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Introductions To Valuation Methods and Requirements 1672683839
Introductions To Valuation Methods and Requirements 1672683839
April 2022
M&A: The Process and
Key Considerations
Agenda 1
2
Reasons for M&A
M&A Process
M&A Considerations
3
Why understanding of
Merger & Acquisition
is vital for businesses
in Cambodia?
Introduction to M&A
M&A (merger and acquisition) refers to the consolidation of 4 Types of Mergers and Acquisitions
companies or assets through various types of financial transaction.
1 2
MERGER
▪ Corporate strategy of combining two separate
entities into a single company Horizontal Vertical
ACQUISITION when the two companies are in when the two companies are in
What is M&A?
3 4
Concentric Conglomerate
when the two companies have when the two companies have
the same customer base but different businesses
different products
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© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 6
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
— Strategically driven
— Sector
— Synergies
— M&A appetite
— Financial capacity FINANCIAL BUYERS
— Geography
— Financially driven
— Sector
— Deal size
— IRR
— Management
— Geography
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
— Define M&A strategy — Organize search team and — Plan M&A due diligence — Develop target valuation — Establish M&A integration
and goals plan target screening management office(s)
— Organize due diligence — Develop M&A deal structure
— Create M&A executive — Identify potential M&A teams — Communicate M&A
— Present M&A deal offer
member targets integration plan
— Define due diligence
— Negotiate M&A deal terms
— Screen, select, and contact approach, methods and — Integrate customers, markets,
target candidate(s) protocols — Plan M&A integration products, IT infrastructure,
— Execute confidentiality — Conduct M&A due diligence — Conduct M&A deal closing data and systems
agreement — Integrate the organizations,
— Compile and analyze due
— Analyze potential M&A diligence workforce, functions,
synergies operations, locations and
facilities
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 16
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 17
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
— Market approach
— Income approach
4 Case studies
6 Q&A
Definition
Remarks: All example calculations and case studies presented are for illustration of the methodology only. They are not meant to have implications on values of or valuation methodologies
applicable for real entities or businesses. Likewise, any parameter choices adopted in the example calculations are just examples and cannot construed as views of KPMG.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 23
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Value is the price at which a typical, rational financial buyer would buy.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Negotiation
position
$m
Performance
improvement
$m
Price
Synergies
$m
Stand-alone value
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2) Income approach:
Value derived from the asset’s ability to generate future economic benefits (cash flows, cost savings, etc.)
3) Asset-based approach:
Value derived from the costs for replacing the asset (exact replacement, replacement in function)
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 29
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 30
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 31
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Other way: assume people would pay 41.5 = 50 x (1-17.0%) for a 50% chance to get 100
𝟒𝟏. 𝟓
Then PV = = 𝟒𝟎. 𝟑
(𝟏 + 𝟑%)
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
3 years to maturity
Base rate 1.0%, credit spread of issuer 4.0%, factoring of COVID-19 into corporate bond valuation 1.0% -> discounted at 1.0% + 4.0% + 1.0% = 6.0%
— Recent transactions
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
1060.0
1040.0
1020.0
1000.0
980.0
940.0
920.0
900.0
880.0
1 2 3 4 5 6 7 8 9 1011 1213141516 17181920 2122232425 26272829 3031
accrued interest
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3 years to maturity
Base rate 1.0%, credit spread of issuer over gov’t rate 3.5%, risk premium for COVID-19 1.0%
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 39
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 40
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Indication of value
Present value of FCFs 1,942 38%
Present value of TV 3,174 62%
Indicated enterprise value 5,117
Less: net debt (354)
TV is a large
Indicated equity value, minority and marketable basis 4,763
% of Value
Less: marketability discount 0.0% -
Indicated equity value before control premium 4,763
Add: control premium 25.0% 1,191
Indicated equity value after control premium 5,953 Control Premium
100% equity value, control and non-marketable basis (rounded) 6,000
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 42
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Cost of Equity
k e = Rf + ERP +
or
k e = Rf + (Rm − Rf ) +
WACC
+ k d (1 − t )
E D
WACC = k e
D+E D+E
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5. The cost of debt of 10% is based on the current average interest rate of VND loans Pre-tax cost of debt [5] 10.00%
of most local commercial banks for local companies in Vietnam, based on SBV’s
Tax rate [6] 20.00%
Weekly Bulletin on Banking Operations
After-tax cost of debt 8.00%
6. Corporate tax rate in Vietnam as at Valuation Date
7. Based on median debt-to-equity ratio for comparable companies as a proxy for Proportion of debt [7] 24.15%
long-term optimal capital structure
Proportion of equity 75.85%
WACC 10.81%
Rounded 11.00%
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member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 45
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 46
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 47
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
© 2022 KPMG Cambodia Ltd., a Cambodian single member private limited company and a member firm of the KPMG global organization of independent 48
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
$
Company Value
Time
In Vietnam, DCF is usually the standard approach!
If possible, use different methods for cross-check
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