Posts Tagged ‘acquisition targets’

Evaluating Acquisition Targets – Part 2

Monday, July 20th, 2009

By Robert Bradford, President/CEO

Strategic Planning Expert Robert Bradford

Strategic Planning Expert Robert Bradford

In my earlier posting about evaluating acquisition targets, I discussed four common approaches to evaluation a company:  market value, asset value, operating value and strategic value.  Today we will look at the exact approaches to market value and asset value, with objective formulae.

First, market value.  The objective numbers for this come, obviously, from a market – usually, the stock market.  There are two approaches here:  direct value and proxy value.  The formula for direct value is only applicable for public companies:

Value = Stock price X Number of shares outstanding

If there are very similar public companies on the stock market, you can use proxy value:

Value = Target company earnings X EPS of similar public company

Be aware that this second approach involves some shaky assumptions about the similarity of the two companies, and in some industries, assets, sales or some other number may be more useful in calculating a proxy value.  Due diligence when using this as a value basis should be about understanding the similarities and differences between the companies, as well as the normal look into the fundamental soundness of the business.

The second approach is asset value.  Again, there are two common approaches, each with limitations.  The easiest (and least accurate) is accounting asset value:

Value = Book value of net assets on balance sheet

The limitation of this valuation is that, as with any balance sheet item, assets may be over or undervalued.  The true value of a piece of real estate is rarely represented well on a balance sheet, for example.

A more difficult approach to asset value is market asset value:

Value = (Sum of market value of assets) – (Sum of market value of liabilities)

This requires an added step over the plain accounting value – you have to research and quantify the market value of the important assets of the company (usually, real estate and similar holdings).  There are times when this valuation is a very important part of what other buyers are willing to pay for an acquisition target, so you should be aware of it.

In postings to come, I will discuss the formulae for operating value and strategic value.

Screening Acquisition Targets – Part II

Thursday, November 6th, 2008
Strategic Planning Expert

Strategic Planning Expert

 

By Robert W. Bradford, CEO of the Center for Simplified Strategic Planning, Inc. 

Once you have identified your reasons for making an acquisition and the specific enhancements you are seeking to your strategic competencies, your first stage of acquisition screening involves creating a list of potential acquisition targets. At this point, we don’t need to know much about the targets except that their acquisition is a possibility, and their strategic resources may include the desired assets or competencies we are seeking in our acquisition.  You will want to capture six data points about each possible target: 1) Name, 2) Sales, 3) Ownership, 4) Competency Enhancement, 5) Asset Value and 6) Probability of Success.

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Screening Acquisition Targets

Tuesday, October 28th, 2008

 

Strategic Planning Expert Robert Bradford

Strategic Planning Expert Robert Bradford

By Robert W. Bradford, CEO of the Center for Simplified Strategic Planning, Inc.

 

 

 

 

 

Many of our clients have found themselves considering acquisitions in this time of uncertainty. In this coming series of articles, we will discuss the process of acquisition screening and give you some tools to make the process easier.  Once you have identified your reasons for making an acquisition and the specific enhancements you are seeking to your strategic competencies, your first stage of acquisition screening involves creating a list of potential acquisition targets. At this point, we don’t need to know much about the targets except that their acquisition is a possibility, and their strategic resources may include the desired assets or competencies we are seeking in our acquisition.  Having established this list, some quick evaluations can be made without a great deal of homework. You want to capture six data points about each possible target: 1) Name, 2) Sales, 3) Ownership, 4) Competency Enhancement, 5) Asset Value and 6) Probability of Success

 

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