P4小册子-10.pdf

10: Valuation for acquisitions and mergers Topic List There are different methods for predicting earnings growth for a company, using external and internal measures. An acquisition potentially affects the risk of Valuation issues the acquiring company and its cost of capital. First, we consider the ‘overvaluation problem’: the Type I problem that when a company acquires another Type II company, it often pays more than the company’s current market value. Type III High-growth start-ups Intangible assets Valuation Type I Type II Type III High-growth Intangible issues start-ups assets The overvaluation problem Estimating earnings growth Gordon constant growth model: is paying more than the current market value, to acquire a company. FCF0 (1+ g) PV = (k - g) During an acquisition, there is typically a fall in the price of the bidder and an increase in the Three ways to estimate g: price of the target. Historical estimates: extrapolate past values The overvaluation pro