (“CLX”) might be a good investment:
She asks you: “How much do you think they are worth?”

One common approach is Multiples Based Valuation Technique

6

What are multiples?
“CLX”
$67 a share

Examples:
Price / Earnings (P/E)
Firm Value / Revenues
Firm Value / EBITDA

?
“ENR”
$67 a share

Earnings per share
$4.24
$67 / $4.20 ≈ 15.8x
Earnings per share
$2.90
$67 / $3.00 ≈ 23.1x
7

Trading Comparables: The Theory
Basic Assumption: Similar companies should have similar valuations
Employing multiples is a relative valuation technique

17x

Price / Earnings ( “Price to Earnings”)

17.0x

16x

16.0x

15x
14x

14.4x
14.0x
13.0x

13x
12x
11x

11.0x
11.5x

14.0x

13.2x
13.0x