FactSet Mergerstat® / BVR Control Premium Study™ FAQs
FactSet Mergerstat® / BVR Control Premium Study™ FAQs What is the legend for FactSet Mergerstat® / BVR Control Premium Study™ data? Terms Definition Premium computed by comparing the price ultimately paid to the common stock price Premium 2 Months two months prior to the announcement date. [ = (Purchase Price Per Share in Home Currency / 2 Month Price) - 1] Premium 1 Month Premium computed by comparing the price ultimately paid to the common stock price one month prior to the announcement date. [ = (Purchase Price Per Share in Home Currency / 1 Month Price) - 1] Premium 1 Week Premium computed by comparing the price ultimately paid to the common stock price one week prior to the announcement date. [ = (Purchase Price Per Share in Home Currency / 1 Week Price) - 1] Premium 1 Day Premium computed by comparing the price ultimately paid to the common stock price one day prior to the announcement date. [ = (Purchase Price Per Share in Home Currency / 1 Day Price) - 1] Mergerstat® Control Premium Premium computed by comparing the price ultimately paid to the unaffected stock price. [ = (Purchase Price Per Share in Home Currency / Unaffected Price in Home Currency) 1] (also known as the Mergerstat Unaffected Control Premium in the book version) Implied Minority Discount An implied discount computed from the Mergerstat® Unaffected Control Premium. [ = 1 - [1/(1 + control premium)] CUSIP The CUSIP number is a unique identifier of securities. Mergerstat® uses the first 6-digits to identify the issuer company. Target CUSIP refers to the unique identifier number for the target company being acquired. The stock ticker symbol for the Target company. If the Stock Exchange of the Target Target Stock Ticker company is not in the United States, the Target Stock Ticker also includes a two character code identifying the Target company's country. Mergerstat® Unaffected Price Target company's common stock price per share unaffected by the acquisition announcement. Selected by Mergerstat® after analyzing each transaction (this price is in the Home Currency) Announce Day Price Target company's common stock price per share on the acquisition announcement date (this price is in the Home Currency). 1 Day Price Target company's common stock price per share one day prior to the acquisition announcement date (this price is in the Home Currency). 1 Week Price Target company's common stock price per share one week prior to the acquisition announcement date (this price is in the Home Currency). 1 Month Price Target company's common stock price per share one month prior to the acquisition announcement date (this price is in the Home Currency). 2-Month Price Target company's common stock price per share two months prior to the acquisition announcement date (this price is in the Home Currency). LTM Net Sales Target company's sales based on the latest reported 12-month period (LTM) prior to the transaction's announcement date. Sales are reported in millions of USD and rounded. LTM EBITDA Target company's earnings before interest, taxes, depreciation and amortization (EBITDA based on the latest reported 12-month period (LTM) prior to the transaction's announcement date. EBITDA is reported in millions of USD and rounded. LTM EBIT Target company's earnings before interest and taxes (EBIT) based on the latest reported 12-month period (LTM) prior to the transaction's announcement date. EBIT is reported in millions of USD and rounded. LTM Net Income Target company's net income (loss), excluding extraordinary items, based on the latest reported 12-month period (LTM) prior to the transaction's announcement date. Income is reported in millions of USD and rounded. Target company's book value (BV), sometimes referred to as shareholder's equity or net BV Target Common tangible assets, is based on the latest reported period prior to the transaction's Equity announcement date. Book value is reported in millions of USD and rounded. Target Invested Capital Target company's implied total invested capital (TIC) based on the sum of implied market value of equity plus the face value of total interest bearing debt and the book value of preferred stock outstanding prior to the announcement date. (Reported in millions of USD) Book Value per Share The target company's BV Target Common Equity divided by the target company's Common Shares Outstanding.(Reported in USD) Common Shares Outstanding Target company's number of common shares outstanding shown in millions and rounded. Operating Profit Margin LTM EBIT / LTM Net Sales Net Profit Margin LTM Net Income / LTM Net Sales Target market value of equity (MVE) based on the purchase price per share times total Implied MVE ($mil) shares outstanding reported in the period prior to the transaction's announcement date. Market value of equity is reported in millions of USD and rounded. Price/Sales Purchase price-to-sales ratio for the target company based on the implied market value of equity divided by the latest reported 12-month net sales prior to the announcement date. Price/Income Purchase price-to-net income ratio for the target company based on the implied market value of equity divided by the latest reported 12-month net income prior to the announcement date. Price/Book Value Purchase price-to-book value ratio for the target company based on the implied market value of equity divided by book value of the target company. Target Invested Capital/EBIT Target TIC-to-EBIT ratio based on the target TIC divided by the latest reported 12month earnings before interest and taxes prior to the announcement date. Target Invested Capital/EBITDA Target TIC-to-EBITDA ratio based on the target TIC divided by the latest reported 12month earnings before interest, taxes, depreciation and amortization prior to the announcement date. Date Announced Date that the acquisition was announced. Date Effective Date that the acquisition became effective. Deal Value ($mil) The aggregate purchase price given to shareholders of the target company's common stock by the acquiring company. Shown in millions of USD and rounded. Deal Currency The target company's local currency. % of Shares Acquired Percent of the target company's common shares purchased by the acquiror in the acquisition. % of Shares Held Percent of the target company's common shares held by the acquiring company on the at Date Announced date announced. % of Shares Held after Acquisition Percent of the target company's common shares held by the acquiring company following the transaction. Purchase Price Per Share (USD $'s) The total consideration paid per share for the target company's shares. Common Shares Acquired (mil) Number of target company's common shares acquired by the acquiring company in the acquisition, shown in millions and rounded. Deal Exchange Rate The Deal Exchange Rate is used to convert the financial data of international deals. It is always going to be 1.00 for US deals. It is expressed in US dollars per unit of foreign currency. This rate is as of the closing date of the transaction. Purchase The total consideration paid per share for the target company's shares, denominated in Price/Share (Home the home currency of the target company. currency) Consideration Consideration denotes the method of payment provided to the target company. The single character codes are C = Cash, D = Debt, L = Liabilities, S = Stock, X = Other (warrants, contingent payments, etc.) Attitude These are only applied to tender offers. The types of attitude are: Friendly, Neutral and Hostile. The form of the acquisition can take one of the following types: Form ACQ -- Applies to transactions where more than 50% of the company is being acquired and results in a change in control. Acq-GP -- Applies to transactions where 100% of the company's stock is bought by a private entity and the target company ceases to exist as a public entity. Acq-MBO -- Acquisition of a company where the primary buyer is the company's management Acq-TO -- Acquisition of a company where the buyer has announced a Tender Offer Acq-TO-GP -- Acquisition of a company where the buyer is a private group and has announced a Tender Offer Div-UMBO -- Unit Management Buy Out, management buys a greater than 50% interest in a division, business unit, or subsidiary Div-Unit -- Divestiture of a greater than 50% of a business unit, subsidiary, or division by a parent company Merger -- Merger of 2 companies into one, where neither of the former companies continues to exist as a legal entity, but one new public company is created Merger-GP -- Merger of 2 companies into one where neither of the former companies continue to exist as a legal entity, but one new private company is created) The two types of Transaction Purpose are Strategic and Financial. These are defined as follows: Transaction Purpose Strategic acquisition/merger -- Indicates the acquirer in the transaction operates in the same business or industry as the target company in the transaction. Unlike financial buyers, strategic buyers are often looking to find synergies with the target company and generally want to acquire the target and hold on to it, whereas a financial buyer generally want to make an acquisition and exit their investment in the target company within a relatively short time frame. Strategic acquisitions can be horizontal (e.g., acquiring companies in same market sector to expand product/service offerings, etc.) or vertical (e.g., acquiring suppliers or other members of the distribution channel to improve efficiency and reduce costs, etc.). Financial acquisition -- Indicates the acquirer in the transaction is making the acquisition for investment purposes and is not making the acquisition for strategic business purposes. Financial buyers frequently include private equity firms, buyout funds, or any other finance related company whose principle line of business is not directly related to that of the target company. Financial buyers are generally concerned about their return on investment, the strength of the management team and the size of the market. They prefer to maintain current management and provide the tools and assistance for growth. They frequently make acquisitions with the intent of exiting at some point in the future when they can maximize their return. What is the source of the information in the Control Premium Study? The sources of the information used include SEC/Government/Regulatory Filings and public announcements for Mergers & Acquisition transactions. Transactions included are only for when a public target is being acquired. An analyst will conduct further research into supporting press releases and SEC filings to find the unaffected price. Does the Control Premium Study include transactions of privately held companies? No, the Control Premium Study only includes transactions where the target was a publicly traded company. I noticed that the Control Premium Study includes SIC codes that aren't part of the master OSHA list. Why is this and what are these codes? In order to better classify the industries of certain acquirers and targets in the Control Premium Study, Mergerstat® created eight additional SIC codes. These codes are not part of the master OSHA list, but are used in the Control Premium Study. These additional codes are: 2837 3445 6189 6197 6199 6771 6781 8747 9011 9141 9151 9161 9171 9181 - Generic Drugs Cables Asset-Backed/Mortgage-Backed Securities Finance Companies Finance Services Venture Capital/Private Equity Special Purpose Vehicles Project Management Services Local Agencies Sovereign Government Province/State Government Municipal Government National Agencies State Agencies Are bankruptcy deal types included the Mergerstat® Control Premium? No. Bankruptcy deal types are excluded from the database. What is the Mergerstat® Control Premium? The Mergerstat® Control Premium is computed by comparing the per share total consideration price for one share of the target company's common stock to the Mergerstat® unaffected price (see below). This preannouncement price is selected by Mergerstat® and based on volume and price fluctuations during the period prior to the acquisition announcement. What are the guidelines for calculating the Mergerstat® Control Premium? 1. 2. 3. Determination of the unaffected stock price Determination of the final price that the acquirer offers, per share, to purchase the target company's common stock, per terms of a tender offer Computation of the control premium using the following equation:(Purchase Price - Mergerstat® Unaffected Price) / Mergerstat® Unaffected Price How does Mergerstat® determine an unaffected stock price? Mergerstat® looks at the trading volume and stock price fluctuations for the year prior to the date of announcement. If they discover there is a significant change in stock trading activity, they conduct research to determine the reason for such changes. If the reason is due to potential M&A activity (i.e. the target company has hired a financial advisor to seek buy-out opportunity, or the target company is in talks with potential buyers), then the earliest date before such announcements will be selected as the unaffected date, since this date is representative of normal pricing activity. If no talks or rumors were disclosed prior to the announcement, one day prior to announcement will be selected as the unaffected date. The Mergerstat® unaffected stock price is the stock price on the unaffected date. How does Mergerstat® determine which financial statements to use for the target acquired? Mergerstat® uses the latest financial statements available prior to the announce date. For example, if the announce date was February 25, 2011 (bidder agreed to buy target and announcement was made), Mergerstat® would use the latest financial statements of December 31, 2010. If this deal closed on April 20, 2011, Mergerstat® would not use the financial statements of March 31, 2010--the latest financial statements available prior to the announce date would be used, which would be the financial statements of December 31, 2010. Can you give an example calculating the Mergerstat® Control Premium? As an example, let's use "Optical Coating Laboratory Inc."; SIC code is 3827. Unaffected price is $119.25 per share Purchase price per share is $400.55 Control Premium is 2.36 The acquiror paid a premium over the Mergerstat® unaffected price per share of 2.36 TIMES ABOVE the Mergerstat® unaffected price per share. With this example, the acquiror paid $281.43 per share (2.36 X $119.25) above the unaffected price of $119.25 per share, or a total price of $400.55 per share ($281.43 + $119.25). The key phrase is TIMES ABOVE the Mergerstat® unaffected price. The acquiror paid 2.36 TIMES ABOVE the Mergerstat® unaffected price or 3.36 TIMES the Mergerstat® unaffected price. It is more practical to express this number in percentage since that is the standard way of showing premiums: in this example the control premium would read 236%. What is "attitude" and how does Mergerstat® determine the "attitude" for each transaction? Attitude indicates the way the target's board of directors viewed the acquirer's proposal to enter into a transaction with the target - Hostile, Friendly, Neutral. This data item is only populated if the transaction is a Tender Offer. Hostile: the target's board of directors viewed the acquirer's proposal unsatisfactory and recommended that shareholders reject the offer. Once a transaction is Hostile, it will remain Hostile even if it is subsequently recommended by the target's board. Friendly: the target's board of directors viewed the acquirer's proposal as satisfactory and recommended that their shareholders accept the offer. Neutral:the target's board has not yet made a determination of whether to reject or accept the unsolicited offer OR the offer is a legally required, mandatory tender offer for additional shares in which the target's board has no discretion. Describe the proper use of the Mergerstat Control Premium -- how should it be selected for a given engagement? The most likely case for the use of the Control Premium study would be for publicly traded company whose quoted market price could serve as a fair value estimate. Lower valuations are used by the acquirer to evaluate internal synergies, with higher valuations justified by expected value of external synergies such as goodwill. The CPS can also be used for valuations of private companies with determining multiples price to book, price to revenue, and EBITDA multiples being used for companies of similar size I noticed that the FactSet Mergerstat® / BVR Control Premium Study™ calculates a minority discount; what is the formula that the database uses to calculate this discount? The database uses the following calculation: Implied Minority Discount = 1 - [1/(1 + control premium)] An alternate equation that can also be used to determine the Implied Median Minority Discount is (where CP is the Control Premium): Implied Median Minority Discount = CP / (1 + CP) Is there any theoretical research that affirms that the inverse of a control premium is an implied minority discount -- or is this simply accepted in the business valuations profession? The minority discount is widely perceived of as the inverse of the control premium, where as an acquirer would assumingly pay a higher price for control in a company and pay a lesser amount for a minority stake. An alternative theory used by appraisers and other professionals, was that the control premiums that were observed in the public markets tended to be paid by strategic buyers, or buyers that had the ability to derive synergies from combinations or had other, specific, strategic intent. There is another large category of buyers of companies, the financial buyer. Financial buyers may not have the ability to derive synergies from an acquisition, but they can seek financial returns from their investments. How does a practitioner know when to apply a control premium or a minority discount? This document is an excerpt from the PowerPoint for BVR's March 2008 webinar, Getting the Most from the FactSet Mergerstat®/BVR Control Premium Study™, and is helpful in thinking about this question. Why are some of the Alacra-sourced Mergerstat transactions not present in the FactSet Mergerstat®/BVR Control Premium Study™? Because the CPS is the result of an analysis of the data by Mergerstat research analysts who review each controlling acquisition for its relevancy for inclusion in the Study, the CPS does not include transactions deemed to be outliers. The CPS also does not include the valuation multiples for transactions where the valuation multiples fall outside the following ranges (the transactions are included, though): o o o o o Price/Sales: 0-10X; Price/Income: 0-40X; Price/Book Value: 0-10X; TIC/EBIT: 0-35X TIC/EBITDA: 0- 25X These values were established as acceptable ranges when the Study was first put together in the early 1990s. The CPS includes a control premium that is based on an unaffected price. This price is chosen after an analysis of the trading volume and stock price fluctuations for the year prior to the date of announcement. The Alacra-sourced Mergerstat data does not include a control premium based on an unaffected price. Does the MVIC include or exclude the value of any non-compete or employment agreements in the Mergerstat CPS? MVIC does not include the value of any non-compete or employment agreements. The Base Equity Price is only comprised of what the Target is offered (price per share) multiplied by the Target's outstanding share amount. In the FactSet Mergerstat®/BVR Control Premium Study™, what is the amount of shares that the acquirer needs to purchase from the target for the transaction to be included in the study? The study includes all deals in which the buyer has both a controlling stake in the target (50.1% or above) after the transaction and had a minority stake (or 0% stake) in the target prior to the purchase. So, if a company owned 40% and purchased 11% this transaction would be included. But if a company had a 54% stake and bought 11%, it would not be included. How does Mergerstat determine the four transaction types (conglomerate, financial, vertical and horizontal)? By definition, they are as follows: Horizontal – both the target and acquirer are in the same industry and they compete directly in the same product lines or markets. This is a strategic transaction. For example when 2 banks are combining, it is horizontal because they are in the same business line. In most cases, the reason behind such transaction is to create an economies of scale Vertical – the target and acquirer are involved in different stages of the production process, such as when a manufacturer acquires a distributor. This is a strategic transaction. Financial – the acquirer is a financial buyer. The buyer may be funded by a buy-out fund or specially formed group of private investors or achieved through a leveraged buyout. The motivation is not strategic, but financial and has the backing of outside investors. Other examples would be acquisitions by public shells and Management Buy-Out deals. Conglomerate – the target and the acquirer are in completely unrelated industries such as when a hotel acquires a radio station or when a waste collection company acquires auto distributors. Why does Mergerstat exclude valuation multiples that fall outside the following ranges: Price/Sales: 0-10X; Price/Income: 0-40X; Price/Book Value: 0-10X; TIC/EBIT: 0-35X and TIC/EBITDA: 0- 25X? How were these ranges selected and doesn't this introduce a bias into the data? These values were established as acceptable ranges when the study was first put together in the early 1990s. The ranges were developed and verified through Mergerstat’s relationships with investment banking firms [specifically HLHZ]. While it is true that excluding multiples from the ranges could introduce bias, our experience has been that the vast majority of transactions fall within these ranges (for at least one category). Please note the valuation multiples are excluded but the transactions are not. What are the main differences between the Mergerstat data in Alacra and the FactSet Mergerstat®/BVR Control Premium Study? There are several differences between the two databases. 1) The Mergerstat/BVR CPS database contains only deals where the result is that a controlling interest is being exchanged (more than 50%), while Alacra covers all deals regardless of the percentage interest being exchanged. 2) The Mergerstat/BVR CPS database bases the control premium on an Unaffected Price (as well as 1-day, 1-week, 1-month, and 2month price), while Alacra only uses a 1-day, 1-week, and 1-month price. What is the main difference between the FactSet Mergerstat®/BVR Control Premium Study™ database and the Mergerstat® Review publication? When calculating the control premium, the Mergerstat® Review uses the stock price on the acquisition announcement date, while the FactSet Mergerstat®/BVR Control Premium Study™ uses the unaffected price from potentially a different day from the announcement date price. Furthermore, the FactSet Mergerstat®/BVR Control Premium Study™ includes only controlling purchases while the Mergerstat® Review includes both controlling and non-controlling purchases. For a more detailed comparison, please see our Comparison Chart We recently ordered the online Mergerstat® / BVR Control Premium Study™. Does the Mergerstat® Review contain information not included in the FactSet Mergerstat® / BVR Control Premium Study™? What are the differences, if any? The FactSet Mergerstat® / BVR Control Premium Study™ provides the actual transactions, their multiples and control premium and builds from there to deliver the range, mean and median premium by industry or by quarter or 12-month summary. It also provides the ability to develop aggregate figures over longer periods - like a chef would produce a meal from individual ingredients. The Mergerstat® Review™ takes the individual transactions (in this publication, the details are not available, except for a limited transaction roster in the book) and processes them into results - overall M&A market analysis, industry analysis, geographical analysis - like ready to consume food in the compartments of a frozen dinner tray. There are advantages for any firm to owning both publications because there is little overlap. The Mergerstat® Review™ covers a much broader spectrum of M&A deals whereas the Mergerstat® / BVR Control Premium Study™ focuses on premiums. Why doesn't the FactSet Mergerstat®/BVR Control Premium Study™ contain as many transactions as are shown in the 2001 Mergerstat® Review? Because the FactSet Mergerstat®/BVR Control Premium Study™ contains data back to 1998 inclusive, one might think that the online version would have over 24,000 deals (4 years X 6,000 deals) in it. Why the discrepancy? The reason the FactSet Mergerstat®/BVR Control Premium Study™ does not have as many closed transactions as the Mergerstat® Review is because the CPS only contains information involving PUBLIC targets. The CPS tracks all closed deals on a quarterly basis involving worldwide public targets. Also, the Mergerstat® Review includes both closed and announced deals; FactSet Mergerstat®/BVR control Premium Study™ only includes closed deals. Information in the Mergerstat® Review is only limited to transactions involving US companies, therefore it will contain public, private, divestitures, and cross-border deals. The CPS is an in-depth extension of the public portion of the Mergerstat® Review, updated quarterly. My firm subscribes to both the Mergerstat® Review and the FactSet Mergerstat®/BVR Control Premium Study™ (CPS). Recently, I noticed a difference that I cannot reconcile. Within the Mergerstat® Review, there is a chart that details the premiums paid for acquisitions of publicly traded companies. From 1998 to 2000, the number of transactions was as follows. 1998 512 1999 723 2000 574 When I sort the CPS by year I get the following: 1998 406 1999 677 2000 925 Could you help me understand why there might be discrepancies in the transaction totals? The main difference between the two products stems from the inclusion criteria for each publication: The premiums in the Mergerstat® Review are only for US public targets. The data for the year comes only from deals announced during that year that meet the criteria (of being a US public company). The premium information from the CPS comes from worldwide public targets where a controlling interest was acquired, and the transaction closes during the specific quarter in which it is tracked. Regardless of what year a deal is announced, it is only included in the Study when itcloses. The main differences are US vs. worldwide data; controlling vs. minority & controlling data; and announced date vs. closed date. The data in the 4Q CPS are the most likely to compare with the data in the Review, but because of the difference in announce/close date criteria, they never match up exactly. Are all transactions in the FactSet Mergerstat® / BVR Control Premium Study™ stock purchases, or are some asset purchases? The vast majority of transactions in the CPS are share purchases. Generally asset purchases get weeded out in our screening process for a variety of reasons ~ price is for assets only, no per share amount for shareholders, sale is through bankruptcy courts, no financials available for assets only, etc. I see that you show the Harmonic Mean in the Transaction Summary table results for the valuation multiples. What is the Harmonic Mean? In the Transaction Summary of the Subscriber Search Results we present medians, averages, coefficients of variation and harmonic means, depending on the data. Many practitioners and academics believe the harmonic mean is a better measure of central tendency for valuation multiples than the mean (the arithmetic average) or median (the middle value in a series). Quoting Wikipedia: The harmonic mean is the preferable method for averaging multiples, such as the price/earning ratio, in which price is in the numerator. If these ratios are averaged using an arithmetic mean (a common error), high data points are given greater weights than low data points. The harmonic mean, on the other hand, gives equal weight to each data point. Shannon P. Pratt of Shannon Pratt Valuations, Inc. writes on page 140 of his Second Edition of The Market Approach to Valuing Businesses: Although the harmonic mean is not used frequently, probably because it is unfamiliar to most readers of valuation reports, it is conceptually a very attractive alternative measure to central tendency. In addition, Gilbert Matthews of Sutter Securities Inc. wrote an article in the June 2006 Business Valuation Update™ issue that is available here that explains what the Harmonic Mean is and provides a detailed example. Mark G. Filler of Filler & Associates P.A. replied to Mr. Matthews in the August 2006 Business Valuation Update here. In addition, Mr. Matthews was quoted in the July 2001 Business Valuation Update™ as follows: The harmonic mean is preferable in any ratio in which price is the numerator. For yields, when the price is in the denominator, an arithmetic mean is correct. An example is the “earnings yield” (EPS/P) rather than PE used by the British. If price is the numerator, the result is an inverted ratio for which the harmonic mean is statistically a more appropriate measure of central value. The harmonic mean gives an equal weight to an equal investment in each company, while the arithmetic mean gives three times the weight to a multiple of 30x compared to a multiple of 10x. For most other uses in valuation, the arithmetic mean is appropriate. For a fuller discussion, see “Fairness Opinions”1 by Mark M. Lee and Gilbert E. Matthews and page 139 and 140 of the Second Edition of The Market Approach to Valuing Businesses by Shannon Pratt. 1 “Fairness Opinions” (Gilbert E. Matthews and M. Mark Lee), in The Handbook of Advanced Business Valuation, R. Reilly and R. Schweihs, eds. (McGraw Hill, 2000). Lastly, here is an example that is provided by Toby Tatum and is representative for the business valuation profession. In addition, Toby has posted an article at his website that further investigates the harmonic mean: When calculating the average selling price (SP) to earnings ratios for businesses within a defined industry let’s assume the known selling price to seller’s discretionary earnings (SDE) for one comparable company is 3.0 times earnings and for another it is 2.0 times earnings. The object of the exercise is to determine, on average in a defined industry, what a business is worth based on a given level of earnings. The arithmetic average of these two is 2.50 times earnings. This suggests that if a business has an SDE of $100,000 it is worth $250,000. Now, do the math for each business purchase separately. Assume the first buyer paid $300,000 for a business with an SDE of $100,000 (i.e., 3.0 times SDE). Assume another buyer paid $300,000 for a business with annual SDE of $150,000 (i.e., 2.0 times SDE). The total price paid for both businesses is $600,000 and the total SDE purchased is $250,000. This yields an average SP/SDE ratio of $600,000 divided by $250,000 or 2.40 x SDE. 2.40 is the harmonic mean value of the Selling Price to Seller’s Discretionary Earnings in this industry. Thus we can conclude that, on average in this industry, if a business has an SDE of $100,000, it is worth $240,000, or for every $1.00 in SDE, the seller gets $2.40 (and not $2.50 as computed via the arithmetic mean above). Therefore, if one is to assume that the fair market value of a subject company is equal to the “average” selling price to earnings ratio for the comparable transactions selected to represent that industry, then the multiple to apply against the known earnings of the subject company must be the harmonic mean value of the comparables, and not the arithmetic mean. Would you please explain the "Coefficient of Variation" and how we should utilize and interpret each calculation? The Coefficient of Variation = Standard Deviation / Mean (mean is the same as the average) The Coefficient of Variation is a measure of dispersion around the mean (average). The theory is that the valuation multiples with the lowest Coefficient of Variation are those with the least dispersion around their respective means and may be the better indicators of value. The value derived using these valuation multiples may be weighted more heavily than those with larger Coefficient of Variations. Why don't I see my SIC code of interest in the search engine's list of SIC codes? The Web site's search engines use the underlying data to create the list of SIC codes. If your SIC code is not listed in the search engine, this means there are no transactions with that SIC code in the selected database. You may want to search the other databases to see if they have any helpful data. You can search all databases at the same time, by SIC code, by either clicking here or selecting the "Search All" menu option at the top left. The results of this search engine will display the number of transactions contained in each BVMarketData database. If you click on each databases' representative number, the Web site will display a summary of the data in that database. If you are a subscriber to the selected database, the Web site will display the subscriber search results. If you are not a subscriber to the selected database, the Web site will display the visitor search results. In the FactSet Mergerstat®/BVR Control Premium Study™, I notice none of the companies in the SIC code 6000 and 7000 series contains a calculation for the TIC/EBIT and TIC/EBITDA multiples. The information to calculate these multiples is often included in the underlying data, but a valuation multiple is not displayed. Why is this? These valuation multiples are normally not meaningful when pricing financial companies, therefore, the FactSet Mergerstat®/BVR Control Premium Study™ has never calculated the TIC/EBIT and TIC/EBITDA multiples for the companies that fall in the SIC code 6000 and 7000 series. This relates to all companies in the Finance, Insurance, and Real Estate industries. What are the thresholds for company's financials and valuation multiples that Mergerstat® will include in the Control Premium Study? For company financials, including sales, net income, EBIT, EBITDA, and book value, Mergerstat® presents the latest twelve month (LTM) numbers including both positive and negative figures. However, for valuation multiples, including Price/Sales, Price/Income, Price/Book Value, TIC/EBIT and TIC/EBITDA, Mergerstat® has guidelines for including ratios that are considered representative for the Control Premium Study. For reference, Mergerstat® only includes the multiples that fall in the following ranges: Price/Sales: 0-10X; Price/Income: 0-40X; Price/Book Value: 0-10X; TIC/EBIT: 0-35X and TIC/EBITDA: 0- 25X. Please note the valuation multiples are excluded but the transactions are not. We were wondering about the number of bank and thrift transactions in the FactSet Mergerstat®/BVR Control Premium Study. The SIC codes we used were 6021, 6022, 6035 and the NAICS codes were 52211, 52212. For 2003, only 4 transactions had data when, per SNL Financial, 135 bank and thrift transactions have occurred this year. Why is there such a large discrepancy? There could be several reasons as to why there are so few bank transactions in the FactSet Mergerstat®/BVR Control Premium Study. Oftentimes, the price paid per share was not disclosed and a lump sum was given as the purchase price, therefore a premium could not be calculated. Also, sometimes banks don't always disclose their outstanding shares in their filings, especially if they are private. Financials can be obtained but if they are private, there would not be any trading prices, therefore a premium would not be able to be calculated. These would be some of the reasons why many bank transactions might be excluded from the FactSet Mergerstat®/BVR Control Premium Study. How does FactSet Mergerstat®/BVR Control Premium Study calculate LTM sales figures for banks? LTM revenues for banks are calculated from interest income and non-interest income such as commissions, foreign exchange income, etc. Can I use public company data to value a private company? Yes, sale details on publicly traded companies (valuation multiples for publicly traded companies can be found in the Public Stats™ database and the FactSet Mergerstat®/BVR Control Premium Study™) can be used to value a private company. The indicated value utilizing the sale of an entire public company will result in a control value. It normally would not be appropriate to add a control premium. One or more discounts may be appropriate, depending on the valuation assignment. For more details, see The Market Approach to Valuing Businesses by Shannon Pratt (New York: John Wiley & Sons, 2001. p. 39). It appears that a business’s “selling price” in each database at BVMarketData.comsm uses different terminology; can you please clarify the “selling price” in each database? Below, we show the term used for the “selling price” in each BVMarketData.com database and its respective definition: Pratt’s Stats® uses the term MVIC (Market Value of Invested Capital) for the “selling price.” The MVIC is the overall consideration in the business sale and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer. The FactSet Mergerstat®/BVR Control Premium Study™ also uses two terms for the “selling price”; the Target Invested Capital (TIC) and Price. The TIC is the target company's implied total invested capital based on the sum of the implied market value of equity plus the face value of total interest bearing debt and the book value of preferred stock outstanding prior to the announcement date. The Price is the implied market value of equity. BIZCOMPS® uses one term for the “selling price”; Sale Price. Sale Price is the actual sale price ($000's) where inventory has been deducted, if it was included in the sale price. Public Stats™ uses the term MVIC (Market Value of Invested Capital) for the “selling price.” The MVIC is the overall consideration in the business sale and includes any cash, notes and/or securities that were used as a form of payment plus any interest-bearing liabilities assumed by the buyer. The FMV Restricted Stock Study™ does not report details on the sale of either a portion of a company or an entire company and therefore does not contain a selling price field. Instead, this database reports the details related to transactions in restricted stock. This database does report a Market Value (in $000s) which is the market value of the firm determined on a pre-deal basis. The market value is calculated by multiplying the shares outstanding before the private placement with the high-low average market price for the stock for the month prior to the transaction. The market value is not the selling price, per se, but a calculation of the value of the total equity on the date of the restricted stock transaction. The Valuation Advisors’ Lack of Marketability Discount Study™ does not report details on the sale of either a portion of a company or an entire company and therefore does not contain a selling price field. Instead, this database reports the details related to transactions in common stocks, stock options or convertible preferred stocks prior to an initial public offering, and the relationship of these prices to the IPO price per share (the price of the stock paid by the initial public investors to acquire their shares). How do your subscribers pass along to their clients the expenses they incur for guideline company data, control premium data, discount for lack of marketability data, economic data, industry data, etc? Some of our subscribers impose a separate resource/technology charge for every valuation assignment. They know approximately how many appraisals they do per year and divide that number into the [annual] costs of the databases and basic data resources they use, thereby passing along the resource (or technology) charges. Can I print more than one transaction at a time? To print a group of transactions (the current group size is 10); on the search results page in the list of transactions, utilize the icon that looks like a red piece of paper – it is labeled “Print Detail Report Package”. When printing more than a couple of detailed transaction reports, this will save you time. I want the transaction reports to fit onto one page, instead of two. What can I do to make this possible? The best solution is to maximize your print margins. In Internet Explorer the default margin size is 0.75 inches. When you print transaction reports, reduce the print margins to 0.25 inches and most will fit on a single page. Also, you should remove any header/footer information that Internet Explorer includes in web page printouts. The print margins and header/footer settings can be found under File -> Page Setup in Internet Explorer. How can I expand my 4-digit SIC search to a 3-digit search or 2-digit search (select more than one SIC code)? By pressing and holding down the LEFT mouse button, you can highlight a series of SIC codes (either by two digit SIC codes, three digit SIC codes or any series you want [all of manufacturing, for example]). By holding down the CONTROL button on the keyboard (and clicking with the LEFT mouse button), you can highlight a noncontiguous group of SIC codes. Each time after I alter my search of the database and I ask for a printable format, the results of my very first search continues to show in the printable format window. Is there something different that I can do so that I can print the results of the most current search? Assuming you are using Microsoft Internet Explorer, please do the following: In Internet Explorer, go to the Tools/Internet Options menu On the General tab, in the Temporary Internet Files section, click "Delete Files" On the General tab, in the Temporary Internet Files section, click "Settings" If it is not already clicked, click the "Every visit to the page" radio button, then click "OK" I am unable to get the printable format window to appear when clicking on “Printable Format” or the Excel download when I click "Excel Format." Check your browser version and update to the latest. Also, check if you have some sort of pop-up window blocker, you need to disable the pop-up window blocker. Some of the more advanced pop-up window blockers will allow you to customize the specific pop-ups you would like to allow. Otherwise they will need to disable the program in order to view the printable format. Some pop-up blockers can be temporarily disabled by holding the "Ctrl" and "Alt" keys on the keyboard when you are attempting to allow pop-ups. Why don’t I see Excel Export as an option when I use Mozilla Firefox? Currently the Excel Export feature on BVMarketdata.com is only supported in Internet Explorer. The Excel Export uses VBScript which is only supported in Internet Explorer. We are in the process of updating the export function to be compatible with other web browsers. An alternative would be to use the Email to Me option which will email the data to you in a comma separated file. When I click on the Excel Format button I am asked “Do you have Microsoft Excel installed?” I answer yes and then nothing happens. What is the fix for this? This typically happens when the subscriber is using a pop-up blocker. To bypass the pop-up blocker, press down on your “Shift,” “Control,” or "Alt" key (try all) prior AND during clicking on the Excel Format button – this should bypass the pop-up blocker. If you are able, you may also add www.BVMarketData.com as a “trusted” site in your pop-up blocker program – this would negate the need to hold down your Control button when you next use the Excel Format button. We are Windows users and are not successful in downloading the data to Excel format. If you are using Outlook to browse the internet, you may experience this problem. Apparently web browsing within Outlook has problems passing data from one page to another. To solve this, exit Outlook and use Internet Explorer to access our website. Another possibility is that you may have a pop-up blocker that is preventing the new window from appearing. To solve this, disable your pop-up blocker by (1) turning the pop-up blocker off until you are done exporting the data (2) holding either shift or control (dependent on your pop-up blocking software) which allows you to temporarily allow pop-ups while the button is pressed, and then reverts to blocking popups once the button is depressed or (3) find the options or settings on your pop-up blocker and choose to allow pop-ups from our website. We are Mac Users and are not successful in downloading the data into Excel format. Make sure you are using the most recent version of Internet Explorer for Mac. Here's a link to download the most recent version of IE for Mac. http://www.microsoft.com/mac/download/default.asp#IE If you are running Office 2001 for Mac, make sure you have the latest version. Click the link below to download it and install it. http://www.microsoft.com/mac/downloads.aspx#office2001 and click on Microsoft Office 2001 Combined Update 9.0.4 If you have any further questions please contact the Webmaster via e-mail at: [email protected] or phone at 888-287-8258 and ask for Nathan. I am having trouble viewing the Excel Exported data in Excel 2000. Can you please help with this? sm If you are having trouble viewing the Excel exported data from BVMarketData.com and are using Excel 2000 (other versions of Excel have not exhibited this problem), please read the following. In the original version of Office 2000 there was a bug when passing Excel data over the web. This problem was fixed in a service pack released by Microsoft. Once you install this service pack update on your sm computer you should not have any trouble viewing the Excel data from BVMarketData.com . To update your Office 2000 to the latest service pack release, please locate your Office 2000 CD or Excel 2000 CD and then visit the following web site at Microsoft.com: http://office.microsoft.com/ProductUpdates/default.aspx At the top of the page click on the following link: Check for Updates You will then be taken through a process of updating your Office 2000 install on your computer. This will update your Excel application as well. During the install, it will ask for your Office 2000 CD. If you have any questions please e-mail Nathan Struk at: [email protected] Last updated: 9/22/2014 Copyright © 2014 Business Valuation Resources, LLC. All rights reserved. (503) 291-7963
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