Valuation and the differences between strategic and financial buyers
(2007) MIO920Production Management
- Abstract
- For any acquisition to take place the assets to be sold must be valued.
Some argue that an asset is worth whatever an acquirer is willing to
pay for it at any given time. We believe that there is an underlying
value (intrinsic value) that depends on the expected future cash flows
of the asset and the risk associated with these cash flows. There exist
several methods for estimating this value.
Traditionally when a company was up for sale the most likely
acquirer would be a “strategic buyer”, that is a competitor in the
same industry or someone with good knowledge and a large amount
of experience from the industry. In the 80’s a new breed of buyers
called “financial buyers” developed rapidly in the US. Their
motivation for... (More) - For any acquisition to take place the assets to be sold must be valued.
Some argue that an asset is worth whatever an acquirer is willing to
pay for it at any given time. We believe that there is an underlying
value (intrinsic value) that depends on the expected future cash flows
of the asset and the risk associated with these cash flows. There exist
several methods for estimating this value.
Traditionally when a company was up for sale the most likely
acquirer would be a “strategic buyer”, that is a competitor in the
same industry or someone with good knowledge and a large amount
of experience from the industry. In the 80’s a new breed of buyers
called “financial buyers” developed rapidly in the US. Their
motivation for acquiring companies was purely financial and these
buyers came to revolutionize the mergers and acquisition industry.
Today, up to 50% of transactions made include a financial buyer as
one of the parties. In 2006 over $250bn of new capital was raised to
these firms.
While working in the mergers and acquisitions department of Calyon
I observed that financial buyers and strategic buyers often derived
very different valuations of the same company.
Purpose: The purpose of this thesis is to describe the common acquisition
valuation techniques used by financial and strategic buyers, and the
potential for value creation for each of them.
Methodology: The study has been conducted in descriptive way with mostly
secondary and qualitative data.
Summery & Reflections: This thesis begins with a background discussion and definition of
strategic and financial buyers. A section on valuation follows.
Discounted cash flow analysis, relative valuation and leveraged
buyout analysis are the valuation methods described. Next, the most
common ways of creating value in an acquisition are described. The
operating and financial synergies experienced by strategic buyers are
described as well as the most common value creation levers used by
financial buyers. The thesis is concluded by a summary and some
reflections by the author. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/1980583
- author
- Ekdahl, Christopher
- supervisor
- organization
- course
- MIO920
- year
- 2007
- type
- M1 - University Diploma
- subject
- keywords
- Strategic Buyer, Financial Buyer, Buyout Fund, Private Equity, Valuation Methods, Value Creation, Acquisitions.
- other publication id
- 07/5266
- language
- English
- id
- 1980583
- date added to LUP
- 2011-06-20 11:06:05
- date last changed
- 2011-06-20 11:06:05
@misc{1980583, abstract = {{For any acquisition to take place the assets to be sold must be valued. Some argue that an asset is worth whatever an acquirer is willing to pay for it at any given time. We believe that there is an underlying value (intrinsic value) that depends on the expected future cash flows of the asset and the risk associated with these cash flows. There exist several methods for estimating this value. Traditionally when a company was up for sale the most likely acquirer would be a “strategic buyer”, that is a competitor in the same industry or someone with good knowledge and a large amount of experience from the industry. In the 80’s a new breed of buyers called “financial buyers” developed rapidly in the US. Their motivation for acquiring companies was purely financial and these buyers came to revolutionize the mergers and acquisition industry. Today, up to 50% of transactions made include a financial buyer as one of the parties. In 2006 over $250bn of new capital was raised to these firms. While working in the mergers and acquisitions department of Calyon I observed that financial buyers and strategic buyers often derived very different valuations of the same company. Purpose: The purpose of this thesis is to describe the common acquisition valuation techniques used by financial and strategic buyers, and the potential for value creation for each of them. Methodology: The study has been conducted in descriptive way with mostly secondary and qualitative data. Summery & Reflections: This thesis begins with a background discussion and definition of strategic and financial buyers. A section on valuation follows. Discounted cash flow analysis, relative valuation and leveraged buyout analysis are the valuation methods described. Next, the most common ways of creating value in an acquisition are described. The operating and financial synergies experienced by strategic buyers are described as well as the most common value creation levers used by financial buyers. The thesis is concluded by a summary and some reflections by the author.}}, author = {{Ekdahl, Christopher}}, language = {{eng}}, note = {{Student Paper}}, title = {{Valuation and the differences between strategic and financial buyers}}, year = {{2007}}, }