Reference no: EM132745082

Buyer's M&A director Gregg Ruby: "we can see that your team prepared some benchmark valuations based on local and international comparable companies and deals. We ask you to analyse numbers in the comparable valuation table and apply relevant discounts/premiums for the deal".

Table 1.

Simpsons stores local 2017A 2018A 2019F
Sales (2 locations) $ 6.0 $ 10.0 $ 17.0
Operating Costs (4.2) (6.6) (11.5)
Operating Income 1.8 3.4 5.5
Depreciation and Amortization 1.0 1.2 1.5
Net debt of the company 20.0

Table 2.

RaTrade 2017A 2018A 2019F
Sales (20 locations) $ 120.0 $ 134.0 $ 145.0
Operating Costs (90.0) (104.5) (111.7)
Operating Income 30.0 29.5 33.4
Depreciation and amortization 5.0 4.5 6.0
Net debt of the company 56

Table 3.

Comparable ratios International Public
EV/EBITDA 6
EV/Operating income 8

Discounts/premiums Based on local and international
Minority discount 20%
Control premium 25%
Liquidity discount 30%

1) What is an average valuation of the Target based on the forecasted Operating income and EBITDA?

2) What are the applicable discounts/premiums for the deal? Explain specifically why you use or do not use them?

3) What is the average valuation based on (a) and (b) above if at the beginning the Buyer will acquire only 80% in the Target? What is the price if 100% is acquired?