The Case
ABC Molecular Imaging is seeking an Investment Bank to advise them on the sale of their
company. ABC has invited you, XYZ Corporate Finance, to join the competitive financial
advisor selection process. As analysts you have been assigned to assemble a key component
of the pitch book that will be presented to the Board of Directors, you need to determine a value
at which you believe their company can be sold for.
ABC is expecting to see strong supporting analysis of how you arrived at the value. You must
also bear in mind that you are competing against other top investment banks, all with the goal
of providing the highest value supported by the strongest analysis. In addition, you are always
aware of the in-depth review process that takes place when you lose a deal, there is a lot of
pressure to win this deal.
Using the attached information which includes a company snapshot, public comps, comparable
transactions, and a DCF analysis, you need to determine the value to be used in the pitch book.
Company Snapshot
ABC Molecular Imaging, Inc. manufactures and distributes Positron Emission Tomography (PET)
imaging solutions. Its products include PET and CT scanners that assist in the detection and
treatment of cancer, neurological disorders, and cardiac diseases. The company also develops and
licenses medical image analysis applications, which provide tools for creation, display, and analysis
of molecular images. Additionally, it hosts an online portal to facilitate information dissemination
among physicians, radiopharmacies, patients, and PET providers. The company offers site
planning, installation, preventive maintenance and repair, and technical support services. It caters
to hospitals, universities, and research institutions, imaging centers, and cancer treatment centers.
Copyright © 2006 Deloitte Development LLC. All rights reserved.
1
Valuation Analysis
Valuation Methodologies
Comparable Company
Analysis
Comparable
Transaction Analysis
Discounted Cash Flow
Analysis
Leveraged Buyout
Analysis
 Value based on comparisons
 Value based on comparisons
 Value based on the present
 Value based on potential
 Comparable publicly traded
 Comparable acquisitions
 Free cash flow is defined as
 Value constrained by credit
with “similar” publicly traded
companies
companies similar in
business, financial structure,
growth prospects, financial
performance, and size
 Valuation benchmarks
include multiples of:
- Revenue
- EBITDA
with “similar” acquisition
transactions
similar in business, industry,
and financial structure
 Value includes control
premium
 Valuation benchmarks
include multiples of:
- Revenue
- EBITDA
Copyright © 2006 Deloitte Development LLC. All rights reserved.
value of future free cash
flows
unlevered net income plus
non-cash adjustments, less
changes in working capital
and capital expenditures
purchase price in a
leveraged buyout transaction
markets, debt capacity, and
equity investor return
expectation
 Discount rate as determined
by the weighted average
cost of capital and financial
risk
2
Comparable Public Companies
Valuation Summary
Valuation Summary
SOURCE: Capital IQ
18.0X
16.9x
15.0X
3.5X
16.5x
15.6x
14.8x
3.0X
2.5X
9.0X
1.43x
1.56x
1.51x
1.44x
1.68x
2.0X
1.5X
6.0X
3.0X
.0X
2002
2003
2004
EV/EBITDA
2005
Company Name
Share
Price
Market Net Debt* Enterprise EV/
Cap ($M)
($M)
Value ($M) Sales
Thermo Electron Corp.
$ 35.59
$ 5,826
250 $
6,076
2.20X
BEC
Beckman Coulter Inc.
54.03
3,411
687
4,097
1.68X
9.75X
West Pharmaceutical Services Inc.
33.90
1,095
240
1,335
1.73X
10.07X
Varian Inc.
42.38
1,309
(88)
1,222
1.55X
11.91X
IDEXX Laboratories Inc.
77.31
2,440
(93)
2,347
3.59X
16.35X
CONMED Corp.
18.75
527
296
823
1.33X
8.31X
7.74
170
449
618
1.06X
8.22X
801
800
1.47X
10.93X
225
1,187
2.59X
32.20X
(42)
1,575
7.56X
26.50X
VARI
IDXX
Average
Median
CNMD
HGR
Hanger Orthopedic Group Inc.
1.0X
VAS
Viasys Healthcare Inc.
24.73
.5X
IMA
Inverness Medical Innovations Inc.
30.00
962
.0X
VMSI
Ventana Medical Systems Inc.
44.35
1,616
LTM - 6/12/2006
EV/Sales
$
EV/
EBITDA
TMO
VMSI
WST
EV/Sales
13.4x
12.0X
EV/EBITDA
Ticker
4.0X
(0)
13.53X
Min
1.06X
8.22X
Median
1.68X
11.42X
Max
3.59X
32.20X
Financial
Performance
Ticker
TMO
BEC
WST
VARI
IDXX
CNMD
HGR
VAS
IMA
VMSI
Average
Median
Company Name
Thermo Electron Corp.
Beckman Coulter Inc.
West Pharmaceutical Services Inc.
Varian Inc.
IDEXX Laboratories Inc.
CONMED Corp.
Hanger Orthopedic Group Inc.
Viasys Healthcare Inc.
Inverness Medical Innovations Inc.
Ventana Medical Systems Inc.
EBITDA
Sales ($M)
($M)
$ 2,758 $
449
2,444
420
773
133
790
103
654
143
620
99
586
75
543
73
458
37
208
59
Source: Capital IQ
Copyright © 2006 Deloitte Development LLC. All rights reserved.
LTM
EBITDA
Margin EBIT ($M)
16.3% $
306
17.2%
275
17.1%
82
13.0%
78
21.9%
118
16.0%
68
12.8%
61
13.5%
49
8.1%
8
28.5%
44
16.3%
16.3%
EBIT
Margin
NI ($M)
11.1% $
196
11.3%
151
10.6%
47
9.9%
46
18.1%
79
11.0%
26
10.4%
11
9.1%
(9)
1.7%
(14)
21.2%
26
11.8%
11.0%
Debt/
Margin
EBITDA
7.1%
1.25
6.2%
1.77
6.0%
2.05
5.8%
0.28
12.1%
4.1%
3.04
1.9%
5.20
-1.7%
0.23
-3.1%
7.02
12.4%
0.03
6.2%
1.94
6.0%
1.77
Debt/
Equity
0.20
0.62
0.75
0.06
0.66
1.71
0.04
0.51
0.01
0.57
0.62
ROA
4.9%
5.9%
6.9%
5.6%
15.3%
4.8%
5.4%
5.1%
0.6%
14.1%
7.0%
5.6%
3
Precedent Transactions
($ in millions)
Date
8/14/2006
6/30/2006
5/11/2006
4/27/2006
11/22/2005
8/18/2005
8/8/2005
3/15/2005
1/4/2005
12/5/2004
10/26/2004
9/22/2004
5/19/2004
4/15/2004
1/27/2004
4/23/2003
4/7/2003
12/9/2002
11/8/2002
10/21/2002
6/14/2002
Target
Tripath Imaging Inc
Encore Medical Corp
Edwards Lifesciences Corp
Diagnostic Products Corp
Becton Dickinson & Co
CyberGuard Corp
LabOne Inc
Medicore Inc
Education Lending Group Inc
Sola International Inc
Boston Scientific Corp
Endocardial Solutions Inc
ALARIS Medical Systems Inc
Cole National Corp
Becton Dickinson & Co
Apogent Technologies Inc
Bruker AXS Inc
AmeriPath Inc
Dianon Systems Inc
Meridian Medical Technologies
Syncor International Corp
Industry
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
High Technology
Healthcare
Healthcare/Services
Financials
Healthcare
Healthcare
Healthcare/Services
Healthcare/Other
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
Acquiror
Becton Dickinson & Co
Blackstone Capital Partners
Edwards Lifesciences Corp
Siemens Medical Solutions
Becton Dickinson & Co
Secure Computing Corp
Quest Diagnostics Inc
Dialysis Corp of America
CIT Group Inc
Investor Group
Boston Scientific Corp
St Jude Medical Inc
Cardinal Health Inc
Moulin Intl Hldgs Ltd
Becton Dickinson & Co
Apogent Technologies Inc
Bruker Daltonics Inc
Amy Acquisition Corp
Laboratory Corp of America
King Pharmaceuticals Inc
Cardinal Health Inc
Enterprise
Value ($M)
$345
$791
$2,688
$1,665
$14,869
$275
$899
$143
$4,475
$1,083
$30,093
$272
$2,050
$684
$11,935
$2,537
$67
$751
$541
$235
$779
Target
Rev ($ M )
$94
$306
$1,006
$498
$5,415
$66
$480
$41
$127
$669
$4,963
$42
$547
$1,202
$4,676
$1,106
$109
$466
$182
$82
$767
Enterprise Value as Multiple of:
Revenue
EBITDA
3.7x
28.2x
2.6x
14.7x
2.7x
11.5x
3.3x
11.9x
2.7x
10.4x
4.2x
43.1x
1.9x
13.7x
3.5x
45.7x
35.2x
4124.2x
1.6x
9.6x
6.1x
17.9x
6.4x
270.9x
3.7x
16.1x
.6x
9.4x
2.6x
10.x
2.2x
7.8x
.6x
6.3x
1.6x
6.7x
3.x
13.5x
2.8x
10.3x
1.1x
9.5x
Source: Thomson
Copyright © 2006 Deloitte Development LLC. All rights reserved.
4
Range of Value Summary
Sales:
EBITDA:
Range of Value Summary
Comparable Companies
Comparable Transactions
Sales
EBITDA
Sales
EBITDA
Discounted Cash Flow
Sales
EBITDA
Multiple
Implied
Enterprise
Value
Target Enterprise Value:
Implied Sales Multiple:
Implied EBITDA Multiple:
Copyright © 2006 Deloitte Development LLC. All rights reserved.
5
DCF Analysis
ABC Company
($ in M)
Sales
2006A
$ 419.0
2007E
$ 455.0
2006A
NWC
$
EBIT
Less: Taxes
Add: Depreciation
Less: Change in NWC
Less: Capital Expenditures
41.9
2007E
$
65.9
(50.3)
14.7
FCF
Years Out
2008E
$ 498.0
45.5
2008E
$
136.5
(54.6)
22.8
(3.6)
(22.8)
$
78.3
0.50
2009E
$ 520.0
49.8
2009E
$
149.4
(59.8)
24.9
(4.3)
(24.9)
$
85.3
1.50
2010E
$ 575.0
52.0
2010E
$
156.0
(62.4)
26.0
(2.2)
(26.0)
$
91.4
2.50
2011E
$ 665.0
57.5
172.5
(69.0)
28.8
(5.5)
(28.8)
$
98.0
3.50
2012E
$ 717.0
2011E
$
66.5
199.5
(79.8)
33.3
(9.0)
(33.3)
$ 110.7
4.50
2012E
$
Terminal
Value
71.7
215.1
(86.0)
35.9
(5.2)
(35.9)
$ 123.9
5.50
Discount Factor
Present Value
Present value of 2006-2012 Cashflows:
Company WACC
14.4%
Present Value of Terminal Value:
Industry WACC
11.8%
Total Enterprise Value of ABC:
Moody's WACC
12.9%
Copyright © 2006 Deloitte Development LLC. All rights reserved.
Growth Rate
5.0%
6
Answer Key
($ in millions)
Date
8/14/2006
6/30/2006
5/11/2006
4/27/2006
11/22/2005
8/18/2005
8/8/2005
3/15/2005
1/4/2005
12/5/2004
10/26/2004
9/22/2004
5/19/2004
4/15/2004
1/27/2004
4/23/2003
4/7/2003
12/9/2002
11/8/2002
10/21/2002
6/14/2002
Target
Tripath Imaging Inc
Encore Medical Corp
Edwards Lifesciences Corp
Diagnostic Products Corp
Becton Dickinson & Co
CyberGuard Corp
LabOne Inc
Medicore Inc
Education Lending Group Inc
Sola International Inc
Boston Scientific Corp
Endocardial Solutions Inc
ALARIS Medical Systems Inc
Cole National Corp
Becton Dickinson & Co
Apogent Technologies Inc
Bruker AXS Inc
AmeriPath Inc
Dianon Systems Inc
Meridian Medical Technologies
Syncor International Corp
Industry
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
High Technology
Healthcare
Healthcare/Services
Financials
Healthcare
Healthcare
Healthcare/Services
Healthcare/Other
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
Copyright © 2006 Deloitte Development LLC. All rights reserved.
Acquiror
Becton Dickinson & Co
Blackstone Capital Partners
V
Edwards
Lifesciences Corp
Siemens Medical Solutions
Becton Dickinson & Co
Secure Computing Corp
Quest Diagnostics Inc
Dialysis Corp of America
CIT Group Inc
Investor Group
Boston Scientific Corp
St Jude Medical Inc
Cardinal Health Inc
Moulin Intl Hldgs Ltd
Becton Dickinson & Co
Apogent Technologies Inc
Bruker Daltonics Inc
Amy Acquisition Corp
Laboratory Corp of America
King Pharmaceuticals Inc
Cardinal Health Inc
Enterprise
Value ($M)
$345
$791
$2,688
$1,665
$14,869
$275
$899
$143
$4,475
$1,083
$30,093
$272
$2,050
$684
$11,935
$2,537
$67
$751
$541
$235
$779
Target
Rev ($ M )
$94
$306
$1,006
$498
$5,415
$66
$480
$41
$127
$669
$4,963
$42
$547
$1,202
$4,676
$1,106
$109
$466
$182
$82
$767
Average
Enterprise Value as Multiple of:
Revenue
EBITDA
3.7x
28.2x
2.6x
14.7x
2.7x
11.5x
3.3x
11.9x
2.7x
10.4x
4.2x
43.1x
1.9x
13.7x
3.5x
45.7x
35.2x
4124.2x
1.6x
9.6x
6.1x
17.9x
6.4x
270.9x
3.7x
16.1x
.6x
9.4x
2.6x
10.x
2.2x
7.8x
.6x
6.3x
1.6x
6.7x
3.x
13.5x
2.8x
10.3x
1.1x
9.5x
2x
12x
7
Answer Key
Ticker
Company Name
TMO
Thermo Electron Corp.
BEC
Share
Price
Market Net Debt* Enterprise
EV/
Cap ($M)
($M)
Value ($M) Sales
$ 35.59
$ 5,826
Beckman Coulter Inc.
54.03
WST
West Pharmaceutical Services Inc.
VARI
250 $
6,076
2.20X
13.53X
3,411
687
4,097
1.68X
9.75X
33.90
1,095
240
1,335
1.73X
10.07X
Varian Inc.
42.38
1,309
(88)
1,222
1.55X
11.91X
IDXX
IDEXX Laboratories Inc.
77.31
2,440
(93)
2,347
3.59X
16.35X
CNMD
CONMED Corp.
18.75
527
296
823
1.33X
8.31X
HGR
Hanger Orthopedic Group Inc.
7.74
170
449
618
1.06X
8.22X
VAS
Viasys Healthcare Inc.
24.73
801
800
1.47X
10.93X
IMA
Inverness Medical Innovations Inc.
30.00
962
225
1,187
2.59X
32.20X
VMSI
Ventana Medical Systems Inc.
44.35
1,616
(42)
1,575
7.56X
26.50X
Min
1.06X
8.22X
Median
1.68X
11.42X
Max
Average
3.59X
2.48X
32.20X
14.78X
Copyright © 2006 Deloitte Development LLC. All rights reserved.
$
EV/
EBITDA
(0)
8
Answer Key
($ in M)
Sales
2006A
$ 419.0
2007E
$ 455.0
2006A
NWC
$
EBIT
Less: Taxes
Add: Depreciation
Less: Change in NWC
Less: Capital Expenditures
41.9
2007E
$
65.9
(50.3)
14.7
FCF
Years Out
Discount Factor
Present Value
2008E
$ 498.0
45.5
2008E
$
136.5
(54.6)
22.8
(3.6)
(22.8)
$
78.3
0.50
0.93
$73.2
2009E
$ 520.0
49.8
2009E
$
149.4
(59.8)
24.9
(4.3)
(24.9)
$
85.3
1.50
0.82
$69.7
2010E
$ 575.0
52.0
2010E
$
156.0
(62.4)
26.0
(2.2)
(26.0)
$
91.4
2.50
2011E
$ 665.0
57.5
172.5
(69.0)
28.8
(5.5)
(28.8)
$
0.71
$65.3
98.0
3.50
0.62
$61.2
2011E
$
66.5
199.5
(79.8)
33.3
(9.0)
(33.3)
$ 110.7
4.50
0.55
$60.4
Present value of 2004-2009 Cashflows:
$388.97
Company WACC
14.4%
Present Value of Terminal Value:
$660.16
Industry WACC
11.8%
$1,049.13
Moody's WACC
12.9%
Total Enterprise Value of XYZ:
Copyright © 2006 Deloitte Development LLC. All rights reserved.
2012E
$ 717.0
2012E
$
Terminal
Value
71.7
215.1
(86.0)
35.9
(5.2)
(35.9)
$ 123.9
5.50
0.48
$59.1
Growth Rate
$ 1,383.5
5.50
0.48
$660.2
5.0%
9
Answer Key
Sales:
$419
EBITDA:
$81
Range of Value Summary
Comparable Companies
Comparable Transactions
Sales
EBITDA
Sales
EBITDA
Multiple
Implied
Enterprise
Value
2.5x
14.8x
2.0x
12.0x
$1,039
$1,191
$838
$967
Target Enterprise Value:
Implied Sales Multiple:
Implied EBITDA Multiple:
Copyright © 2006 Deloitte Development LLC. All rights reserved.
Discounted Cash Flow
Sales
EBITDA
2.5x
13.0x
$1,047
$1,017
2.4x
12.6x
10
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Copyright © 2006 Deloitte Development LLC. All rights reserved.
11