...rP os t UV0112 Rev. Feb. 24, 2009 METHODS OF VALUATION FOR MERGERS AND ACQUISITIONS op yo This note addresses the methods used to value companies in a merger and acquisitions (M&A) setting. It provides a detailed description of the discounted-cash-flow (DCF) approach and reviews other methods of valuation, such as market multiples of peer firms, book value, liquidation value, replacement cost, market value, and comparable transaction multiples. Discounted-Cash-Flow Method Overview tC The DCF approach in an M&A setting attempts to determine the enterprise value or value of the company, by computing the present value of cash flows over the life of the company.1 Because a corporation is assumed to have infinite life, the analysis is broken into two parts: a forecast period and a terminal value. In the forecast period, explicit forecasts of free cash flow that incorporate the economic costs and benefits of the transaction must be developed. Ideally, the forecast period should comprise the interval over which the firm is in a transitional state, as when enjoying a temporary competitive advantage (i.e., the circumstances where expected returns exceed required returns). In most circumstances, a forecast period of five or ten years is used. No The terminal value of the company, derived from free cash flows occurring after the forecast period, is estimated in the last year of the forecast period and capitalizes the present value of all future...
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...Thornal Coachman Dr. Brent Financial Policy Flinder Valves and Controls Outline I. Statement of the Problem II. Alternative Solutions III. Analysis of Alternatives IV. Final Recommendations V. Appendix I. Statement of the Problem Bill Flinders’ FVC was an outgrowth of a small company organized in 1980 for engineering and developmental work on an experimental heat-exchanger product. In 1987, as soon as the product was bought to the commercial stage, Flinder Valves and Controls Inc. was organized to acquire the properties, both owned and leased, of the engineering corporation. FVC had come to RSE’s attention with the FVC’s disclosure of a U.S. government contract. RSE manufactured a broad range of products including advanced industrial components as well as chains, cables, nuts and bolts, castings and forgings, and other similar products. During the early part of 2008, a series of group meetings had taken place between Tom Eliot and Bill Flinder and their respective advisers. It seemed clear to both parties that both FVC and RSE could profit from the merger. Eliot had persuaded RSE’s board that the company should follow a policy of focused diversification, which would be achieved by an aggressive growth-by-acquisition program designed to create opportunities and entries into more dynamic markets than the ones RSE then served. FVC received various proposals from 1998 on, but none reached the stage of working out an agreement...
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...Case : Flinder Valves and Controls Inc. 1. Overview Kasus Rencana pengakuisisian Flinder Valves and Controls Inc. (FVC) oleh RSE International Corporation (RSE) pada awal 2008. Masa itu adalah masa krisis ekonomi di amerika serikat, kedua perusahaan tersebut merasakan dampak dari krisis tersebut. Tujuan dari dilakukannya akuisisi tidak lain karena kedua pemimpin perusahaan tersebut memikirkan tentang risiko dan peluang dari lingkungan manufaktur yang semakin menantang. Valve memproduksi banyak alat, hanya saja hampir 40% dari penghasilannya dan 50% dari keuntungannya berasal dari aplikasi khusus, yaitu berasal industri pertahanan dan kedirgantaraan. Hal ini tak lepas dari reputasi baik yang dimiliki FVC dalam lingkungan bisnisnya, sehingga mereka memiliki kontrak kerja untuk alat teknis bagi pemerintah. Pada 1980an perusahaan berkembang dibanding perusahaan lain di industrinya. Mereka membeli dan menyewa alat untuk keperluan produksinya, dan akhirnya setelah Bill Flinder melanjutkan tugasnya sebagai presiden FVC, dia mengakuisisi paten yang telah berlisensi. Tak ada masalah yang berarti dalam menggerakkan aktivitas-aktivitas di lingkungan bisnis mereka, baik itu bahan baku yang didapatkan dari supplier yang kompetitif, pemasaran, dan penjualan kepada perusahaan permesinan. Perusahaan Auden merupakan mitra dalam lingkungan bisnis FVC yang mendistribusikan dibawah perjanjian noneksklusif distributor, dimana Auden menjual 15% dari total penjualan FVC. Bahkan penjualan...
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...W.B. “Bill” Flinder, the president of Flinder Valves and Controls Inc. (FVC), and Tom Eliot, the Chairman and CEO of RSE International are currently in the midst of negotiating a merger of FVC and RSE. Both companies are aware of the benefits, but also remain apprehensive due to the risks of completing an acquisition in the struggling economy. Prior to 2008, the U.S. manufacturing industry had experience a decrease in consumer demand because of tighter borrowing standards and a weak housing sector in the past year, according to a recent analyst. However, before May 2008, the U.S. began to experience better economic conditions, which provided FVC a better environment to introduce its new, hydraulic-controls system called the “widening gyre,” which can be used in the military industry. With this expensive program still under development, Bill Flinder realized the importance of merging with another company that was financially stable. Other factors contributed the negotiation. In addition to nearing retirement, Flinder also believe a merger with RSE would help the transition years for his employees. FVC and RSE should follow-through and complete the negotiation because one company’s strengths make up for the other’s weaknesses. Tom Eliot had recently proposed to the board of RSE to focus on diversification. FVC would help diversify RSE; they had the reputation of opening up opportunities for companies looking to diversify, plant capacity, management efficiency, financial resources...
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...Flinders Valves & Controls Inc. (FVC) is located in Southern California. The firm manufactured specialty valves & heat exchangers. About 40% of volume & 50% of profit come from special application for the defense & aerospace industries. RSE International Corp was founded by Tom Eliot in 1970. In the year 2008, it manufactured a broad range of products including advanced industrial components as chains, cables, nuts & bolts, castings & forgings etc. The firm is considered a low-cost producer that possessed unusual production knowledge. The main issue discussed in this case study was the idea of merger between FVC and RSE could bring profit to both of the firms. First FVC become a subsidiary of RSE with the deal of preserving FVC identity. Then the two sides have explored some of the governance and compensation issues in the merger. The price of the deal was less clear as FVC traded on the NASDAQ and RSE traded on the American Stock Exchanges. The benefits of merger and acquisition between FVC and RSE were the new firm will have an increased market share which reduces competition. This reduction in competition can be damaging to the public interest, but help the firm to gain more profits. However both FVC and RSE will have no control power. However the question that has been discussed here was does FVC and RSE ready for merger and acquisition. The answered here is no as both firm didn’t analyze their current situation. Next both firm neither don’t have the proper discussion...
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