Relative Valuation - Valuation Based on Multiples

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Bharti Airtel and Zain Africa recently announced signing of the definitive merger agreement, wherein Bharti will acquire African operations of Zain Group. The deal was valued at an enterprise value of USD 10.7 billion or on an 8.2x EBITDA Multiple. Goldman Sachs has invested USD 450 million in online social networking portal Facebook, which is valued as the number one social networking network at USD 50 billion. At an enterprise value of USD 50 billion, Facebook is trading at a multiple of about 100 times of its earnings. Newspapers and television channels make it their headlines whenever a major deal (private equity, acquisition, etc.) happens. And we normally wonder how these valuations or multiples were calculated. â€œWhat is the worth of my company?â€ â€œHow much funds can I raise via private placements, and how much stake I have to dilute?â€ â€œHow much can I raise from the market if I decide to take my company public?â€ So, whatever the purpose is (acquisitions, private equity, joint ventures, IPOs, etc.), valuation remains the centre of the talks. The two most common valuation methodologies include (1) Discounted Cash Flows, and (2) Relative Valuation (Valuation Based on Multiples). Read on to know moreâ€¦ #pdf

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on 07 December 2011

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