Chapter 9 - Building the Toolkit: Valuation I

G2G Chapter 9 - Building the Toolkit: Valuation I

Building the Toolkit

Valuation I: Comps, Precedents, and DCF CHAPTER 9 OF 13 SBCI, Canary Wharf Le Pitch's desk faces the river. Three folders sit in a tray marked "Forge". His partner Alain has been mandated to run the dual-track process for Königshof. "Dual-track" means: prepare the company for either a PE sale or a minority investment. Both paths require one thing. Le Pitch "Trace, you're lead analyst. Build me a football field by Friday." Trace "A what?" Le Pitch "A valuation. Range of values. Three methods. Comps, precedents, DCF. You have four days. Königshof is 120 years old. It has a balance sheet. It has a P&L. Make it speak." Trace nods. She has four days to value a 120-year-old German factory. This is not her first pitch book, but it is the first time her name is at the top. Everything in finance reduces to one question: What is it worth? For three centuries, Königshof has made harvesters. The question is not "is it a good business?" (Wilhelm knows it is). The question is "at what price is it a good investment?" Answer that question correctly, and you make millions. Answer it wrong, and even good businesses destroy value. This is why valuation is the skill that separates PE professionals from the rest. 01 The Three Pillars The Toolkit Three Methods. One Question. There is no single "correct" valuation. There are three perspectives, each answering the question differently: Method Question Logic Trading Comps What do similar companies trade for? Market multiples = objective pricing Precedent Transactions What did acquirers pay for similar companies? Real prices from real M&A deals Discounted Cash Flow What are future cash flows worth today? Intrinsic value from fundamentals

None is "right". All three are useful. A professional uses all three and reconciles the results. "The football field is not an answer. It is a conversation." Valuation is not science. It is informed judgment. 02 Trading Comps Method 1: Trading Comps What Similar Companies Trade For Start with a universe of comparable companies. Not identical - there are no identical companies. But similar enough: same industry, similar scale, similar geographies. For Königshof, the peer set includes AGCO, CNH Industrial, John Deere - publicly listed agricultural equipment manufacturers. Pull their market data. Calculate multiples. Apply to Königshof. Trading Comps European Ag Equipment Peers: Public Market Multiples Company Market Cap EV/EBITDA EV/EBIT AGCO Corp €7.2bn 8.5x 10.2x CNH Industrial €18.5bn 7.8x 9.1x Argo Investments €2.1bn 9.3x 11.0x Median Multiple 8.5x 10.2x Apply to Königshof: Adjusted EBITDA (FY24) = €9.9m. At 8.5x, Enterprise Value = €84m. Bridge From Enterprise Value to Equity Value €m Enterprise Value (at 8.5x) €84.0 Less: Gross Debt €0.0 Plus: Cash €40.0 Equity Value €124.0 Königshof with €40m net cash is worth more to an investor than the EV suggests. That cash is real and available. Trace's desk, 11pm The peer list sits next to her coffee. AGCO, CNH, CLAAS (private, excluded), Argo. She pulls market data from Bloomberg. EV/EBITDA multiples trade in a range: 7x to 9x. Königshof adjusted EBITDA of €9.9m sits right at the median of global peers. "Conservative?" she asks herself. "Or just realistic?" She writes: "Comps Range: €80m - €100m EV." Trading comps answer: "What is the market willing to pay?" 03 Precedent Transactions Method 2: Precedent Transactions What Acquirers Actually Paid