Webinars Archives - Valutico

The Alpha Webinar – June 2021

Valutico — Mon, 07 Jun 2021 19:59:42 +0000

In this webinar Valutico and Steve Shaw explain the impact of risk from Covid 19 on the alpha of a valuation and explore risk grading

Automated Transcript (may contain some transcription errors)

Mathieu Guerville 0:02
clarify starting that right now. And I guess let’s get started and that to be respectful of the time for everyone who has been already in the waiting room for quite a bit. Welcome, everyone. Good morning. Good afternoon. Good evening, wherever you may be. We are delighted to have you today for the alpha webinar hosted by other legal and financial seminar limited. Today, we have a pretty packed agenda. And so I want to dive right into it, introduce our speakers, and give you as much content and as much of an opportunity to ask questions and engage as possible. The quick welcome was performed by myself, as well as the demo that we will offer after the discussion for those of you that are interested, and have a little bit of extra time, we’ll be doing a brief intro of political and financial analysis before diving into discussion, and then opening up the floor for q&a, questions, comments, anything that you may have, by all means this call is being recorded. And so if you cannot attend fully, we will make the recording available. If you have questions or comments, we have many ways of doing so you can raise your hand, use the chat or the q&a feature of zoom, I will be moderating and watching it so that I can properly bring you on stage if you’d like to do so. But Phil Now, I’d like to introduce Paul rush, who is the founder and CEO of Politico, alumni of Dodger bank, London Business School, and many other things that we will not cover right now. And Steve Shaw and alumni of KPMG, audit partner for quite a few years before, I think now nearly three decades of workshops and seminars specializing in corporate finance and in particular evaluation. So Paul and Steve, the floor is yours. A few Thank you very much. And, again, Steve, thank you very much for joining us. For those of you attendees who don’t already know, Steve, is not only one of the most knowledgeable people in valuations, but he’s probably also the most entertaining person you can listen to when he talks about valuation. So absolute pleasure, Steve, thank you for joining us today the pressure, then pull.

Paul Resch 2:02
Yeah, welcome to the session today. Two quick words about Valutico. As many of you might know, business valuation is more art than science, a common common saying that you hear a lot. We disagree. We think it’s neither science nor in art, we think it’s a craft. And like any other craft, what you need is the right tools, you need experience. And you need to know how. And you know, we want to give you these tools, right? You all know what the status quo is, you probably all work in spreadsheets, you work with online databases, you somehow have to get all of these inputs together. But it is a bit different. So political is an integrated web based solution, a cloud based solution, that means we’re connecting to the world’s leading financial databases, we semi automate certain processes for you. So that in the end, you can focus on what’s what’s most relevant, right? We don’t want you to spend your days doing cost of capital calculation. We want you to spend time with your clients. And so for that, we automate the number crunching. Well, today we’re active in over 35 countries, probably closer to 40. Now, just edit was in Cyprus in Estonia last week, we have 250 customers, and we provide you data on most publicly listed companies globally, as well as over an 800,000 preference transactions. Just a few examples here of companies we work with, out of the top 20. audit and tax networks globally. We work with over 10. We are headquartered in Vienna, Austria. And we have offices in the US and the UK. Hopefully a few more relatively soon. 40 team members and growing relatively quickly, all there to help you succeed. Just a little snapshot of the markets we’re in right now. We started only three years ago, years ago. So it was quite a quite a journey for us. Yeah. And hopefully today up tomorrow, we’re the One Stop solution for everything that’s valuation relevant. That’s really our goal.

I keep it brief. Steve, over to you for little introduction about financial seminars.

Steve Shaw 4:10
Okay, well, thanks very much bull.

I’ve been teaching for a long time. But I’ve also been doing a lot of consulting and it’s something I’m passionate about. valuation is something which I think is very useful for society. And the difference between value and price is probably what drives me most about what’s what’s going on here. And Paul says, you know, a one stop shop for valuation. But of course, there’s always going to be room for subjective issues. And alpha is one of these. And that’s, that’s something which we’re going to discuss a little bit more over the next next few minutes. So next slide, please. Thank you. Great. And so we’re going to start the discussion. It will also issue a quick poll to see where all of you are coming from. We have now 69 parties event which I think maybe a record. I’m going to trigger the poll to figure out where you are

Mathieu Guerville 5:00
Located and meanwhile polling Steve, please take it away have a discussion.

Steve Shaw 5:06
Okay, well, I think the this this slide really is to is to, is to set out the the connections, because at the end of the day, we’re looking for the risk of the cash flows. And that’s all we’re looking for. Of course, we jump through various hoops for that. So on the on the left here, you’ve got risk free rate, I think if we put all the builds on mature that will, that will work their risk free rate market risk premium, in the same color, because they’re linked. And they’re linked. Because the risk free rate that you use, if you use the market risk free rate, and the markets doing some weird things at the moment, then you’re going to use a market risk premium, which is directly linked to the market. Those the major one would be damodaran. In the US and, and then KPMG. And Netherlands in Europe, it does a very good one where it links up to the market every month. So one of the things we’re going to see, or we may have time to do if we’re looking at COVID is the importance of the terminal period. And there’s one issue here with the risk free rate and the terminal period is we may have to decide whether this these some of these negative rates are actually going to persist during the period, the terminal period, you know, there may well persist for the next three or four years. But who knows, and the decide whether we’re going to have some growth, terminal growth, and how that terminal growth will link up with the discount factor. So there’s one of the challenges for us, I don’t have an answer to it, because at the moment, a lot of people are using a risk free rate of pretty close to zero.

However, we do have to ask ourselves, the question, is that going to be is that going to be sustainable, especially when we come out of COVID, we’ve got to see that probably 95%, if not more than 100% of the value of companies today is actually due to the terminal period, although all the the new normal, if you like or the new cruising altitude. So if you look at risk free rate and market risk premium, you put them together, and you use a set either historical and historical market risk premium, which I wouldn’t suggest at the moment. Because one of the things we’re finding is that with this breaking history at the moment, trying to work out what’s happening in the future, by looking backward is probably not the smartest thing to do at the moment. And it’s, it’s yielding some rather weird results. And then you look at alpha and beta. Now, they’re basically two sides of the same coin as well, because basically, alpha is anything that’s not been picked up by beta. And for that, I think we have to look to see what what’s happening with betas at the moment. And we say, well, the market is always right. But the market is not always right, in real time. So we may have to look very carefully at what’s happening if you’re getting beaters that are shifting, and by shifting beaters, if you take different capture periods, and you take different capture intervals, and you get different figures. So for example, you might take five years monthly or two years weekly, or three years weekly, or one year weekly, and you get different moves here, then you’ve got an issue, you’ve got to work out what sort of beater you want to be able to be predictive, because that’s what we’re looking for here. We’re looking for something which we can use going forward.

Paul Resch 8:21
Steve, so let me ask you, how do you how do you work with betas? Now? You just look at allscese different intervals or different time periods? And then make a decision based on that or what’s your suggestion?

Steve Shaw 8:33
Well, the first thing is I see whether there has been movement, if there’s a lot of if there’s been a lot of movement, and then I’ve got to select a period, which is, let’s say most appropriate. And in the past, I’ve selected the period probably closest to the present time, exponential smoothing, it’s called. But I think now i’d be tempted to look one period back, because of course the last year is going to be perhaps a bit of a rogue period. So I might be tempted to look backwards, you know, 18 months to three years, for example, and perhaps not give as much weight to what’s just what’s just happened.

And again, we’re just looking to see what’s the best predictive capture period which is, which is important.

So yes, that’s that. The other thing is the idea on the financial distress, because as we as we’ll see with cost of debt, financial distress has gone up, because two reasons, the value of debt might very well gone, gone up, because but also probably more likely as the value of equity has gone down in which case your your effective d over e which is in market terms has gone up. And we have to be a little careful with that because a lot a lot of a lot of times

people will be refinancing. So just be very careful that looking at current peer group figures might give you a real leverage.

mechanism or reliving process, which might push up the cost of capital, let’s say in a way, which is not representative of what will happen in the future.

Mathieu Guerville 10:10
I’ve got some chat coming in here. I don’t see the chat myself. I don’t know whether there’s something in Oh, no, that’s that’s material coming in here. Just just I think we have a, we have one question that somehow doesn’t pop up on my site. So I’ll share first of all the poll results so that you guys can inform your discussion a little bit better. So the group, as you can see, is actually mostly coming in from Europe. But two thirds of our attendees, based in Europe and in North America and Asia represent an order roughly 30% of close to about a quarter. So I know you had discussions around maybe negative interest rates, even in some parts of Europe, it looks like the audience might be interested in that, given that a lot of them are located in the area. Sure. Sure. Well, if you have any questions on this, or anything you want to add, because this is a contentious issue. Paul mentioned that, you know, damodaran believes this is a craft that we’re doing. Again, there, there’s so many different, you know, different inputs and different ways of doing the same thing with the same materials or different things with the same material. So do do share that any questions or thoughts that you might have on that? Yeah. And for the audience,

small technical glitch, the q&a feature doesn’t appear to work, I cannot pull it up. But the chat should work. And so I see that there is a question in q&a, I just cannot access it. If you want to re type it in the chat, either the global chat or to me directly. I’ll be happy to relate that way. When I do have the risk free rate here.

Steve Shaw 11:33
Yes, I’ve got one from a young hand lay. So I put for the pronunciation there. For risk free rate, do we use the normalized risk free rate post recession instead of the low negative interest rates? And this is, this is a difficult question. In the past, I’ve said, just go to the market. And we don’t have to argue about this. I think now I’m feeling actually we do have to go to the terminal period or the new normal, and then ask ourselves, okay, if we’re going to assume certain inflation levels at that time or certain growth levels, I think we then probably do have to do some blending of a risk free rate, which we think will persist with a with a normal level of inflation, even if the interest rate is actually zero here, but a normal level of inflation, in order to be able to link up or mirror or reflect the cash flows and the discount rate that you’re going to be using, because it would not be logical to have growth, terminal growth and the cash flows of let’s say, two, two and a half percent, and have a risk free rate of zero, because they’re not really mirroring each other. So my feeling would be to say, Well, if you think of the risk free rate as a real rate, with 2.3%, going back many hundreds, hundreds of years. And inflation. I’m happy to go with a real rate of close to zero at the moment, but I’m not happy to go with an inflation of zero. If you’ve put that into the if you put that into the cash flows.

Don’t get the point on peer group. Right? The point? All right, first of all, do you ever check your work against what the market discount projected cash flow?

What

if you have Well, it depends if you’ve got an unlisted company, I don’t Who said that? Good. That question. There was that when GE was it? No. qubit brands, Hubert?

Do you ever check your work?

I think you can only do this for for example, if you’re looking at a listed company.

But basically the what the market uses to discount projected cash flows, the major input you’re going to get for that it’s going to be market risk premium. And that’s why I very much think you should be using a market risk premium that goes back to the market each each month or each quarter, rather than looking back historically, you know, using 128 years or 120 22 years. Going backwards here. That so yes, I do in that way. We do check the Whack for that, while the cost of equity for that because the the market risk premium is is the sort of the major observable component of that

didn’t get your point on peer groups cost of debt, not reflecting the rate going forward.

The chance for peer group to go through a refinancing process altogether seems far fetched? Well, I’m not sure I mean, given that, you know, I think it’s fair enough. If you think that all many companies are going to be

turnaround situations, then that’s that’s, that would happen. If you think that most companies are going to absorb what they’re doing and then they will get back to sort of normal levels, then you know that then that’s good. That’s good to work. But at the moment, I think probably your you know, it depends what state of play your companies in if you like,

So you could you could look at the peer groups and say, Well, if you’re assuming that they’re going to be the firm that you’re looking at is going to be refinanced as the peer group and which is what we normally do, then I think that would work. But just think that we may have some temporarily high peer group figures, because of the I think things

rather sort of disconnecting during the during the pandemic. And I think we then may have to look backwards, perhaps two or three years or one and a half years to see what a normal level of D over e might be. That’s That’s my only point there was when Lee Yeah, that was that was my my point there is a follow up to hubertushof uebert. Question. He’s asking that during periods of very low risk free rate, the MRP seems to compensate for the fall. Do you tend to agree with that statement? It sounds from your nodding that you do. I do. Yeah. It’s It’s It’s almost, you know, as as the government puts the risk free rate up because the economy’s overheating, or brings it down in order to stimulate the economy. It’s as if the market just basically says, right, well, we’ll just top it up to whatever risk free rate plus market risk premium equal to seven to seven to 8%. I think that what’s tend to happen? And so yes, I think there is a certain amount of a concertina there that the rest of the market risk premium tends to expand or contract to use up whatever gap risk free rate is left. And personally, I think the risk free rate plus the market risk premium is usually somewhere between seven, seven to 8%. And has been as in as long as I can remember, that simplifies a lot of things. I think it does, yes. Perhaps a little too conveniently, who knows, you know, we’re in the middle of things at the moment, we’re trying to make some sense of things. Who knows that in six months time, I might be looking back on this. And by the way, that I’m sure we all do this, looking back at this and thinking, Well, perhaps we oversimplify, but we can only sort of try and sort of make sense of what we have at the moment.

So thanks very much for the questions. excellent questions there. And I just wonder, just looking to see on chat here, whether we have any more, I don’t think we have any more at the moment, none at the moment. So that’s the idea is between alpha and beta, that they’re very much parts of the same coin. And we have to look at it very much together. And just to remind ourselves, we are looking for the impact of the on the cash flows, at the end of the day.

I’ve got something on WACC here in terms of,

you know, the impact on the terminal period, I think we’ve talked about here, perhaps if you look at the next slide, I’ll just just, the purpose behind this slide is to show that it’s really just in the center here, we’re looking at the risk of the firm’s cash flows. And my feeling is that that’s going to be the way out of things. We’re talking about alpha here. But one of the best ways to hit alpha is actually through the cash flows, which I’ll deal with a little later. So the whole purpose of this slide is that, yes, we use all the, all these six elements, which are in lockstep the risk free rate of market risk, premium reset, beta, and alpha reset, and I suppose current country risk premium and currency risk premium are set as well. If you move to the next slide mattea, that would be that’d be fantastic. There are methodologies for looking at alpha. But just to remind ourselves, this is where the rubber hits the road. This is where we make a you know, we might I suppose we justify ourselves in a little way. Because much as what can be done by Politico’s platform to take out the sun, but some of the the drudgery and let’s say the the the work behind things. What it does, and this is where I think it’s so powerful Is it is it frees us to sort of start thinking about alpha. and evaluation is an opinion that probably the biggest opinion you’re gonna have to come out on is alpha.

And the question is, well, where do you start? And the first place I start is I put boundaries, unlikely to have a negative alpha.

Perhaps in the Far East, sometimes we have large companies, which are actually

bigger and less risky than some of the listed companies, but so I’d be going from zero and I think the maximum I’ve ever seen an alpha is 10%. And that sort of goes a little bit with if you look at the 10th decile of the the Duffin Phelps studies, both both pix studies and the and the US studies, you’ll see that the 10th de sol is about 10% above the

the what you’d expect from cap M. However, I’ve got to say that 10% is very rare, and it usually means there’s been a breakdown in forecasting somewhere. And we’ll be looking at other ways to sort this out. So quite a lot of the time rather than doing putting a massive alperin. My preferred approach certainly for the for the moment is to use scenario analysis.

And the reason behind this scenario analysis allows us to you

At different, let’s say exclusive sets of cash flows. Because remember this, you know, you can’t put in a V shaped recovery, a U shaped recovery, a K shaped recovery or an L shaped recovery, you can’t put them all into the same forecast. So I think we’ll be taking a lot of alpha out of alpha over the next few months, 2345 years, who knows. And really going back to the cash flows, and still putting in some judgment, because we have to wait each scenario, but preparing three or four different sets of cash flows, and then preparing some waiting for this. So for me, that’s going to be a major part of what we’re going to be doing.

Mathieu Guerville 20:40
Now, we have a new question from Jillian Spain. And actually, it’s a little bit of a switching gears looking at beta instead of alpha, and maybe not so much in the context of COVID. In particular, Jill is asking that, what are the best practices to decide on a beta? When you look at industries that are newer, like Software as a Service, where resources like damodoran, which is seems to us may not be accurate, or may not have that degree of subdivision of sub industry, etc? How would you go about selecting the right beta and market risk premium for these industries? Maybe that’s maybe maybe there’s one for me see, if, before I get back to you. I mean, this is exactly where to like Baluchi who can really help you, right? Because we don’t just rely on industry beaters and industry medians. But you can actually define your peer group and simply build a peer group of of suitable SAS companies. So there will be there will be my solution. Safety other another one? Yes, I mean, that that takes a lot of that does a lot for you to bring give you some options. If you’re totally out of options there, which can happen, you may have to look at industries which have similar paybacks or similar business models, or the customers of the companies which you are looking at. And for example, the example I always give is the the aero engine manufacturer Rolls Royce. You know, there are just No, there are no real comparables, because General Electric is one of them, but it’s stuck in General Electric. And Pratt and Whitney is another one, but it’s stuck in United Technologies, and actually trying to get that out is impossible. So of course, you’re going to have to go to the people who use the Aero Engines, which would be the, you know, the major major Aero, airplane manufacturers, Boeing, Boeing, and Airbus, and things like that. So quite a lot of the time, you may have to take a metre, if you’re like a metro beater.

Steve Shaw 22:41
Which is really sort of going and, and looking at who these customers are selling to, but it will mean you’re gonna have to work hard on the alpha, because the this mean that the the betas are not doing so much of the heavy lifting. And the best way to look at that is firstly, through the cash flows, but also you may have to add something on for extra risk because of the industry is a new one. I hope that, again, I’m gonna give you a longer a longer bullet here, also a silver bullet here, but hopefully, it’s given you a little bit of something to work with.

Okay, well, I’m just gonna spend a few more minutes on this. I mean, there’s you can play around with bita. by shifting them over, you can use full information beaters by extracting some of the things from, you know, where you have companies that do lots of things. If your client has made a mistake in the cash flows, and you want to change it, but the client doesn’t want to change it, because it’s linked to the bonuses, which often happens, you may have to sort of do us a special a special test to then say, Well, this is the value I want, what discount factor Do I need to get there? My one of my favorites, and this is totally unscientific is actually to say, well, these are the elements that I want to include in beta as an alpha rather, and they’re the things that you haven’t picked up in beta. And it’s very useful just to make a list. And then you know, you say, okay, is it 1% 2% 3%? Well, you know, at the end of the day, you have to put your thumb in your mouth sometimes and just go for this, but at least you’ll be actually understanding why this happens, and why they you know, whether what is actually in beta in alpha, so because to do that, you have to know what’s in beta. Then we have the two size premiums. Here we’ve got the Duffin Phelps size premium, which I wouldn’t recommend because it’s in the US

because of course all small companies or European companies are fairly small compared to US companies. But there is one out called peak Eric peak who’s a Dutchman from University of Rotterdam Erasmus University in Rotterdam. And he has done a study or two studies actually one of which was updated recently on on size premiums

in European companies and has some very, very interesting views on how the we discussed holding

Have we defined size very, very important and well worth a redo, look, do look it up, it’s pick Duffin Phelps. And you know it does. And he comes out with a lot of different different beaters depending on market market size, number of employees sales and things like that.

And then we have some of these quantitative models. And I put these in mainly for the US because you will, you will understand these a little bit more. But we don’t tend to use them in Europe very much. Some beaters is one which is basically says we take a lag when we’re looking at betas, the idea being that small companies tend to react less quickly than large companies. So we tend to do a beater with a lag of one month it’s a it’s a mechanical thing, since it tends to give a higher beaters. There’s another school of thought which says, Well, perhaps we should divide beta by R as opposed to R squared. And that gives you some sort of fundamental beta. And then there are a lot of qualitative models out there. Get a quantitative discount models and things like that. The problem with a lot of these is the information just it’s not robust enough at the moment outside the US. And even in the US, I would figure that perhaps the information is there’s still a lot of judgments that need to be made there. So there’s, there are a few elements that you can do for me, the the major one is actually just being quite honest about it and saying, Look, I don’t know, I can’t give figures to it. But at least I can tell you what’s in there. And and then at the end of the day, as most value is no, we you make some sort of executive decision as to what do you think these alpha might be? And you will expect people to disagree with you. Because at the end of the day, it’s not a science, and you’d expect people to disagree with you about how you play around with the raw materials.

Now, I think I’m just at the moment, I’m just perhaps go through one or two more of the slides. And I’ve done the show too many perhaps move on one from that matter here. And this one. Yes, this is here just in terms of post COVID. And what what we’re going to be doing. Of course, when the chaos is number one here is chaos at the moment. The idea is when are we going to be coming out of chaos, hopefully sooner than later, then we’re going to have some recovery. And then most of the value is going to be coming into the cruising altitude. And the idea is what is really going to be most of the work is going to be determining on what what the new normal is, what the what the cruising altitude will be. And then determining what discount rate we want at that time. And for me that the major things we’re going to be asking ourselves to do with, you know, risk free rate and market risk premium at that time. But the way I would be dealing with alpha mainly at that time would be to say, Well, look, let’s do some scenarios on the cash flows, that’s going to be much more powerful than using data and, and also research and studies, it’s going to be much more powerful than that, because you’re going to be tailoring it to the company itself. Now, there are two or three methodologies for working out the discount factors. If you go on another slide here, and then this would probably be the last one that I’ll show here. And if you build it all the way up. Okay, keep going. Yeah, and one more. Okay, so obviously keep it there. So immediate impact, yes. Okay, we’ve got some some cash flows are going forward and and some assumptions during the recovery. But for me, they’re going to be dwarfed by the steady state. So getting the steady state correct is going to be important. However, the second big question you need to ask yourself is how long is it going to take to get to the steady state. And that’s for me, the the sort of the major, the major area there. And for that, you’re going to have perhaps different scenarios. The one thing I would talk to you about here is something called a fallback, risk free risk right here, because there are going to be some companies, sadly, that don’t ever make it to the other side of the swimming pool. And you know, then that’s that that’s the third the issue there. And, and perhaps with some companies, which aren’t doing very well, you might have to treat them as turnaround companies. And in that case, what you’d be doing is is actually looking at at two or three discount rates or two discount rates, one pretty low discount rate for the costs. And then one set of Cash Flows going forward with recovery and steady state, but then perhaps a big penalty for the fact you might not actually get from the red zone to the orange zone. Now, again, if anyone wants anything more on this, I can, I’ve got I’ve got spreadsheets spread, which cover all of these, if anyone’s interested, just go through Politico, and I’m sure they’ll put us in contact. But that’s really the sort of what I was wanting to say about alpha is that alpha, perhaps is not the question we wanting we should be asking over the next few few months. Yes, it’s empowering. Yes, it’s going to have an impact. But for me, the major element is going to be looking at scenarios in order to be able to cut down the assumptions that we have to make in these very difficult times. Because the big problem is we’re trying to look backwards in order to look forwards. And it’s perhaps not the time to do that at the moment. And if you are going to look backwards, perhaps look backwards through into night, 2019 being your your last stable year. Okay, well, that’s what I was going to say on this. And if you have any more questions for Paul and myself, to ask you, I’m not going to do any more about these, these elements here. These were spares that I was going to hear, so if any questions do do come back to us.

Mathieu Guerville 30:47
Yeah, please, we welcome a few questions already. And now we’re going to really fumble you up on the floor. Anyone can do it. Get a chat, though. If you even want to come on camera and as your question engage with our panelists, feel free to do so I’d be happy to make you a panelist. If you have a party’s particular interest in discussing something with Paul and Steve.

We get while we wait for people to volunteer some question, we can do a poll on the amount of valuation activity that we have today on the line. So we typically ask this question every time we do a webinar, and we’ve done quite a few of those this year. Here. Yes, you know, the audience, how many business valuations are you do on average per year? Maybe they will prompt some additional questions as well.

Right, about a third of you have voted already proving that at the very show not asleep. Right now I’m going to share the results in about 20 seconds or so. He then oh, Paul, maybe while we wait for questions for the attendees. I have a political question for you. You talked about steady state, you talked about how going forward this is a decreasing altitude or steady state where you should really focus your attention. But as COVID have various ablation disruptions in the past few years proven that really if you do a five, seven or even 10 year forecast, it is a bit naive to assume a steady state to assume a rate of growth that is going to be unimpeded by again, a massive disruption a tsunami, you know, maybe it’s climate related, or maybe it’s a pandemic. Do you build that into your cash flow forecast, as you were discussing, Steve? Or is that basically something that you completely adjust with the betas and the data will sort itself out?

Steve Shaw 32:44
That’s a good question, Matthew. Because Have you ever seen a forecast which goes up and down, up and down? I’ve never seen one?

Mathieu Guerville 32:51
No, I don’t think it would be accepted by your client to all the various stakeholders you presented to. And I think a hockey stick for some reason is acceptable, but they are a roller coaster less so.

Steve Shaw 33:02
And yet we know it’s going to happen, you know. And that’s actually that’s what the market risk premium is for at the end of the day, you know, that we can look back, I remember in December 2004, looking back 20 years and saying, you know the market risk premium, Misha be 2%. And I was actually working with a group from the Caribbean at that time. And they said, Yes, the market was going to be 2%. And then the tsunami in Southeast Asia, it happened. And I said, Look, guys, that’s what the market risk premium is for is for is to pick up the cycles. So basically, we tend in our cash flows to assume no cycles, we assume this sort of rather perfect S curve. And that’s why the that’s why we shouldn’t be looking at the market risk premium, just over three of you know, over 20 years, we actually if you want to do historically, you should be going back 150 years to but that’s why also we use market risk premium. That’s what the market thinks going forward. So yes, it doesn’t go into the cash flows. that one, that one is definitely picked up by the market risk premium.

Mathieu Guerville 34:04
Thank you. So a little bit of an audience profile, it looks like most of the folks that are on the line with us are doing a relatively low number evaluation, majority of a 50% does less than 10, fewer than 10 per year. And in the second highest number is somewhere in that ballpark afterwards, even due for an evaluation which starts getting relatively sizable.

Steve Shaw 34:26
I’m thinking about the poor chap who does more than 100.

Mathieu Guerville 34:33
We did invite our clients and so I guess we’ve alluded to it’s not that painful to do 100 evaluations a year but if the person who said that is not a client yet, we can make your life a lot less a lot less painful. actually related question again what and by all means, you know, people in the audience, feel free to type a question in the chat But otherwise, I’m going to ask you a follow up question to that. How long does it actually take to do a business valuation generally speaking,

Paul Resch 35:01
And Matthew only those without Valutico, you’re allowed to answer everybody. The results would be biased, obviously,

Mathieu Guerville 35:08
let’s say let’s say everyone.

Deccent participation right now. Because if we had Excel shortcuts for people to answer the nipples, it would be even faster. People are very quick with the Excel shortcuts when you have to move the mouse. Suddenly, there is a little bit of friction.

I think we had one question pop up in the q&a, which again, I can’t access. So Steve, if you want to take a look there, it may have been solved

Paul Resch 35:50
already. This was just whether we distribute the slides after the webinar. So yes, we will, we will send the slides to you. I think we have the email addresses in case you don’t receive them. Please just get in touch with us. At info@politico.com.

Steve Shaw 36:07
To learn from Larry, here is Larry, Larry, for a larger company, would you assume acquisitions? in the near term for distressed peers that are smaller? I asked. Because if you think about the valuation date, there’s additional cash flows might be predictable, but aren’t in existence at the time of the evaluate the valuation? But this is a great question, because this sort of brings in a little bit about the about hindsight valuation is how much can you use of what you know, and your valuation date might be in the right in the middle of a period where you really couldn’t know, in which case, you have to build a lot of a lot of uncertainty into it. Now, I suppose the other thing about hindsight valuations, you asked the question, well, could you have known? And if you could have known, I think you put them in? Even if you didn’t know at that time, so the example is, if you’re your biggest client goes, goes bust, you probably could have known if you’ve done the appropriate due diligence, but it’s, yeah, it’s, it may very well be some, some some issues there. Again, the acquisitions, if they are distressed, there’s still going to be some sort of market there. But I agree, they may very well be put under paying and that we found that a lot in that in the end of the last, you know, crash we had in 2007 2008.

Paul Resch 37:33
We now can also answer this from a C, German German perspective, you wouldn’t typically include it right? Because the business initiative would have to be initiated already at the time of evaluation. Right? Otherwise, you could always say, well, there is a hypothetical scenario where we buy an apple in five years for nothing, right. But you wouldn’t normally be allowed to include this in your in your cash flow forecast said.

Steve Shaw 37:57
Thanks for that, Paul. Yes, I think actually, that was probably more the more the line of the question there. It’s a bit like the value in use, I think Kanda is 36, you’ve got to assume that it’s, it’s it’s at least been activated or actioned for to make make a difference there. So thanks. Thanks for that. I think the other guy actually understood the question, as well. So there we go. How many years? Would you build your financial projections currently? That I would say it depends, it depends how long you’re going to take to get to some sort of steady state. And that’s the big problem is that, you know, we don’t know at the moment. So we might very well have to do two or three separate scenarios where perhaps in one scenario, we assume we get to steady state by the end of 2022. Or we get back to a new normal for you know, normal companies. And others, we may say, Well, we’re not going to get to 2025. Generally, I would build it to people, I will say five years, but if the company is already mature, you’re eventually just extrapolating after one year or two years. However, with companies, which are early stage companies, paradoxically, you should be doing projections going forward, perhaps 5678 910 years. Because you’re not going to get to steady state before that time. Even if those projections are rather, let’s say, broad brush. So five is the sort of the magic figure, but sometimes I think actually, two is just as good. And sometimes it may be 1015 or 30. And if it’s a concession or a port or, or an infrastructure project, well, then you may have to go over 30 years, you know, we’ll pick up all the cash flows from the

Paul Resch 39:44
from the project, or maybe even something as simple as satisfied what we heard earlier, there was a question about SAS, right? If you look at the business models and the cash flow forecasts of a lot of these, you know, high flying SAS companies now, they’re not projected to reach profitability in the next whatever five, seven So I think we’re not even talking about reaching some sort of sort of steady, steady state. So you might have to look at even longer, longer forecast periods.

Steve Shaw 40:09
Absolutely. I’m thinking back to Facebook back in 2010 2011. You know, it’s we were struggling to find out where the cash is coming from it, we’re looking at two or three periods. So absolutely, yeah.

Mathieu Guerville 40:25
Thank you. Oh, do we have another one? I don’t see another question for now. But I was gonna say a quick poll results. It looks like most of the folks currently in a webinar are taking at least three days, I think if we look at three to five days, five to seven, on more than seven days, we have 80% of the audience that is in that bucket. And so I’ll ask you a simple follow up question that flows naturally is, how important would that be to actually improve your valuation process to potentially spend less time doing so. And meanwhile, again, the chat is open for any questions. So if they’ve placed You go ahead.

Paul Resch 41:17
I just wanted to say so I thought before we started this, I thought my gut feeling would tell me that in COVID, times, the COVID effects drive up cost of capital, right, overall. But now that I’ve learned the effects can go into, you know, different directions, right. And they compensate each other to some degree.

Steve Shaw 41:35
I think so. So I’ve got a motorbike going on out here, I think certainly was what you’ve seen in the US, as you’ve seen that sort of the the rates have narrowed, actually, if you look at the risk free rate plus the cost of capital, I think there’s other things going on. However, there’s certain political and geopolitical things going on, which is an overlay, but changing changing geopolitical power, but also a change in in governments as well. And I think that the US is probably the, perhaps due to the fact there’s a different person in the in the White House, and that was this time last year made may have some some impact on it.

Mathieu Guerville 42:12
Right, we are approaching the end of the webinar. And actually, this could be a smooth transition, you’re welcome to stick around, what we’re going to do is we’re going to offer a demo developer to go platteville, I’m actually going to ask you see if there’s enough interest voted. But in terms of improving the evaluation process, more than half of you have mentioned that this would be very important, and another 30%, that this would be important. So naturally, I would expect there would be some potential enthusiasm. But in the interest of making sure, I will ask the poll again, whether or not there is interest in sticking around for another, maybe 1520 minutes, we’ll do a very speedy, very rapid valuation using the political platform. And hopefully, you’ll find that very much in line with what we discussed today. Otherwise, while we wait for the poll results poll and see if you want it to wrap up, I know we committed 45 minutes to the rest of the audience, I want to make sure people that only planned for 45 minutes can walk away with a formal Goodbye, and maybe some final words from you guys.

Steve Shaw 43:18
Certainly, I would support anything that takes out the drudgery out of valuation, because I think a lot of the time you are so shattered after having extracted the information that you don’t have any real time to think about it. And you know, if the Politico does one thing, if it takes, if it sort of frees up part of your CPU for that, then it’s going to be worthwhile, which is why I’m so much of a supporter of it.

Paul Resch 43:44
Fantastic, Steve, nothing to add to that. Thank you very much again for your time. And thank you to everyone in the audience.

Mathieu Guerville 43:50
Thank you. Thanks, everyone. Thank you, Paul. Thank you, Steve, very much to you both. What we’ll do is if you have to go You’ll you’re free to leave the webinar. And we’re going to keep the recording going. And so if you are aware, interesting or demo, but could not stick around for 20 minutes, we will share the recording, and you can watch it that way. Or you can reach out to us directly at info@erika.com. And we will make sure to give you access to it give you a personalized demo, etc. I want to thank you all we had over 75 participants, thank you to our panelists and all of those that have asked questions today. And I will transition to a different screen instead of demo right away. So thanks, Paul. Thank you, Steve. Have a great rest of your evening. And to the 18 folks, I want to stick around. Let’s let’s get on with the demo. It method.

Paul Resch 44:43
Alright, let me hear all right.

Mathieu Guerville 44:52
Feel free to use a chat again to ask me questions at any point in time during this and I’m happy actually to promote any of you as a panel. If you want to really engage and make this demo hyper personalized, what I want to show you and I want to be do, I want to be doing that relatively quickly, in the interest of respecting your time, we won’t go over tools like the impairment testing the additional resources, or the public market module of Erika, what we’ll do for this very brief demo is simply going to be a private company valuation. The political work is really as a workflow that blends data and automation to make your life significantly easier. So what we’ll do right now is we’ll pretend that we have evaluation project to do. And we will call that projects webinar, for the sake of simplicity, unless somebody in the chat gives me a better idea. And we’ll make maybe this a company we want to value in the United Kingdom in order to represent Steve scholars and flag and we will maybe make this a machinery company as that tends to make it a little bit more simple, generally speaking, this first screen is really as a way of providing some very simple firma graphics about the valuation object you are catering to. And right now, I’m also going to choose to do devaluation in British pounds. And let’s assume this company is a small medium sized company, which is the bulk of our clients, quite frankly, tend to represent SMBs, with revenues somewhere between the single digits to maybe low three digit millions of dollars or pounds. So in this case, let’s assume 10 million British pounds. And then what we want to do is do two things. Both of them are optional, but they will make the process a lot smoother. The first one is to recommend to the tool, a comparable publicly listed company, you will see in about two screens why that’s important. I happen to know Caterpillar quite well. And based in Chicago, they are in my neighborhood as well. And so I will choose to recommend Caterpillar as a potential publisher use that peer of interest. One thing that we’ll leave blank here is the valuation date, I could potentially do a backdated valuation, if I have a particular need for that the platform allows you to do so. And that will come into play when we pull the market data about the public peers and other transactions to bind them to a belt secure timeframe rather than doing it as of today. By leaving that blank, we’re going to do devaluation. As of today.

What we’ll do is walk through four key steps to do evaluation. And again, you’ll see we should be done in about 20 minutes starts to sit how fast it can be done. Obviously, we could spend a lot more time if we wanted to add a lot more details and be a lot more cautious about the assumptions. But step number one will be a qualitative assessment, which the screenshot pop up any second. Now, the qualitative assessment is actually our means of applying a lack of market a lack of marketability discount, as well as assessing some cost of equity premium components. What we’re doing here is formalizing and creating a process around something you undoubtedly already do in your head, we’re going to ask you about 20 or so questions that will help determine the risk factor for this particular company. And you can see at the bottom of my screen right now we have a risk factor of three. And that number in turn is applied to the calculation for the cost of the equity premium all the way to the bottom center. And it also an influence to the discount to trading multiple, which will be applied when we create a median, multiple or set of median multiples based on public companies like Caterpillar choose earlier. Now this fictional company project webinar is very small, only 10 million in revenue. So I’m going to move that dial all the way to the right. And you can see right away the impact has been fairly drastic, my risk factor went up to 3.7. And as a result, my cost of equity and my discount, both were quite impacted. Now, I won’t walk you through every single one of those but you can see they’ve been grouped by key topics, are we in an attractive market, essentially, where there’s a lot of growth, maybe limited competition would obviously be a bad thing. And so business logic is built into this. Things that are good for the business are gonna have a positive impact on your discount, it will make it less steep. Things that are bad to the business like a very high exposure to business cycle are going to have a negative impact and make the discount through the trading multiples higher and the cost of equity premium also higher. We have a few questions about management quality, again, things that you would do in any case in your head with regard to any valuation object, some aspect of sales and go to markets or just customer location. Do you have too much concentration on top customers, things of that nature. And then finally some aspects of product quality including IP is there any IP intellectual property moats around the company potentially some element of financial information Capital intensity, degree of leverage or exposure to foreign currency. Now all of this is something you can actually manipulate and manage yourself. These are merely recommendations, we do recommend that you would apply a 6.8% cost of equity premium to the cost of capital. But you are three to actually alter that when we get to literacy to the devaluation. Let’s move on, you can actually follow along what I’m doing by looking at the top of my screen, we started by just entering information with the company. We’re now finished with the qualitative assessment. And we’re going to move on to peers, eventually to projections, transactions, etc, etc. But a bigger screen is where you start realizing how valuation how velluto saves you a lot of time. Based on the industry, the country and the pier that we recommended, which we may recall was Caterpillar, the platform has already pulled out information about a variety of companies that we think are relevant. And as I look at these, I’m actually familiar with the vast majority of disk companies. And I know they happen to be quite a good fit. But let’s just say comments, for instance, which is more of an engine company than a pure machinery company. If I decide that this is not a relative, a relevant peer, I am empowered to remove that the repo does not force me to use comments as a potential peer. What it does instead is it saves me time by providing a list and then allowing me to curate that list by removing or adding, so I just showed you how to remove. Now what we could do is we can do add and move and adding by name, I may actually do a query which pulls against leading financial databases, and can be queried a variety of ways, either by navigating a traditional sort of Industry Classification structures and machinery would be under industrials. And I would just keep going down machinery here, or simply by filtering by country of size. And now, Full Text Search. And potentially, let’s say I’m interested in machinery specifically for the oil and gas industry, I could do a query like this. And just like that, we’ve narrowed down the field to 150 additional peers that are worth considering.

Now, I’m not familiar with all of these companies, but let’s just pick one or two. Just as an illustration, maybe Atlas Copco of Sweden seems reasonable. Again, what you would want to do is obviously investigate that a little bit more. By the way, when we’re speaking about investigating those companies. That’s something you can do partially in the platform simply by hovering over the description of those companies, you’ll see if I look over any one of them, I’ll add a quick description powered by Wikipedia. And if I wanted to investigate not so much description, but the actual financials and where do the numbers come from, etc. I’m also able to do that by clicking on show details. When I do click on show details, I’ll be able to see where is the data coming from when was it pooled June 1. Again, if we had bank data, devaluation, all of this would be adjusted to the date of our choosing. And you can see also how we arrive at all the different multiples that we have. Now, obviously, multiples are very simple, it’s usually just a simple matter of adding a couple numbers and dividing by Alan are one. But nevertheless, for the sake of transparency, that Rico makes all of this completely exposed and transparent. Now one cool, that’s actually quite helpful as well, when you’re here is to compare companies from that peer group across a variety of metrics that will allow you to spot some outliers. So I’m going to do that right now I’m going to click on that benchmarking tab that you can see right here. And what that does is it shows me cool key indicators that can indicate whether or not one of these companies may be worth isolating, either for good or for bad, aka remove it. Now, obviously, the past couple years have been particularly interesting due to COVID. And you can see that the industry has been very impacted right now. So it may be more interesting to look at the sales growth projected for the next two years, the kegger for 21 through 23. And see if I have any big outlier, I may decide, for instance, that kennametal will decline a little bit less than average, and is growing faster than average over the next few years. And also as a significantly higher capex at almost 6% of revenue, just like Allison transmission, I may decide that that company’s a little bit too abnormal to include in my peer group and that way I decide to remove it. Now we had quite a few discussions around beta as well in today’s webinar. And so just for all transparency, I want to show you where that data comes from. We will recommend a particular beta for this particular version object in this case just above one and that comes from being the media of the peers that we have selected. And you can see that median is actually significantly higher than the median of the industry. I think Jill from Spain asked that question during the webinar about if the industry like SAS does not really exist, or if the data is not particularly helpful. Instead of relying on something like that last row right here, which is going to give me let’s say, a beta value of point six, three, what I do is I build my own peer group, like I did right here, and look at their beta right here, eat or whatever, all all unlevered and make my own decision of what beta do I want to apply based on that. Something else you’ll notice is that 41% discount right now. And that actually comes from the qualitative assessment that we performed about five minutes ago.

Paul Resch 55:46
Let me check on the chat.

Mathieu Guerville 55:47
Looks like we have a couple of questions. How can a median and very left column is seven plus 7.7? Yeah, I think I noticed that on the benchmark tab. Let me I’ll go back to it in a second. And we’ll address that. And the other question is, is it possible to select the harmonic mean multiple or beta, instead of the mean, or median? Yes, sort of, what you would want to do is you would want to download that in that data set, you can calculate whatever number you want letter is to how many mean the geometric mean, whatever number is your preferred method. And you would actually enter it right here. And so let’s just say that for any reason, either a different calculation or just a gut feeling you wanted to apply a Evie sales multiple of point eight, you could actually just held code dad yourself right here. Now to the question that have been Krishna asked, I am puzzled as well. And I’m going to take a screenshot and submit that to the product team, because there is no reason that kegger for the past should indeed be a positive plus seven, given that all of them were in the negative. So thank you for pointing that out. But let’s move on real quick. Unless there are other questions on that screen, we’re going to move on to the financial projections. And if you notice, I think we’re only 10 minutes into this demo. And I think we’re about halfway done already. What happens in your model, if there’s no revenue for a couple years, we can get to that in that screen? It’s loading up right now. Thank you, Christopher. For the question. I’m assuming we’re talking about potentially a startup valuation. When you get to the business plan aspect, your financial projections, you have really two options that you can do in vertical, both are designed to save you as much time as possible. Option one is going to be to use the value Ico estimates and verrico estimates are built from the limited data that you entered, plus an extrapolation that is based on how peers are doing and what analysts consensus estimates for those peers is. That’s what we’ll use in this particular demo, because it’s a little bit faster. And also, I do not have a financial model for this fictional company. If you did have a model that you already built in Excel, no matter how robust, or how simplistic, you can upload it, and we will translate it into the right value to go format, to be able to leverage it. So for now, let’s go into the value estimates method. And what you’ll see is that single number we entered determining that this company had 10 million pounds of revenue. Again, we’re talking British pounds right here, it is determining that this year, the growth will likely be 15.6%. Now where is that number coming from? It comes from that benchmarking tab, where the median offer a peer group is 15.6%. Now, interestingly enough, oh just might be wider cowger number, add some issues you can see here, I still think the point stands that the kegger median was like you wrong in the earlier tab. But you can see that there were some really good years before the slump. And so that might be a wider kegger. It’s creeping over itself a little bit just like I am right now. So you can sort of see how that works, right? The sales forecast these numbers in out years out the MLS consensus estimates, we do the same thing. In any other metric that matters that eventually impacts cash flows. and use that as a way to estimate where your p&l where your balance sheet and where your cash flow statement is going. You can forecast as few or as many years as you’d like. I think right now I’m by default, doing seven years, I could decide to do just five by just doing two more clicks. And I could also modify any of that either modify the growth rate if I prefer to work from a growth rate basis and just say 5% Oh,

by 5% 5% and then perpetual growth of 3%. Oh, I could actually modify the Go to number and say, You know what, I want to commit to 14 million, and then 15 million, and then 16.5. No matter what method I choose, the tool will adjust dynamically and just reflect that across the model. All of these metrics work the same way. And so I could modify things like accounts receivable, inventories, fixed assets, really in just the same way that we just did. One final thing again, we’re doing this demo extremely fast. But devaluation tab can be your friend here to see if you’re doing anything that creates a little bit too much of a roller coaster. For instance, right here, let me see. Yeah, my capex number as a percentage of DNA, actually, it’s not that shocking as a percentage of depreciation you’re doing basically replacement. But if I see any number that jumps out, maybe here my return on assets, is blinding at a alarming rate. And so I would essentially want to make sure that I massaged the data to make it more realistic, either by investing more on assets, I would raise my cap X number, or maybe be a little bit more conservative on my margins. I’m not going to do that right this minute. Because again, we’re trying to do this in, you know, 1520 minutes, but you can see easily how the tool will empower you to quickly spot any anomaly in the data and point you to where you would want to fix it. I don’t see any questions in the chat. So I’m going to move on to the next step, which you can see from my screen right here is going to be transaction. Well, maybe one final thing is you can actually do multiple scenarios. I think that also came up during a discussion, Steve, I believe suggested creating multiple scenarios, you can do that in velluto, as well, this is my peer case, because it’s based on extrapolating from the peer data. If I add, let’s say a synergy case, doing a m&a transaction, and I wanted to bake my synergies into it, I could do that as well. If I clicked on Save, it would just simply create a new model. And I could modify both of them and compare. Eventually devaluation outcomes side by side. Not gonna do that right now. But just wanted to illustrate that point. Now, the final step, where you add some actual work to do before the tool does everything for you is going to be our transaction selection tool. And in the transaction screen, it’s going to follow a very similar dynamic to what we did on the pier selection, meaning that the tool will already issue some recommendations for you and say, we believe that this particular transaction, holding group acquiring Peter bought her hood, in the UK 100% stake for 31 million pounds is irrelevant transaction, we could actually investigate the transaction a little bit, or read a little snippet about it and decide if we do in fact, want to ensure that if we find a wine that we do not like, for whatever reason, maybe it’s too old, like this one from 1999, I think that’s going to be a little bit too old, I want to remove that. Or if I wanted to add some more transaction, I could just query to get out again, either by simply entering a few keywords, or by doing a structured query. Now again, I think we were doing a pretend oil and gas company or oil and gas machinery company. So I’m going to add oil and gas as a filter here. And then we’re going to go back into industrials, machinery, I said it was a raised hand someone to give somebody to flow in one second. And you can see we’re looking at over 3000 transactions, I couldn’t have further narrowed down by deal value, etc, etc. So there’s quite a bit of options right there. I believe we had someone raised hand emailed the email that radius, I’m going to bring you onto the floor. Would you like to ask a question?

You can type it if you prefer all otherwise, if you want to speak up, you can unmute yourself or if you want to just type it in the chat that’s okay as well whatever you prefer.

All right, well, maybe the question has been somehow resolved, feel free to come back on anytime you need. But otherwise, I will keep moving on one final thing you can do on that screen is going to be adding a custom transaction. So if your firm is working in a particular industry and you happen to have your own private data, they may be complimentary to what we have I mean again we have over 800,000 transactions, nearly a half million private transaction but if you happen to know a few orders, let’s say that actually humilde that Inc. Acquired Matthew LLC, in the US etc, etc. You could enter your multiples you can enter however much higher real little information you have, and that will eventually be fed into the median calculation. And then from that median can condition, you are again able to decide, do I want to keep that median, do I want to use a mean instead, do I want to just manually switch it up a little bit, let’s say I want to play 1.5. This one I want to make 15x, you can really be in full control of however you want to do it. One final thing I want to show you before we move on to essentially the results screen. And that’s something you could have done as well in a peer screen is that if you have a company that is in between two industries, you can actually add a second or third or fourth industry right there, right there to compare it. And let’s just say for instance, this particular machinery company also does some work in aerospace and defense, there’s bound to be a company that does both, I would add that second industry and that way, it allows me to compare now, thankfully, those three industries are very similar, it seems like in terms of transaction multiples, but that doesn’t have much of an impact. Something we see quite often now is companies that are moving towards some software companies that were traditionally purely analog purity machinery or what have you. And then I didn’t a big software components do who Dr. Siemens will be an example of that, then it can be really eye opening to have the software industry next to the traditional industry. Now a little bit scared of clicking next because of course we did this so fast Duran to evaluate their range that devaluation tool will provide it might be a little wide. But I think you guys have been following along you sort of trade offs that we made in terms of presentation speed versus precision. And you’ll be able to decide for yourself, what you take in and what you discount from the results. So let me show you in one second. That final click was literally all the work that was left for us to do. And we’re going to see the outcome of devaluation. Now, as a reminder, we are looking at a peer case nunda synergy case, that would be a different screen that were created for evaluation date of June 1, and old numbers are in British pounds, millions of British pounds more specifically, for project webinar, a machinery company with 10 million pounds of revenue. We show you all of those different methods, the income based methods, the DCF work, essentially some equity based methods, and then all the multiples, whether they’re market based or transaction based, all of them right here on that football field, with a value range, that’s actually a little bit now word and a feared somewhere between 11 and 18 million pounds. Now you’ll notice here, some of those green dots that represent the suggested value for this company outside of the range and ends because we applied the discount, right, if you recall, we applied a 41% discount to our public dish credit peers. And so the green or blue spectrum right there represent where the company would be valued. If we applied no discount with the discount, we’re actually on the lower end of that can actually dive into any one of those methods, you can see some of the assumptions we made in terms of the net dead bridge, it’s something we could modify manually as well, very straightforward. You can see here, the cost of the greedy premium that we calculated or earlier is in that table, as well as other factors that play into your cost of capital, which by the way, if any one of those numbers is something you do not like if you want to change the gearing ratio or any other aspect, you can do that right here, the tax rate, we see we pull the data from public sources. But if you wanted to apply different tax rates for this particular entity, you’d be able to do that. In the DCF model, you can see the traditional cash flow table, as well as the sensitivities that I’m sure you’re very comfortable and familiar with, you could change your perpetual growth rate right here and see kind of what the impact would be if we made that 2.5% for instance, 2.5 gonna recalculate immediately, and within half a second, we now have a new number, essentially right there.

Any method that you don’t want to use, you can actually hide. And so let’s say simplify flow to equity is not one that I’m normally presenting to my client, I can just click on a little eyeball right there. And that method will be removed not just from that screen, but also from potential deliverables that I could gain by clicking the Export button. What I can do is I can share that page with anyone I can make this a public link. And so if I click on share with others, this will give me a link. And I can send that to a client, I can send that to somebody else within the firm, and people do not need his Ltd account to be able to view this particular page. And if I prefer to do so, I could export our results directly into a PowerPoint or a Word document. In any number of languages that we support and all of the graphs all of the auditability of every decision that you made would be transferred And visible, all of the files that we export as well. Completely editable, the charts are pasted as Charles. And the tables are pasted as tables, not images. So you are still really capable and able to put your brand, your colors, your logos, and make manual edits wherever needed. This concludes in just about 2025 minutes, a very speedy walkthrough of the demo and of the platform, I’m happy to take any additional questions that you have. Otherwise, I know that we already went quite a bit beyond the time that was allotted to the webinar. And I want to thank you all for the extra 20 minutes that you gave us. But if you have any questions, feel free to put them in the chat, or reach out to us info and political outcome, we very much look forward to working with many of you. The estimated cost for the platform is in annual subscription that I think is around six or $700. I noted number in dollars per month. And that’s something that it could definitely put you in touch with our sales team, it will depend quite a bit on the number of users that you’d like to have and things like that. We usually find and we’ll we actually have quite a few case studies on our website that can demonstrate that folks who do anywhere between three to five valuation can actually very quickly earn a payback on the investment. And then any additional work on based on that is essentially pure benefit as we don’t charge for volume evaluation.

Paul Resch 1:11:37
Good question, though. Any other question in the q&a?

Unknown Speaker 1:11:48
All right, well,

Mathieu Guerville 1:11:50
that’s it for today. Again, thank you very much for your time, greatly appreciated. And the recording will be made available. This demo was a very quick and dirty one. If you’d like a custom, tailored demo, please reach out to us our sales team is giving you know, a ton of these a day, they can do a much better job than I can. And they’d be happy to tailor the presentation to a particular industry or particular need that you have. We walked through only about a quarter of the features of the platform. But I hope this was informative already. In the meantime, have a phenomenal rest of your day whenever however late it is already on your Saturday world. And looking forward to seeing you all on future webinars. Thank you

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The Alpha Webinar — June 2021

m.guerville — Mon, 07 Jun 2021 19:59:42 +0000

In this webinar Valutico and Steve Shaw explain the impact of risk from Covid 19 on the alpha of a valuation and explore risk grading

Automated Transcript (may contain some transcription errors)

I keep it brief. Steve, over to you for little introduction about financial seminars.

Steve Shaw 4:10
Okay, well, thanks very much bull.

Mathieu Guerville 5:00
Located and meanwhile polling Steve, please take it away have a discussion.

And again, we’re just looking to see what’s the best predictive capture period which is, which is important.

people will be refinancing. So just be very careful that looking at current peer group figures might give you a real leverage.

mechanism or reliving process, which might push up the cost of capital, let’s say in a way, which is not representative of what will happen in the future.

Don’t get the point on peer group. Right? The point? All right, first of all, do you ever check your work against what the market discount projected cash flow?

What

if you have Well, it depends if you’ve got an unlisted company, I don’t Who said that? Good. That question. There was that when GE was it? No. qubit brands, Hubert?

Do you ever check your work?

I think you can only do this for for example, if you’re looking at a listed company.

didn’t get your point on peer groups cost of debt, not reflecting the rate going forward.

I’ve got something on WACC here in terms of,

And the question is, well, where do you start? And the first place I start is I put boundaries, unlikely to have a negative alpha.

Perhaps in the Far East, sometimes we have large companies, which are actually

And the reason behind this scenario analysis allows us to you

in European companies and has some very, very interesting views on how the we discussed holding

Steve Shaw 32:44
That’s a good question, Matthew. Because Have you ever seen a forecast which goes up and down, up and down? I’ve never seen one?

Steve Shaw 34:26
I’m thinking about the poor chap who does more than 100.

Paul Resch 35:01
And Matthew only those without Valutico, you’re allowed to answer everybody. The results would be biased, obviously,

Mathieu Guerville 35:08
let’s say let’s say everyone.

I think we had one question pop up in the q&a, which again, I can’t access. So Steve, if you want to take a look there, it may have been solved

Paul Resch 43:44
Fantastic, Steve, nothing to add to that. Thank you very much again for your time. And thank you to everyone in the audience.

Paul Resch 44:43
Alright, let me hear all right.

Paul Resch 55:46
Let me check on the chat.

You can type it if you prefer all otherwise, if you want to speak up, you can unmute yourself or if you want to just type it in the chat that’s okay as well whatever you prefer.

Paul Resch 1:11:37
Good question, though. Any other question in the q&a?

Unknown Speaker 1:11:48
All right, well,

The post The Alpha Webinar — June 2021 appeared first on Valutico.

Valutico Webinar with Zaxo

Valutico — Wed, 07 Apr 2021 18:11:51 +0000

Transcript:

Paul Resch
Good afternoon. Good morning, everybody. We will start shortly. see most of you joining right now. Thank you for bearing with us. Alexandra, are we ready? Can we start?

Alexandra Allason
I think we could start the warm welcome from a cold, snowy unfortunately, Austria, I hope that things in Brazil a little warmer. On today’s webinar, we have pool of ash who is the co founder and CEO of Politico. And we have Leonardo risotto, who is the co founder of dexis. During the course of the webinar, you will have a chance to obviously ask your questions, but I do advise that you use the q&a tool, and also the chat as well, just for when you have any thoughts during the course of this webinar. Anyway, I will leave it to you gentlemen. Best of luck, and yeah, everyone enjoys that. Thank you very much.

Paul Resch
Thank you very much, Alexander for the introduction. Leonardo. Good afternoon or good morning, I guess. How are you?

Leonardo Pansardi Grisotto
We are in the middle. Coming from morning going to afternoon.

Paul Resch
cover the whole planet.

Leonardo Pansardi Grisotto
It’s okay. Good morning, everyone. Thanks this

Paul Resch
morning also. Yeah, and good afternoon to the audience. Thank you for joining us today we have a very interesting presentation or a little discussion prepared to you will also give you a little demo of Politico itself. And throughout the presentation. We have a few polls. That should make the whole thing a bit more interactive. Let’s give this a try immediately. Now. Start with a poll. Where is everyone based? was interesting to hear that. North America, Europe, South America now catching up, I guess I’m the only one who sees the lifeboats coming in here. 50% South America now. So now it’s your corner of the world. I guess.

Leonardo Pansardi Grisotto
That will be only me. I mean that. No, no, no, we

Paul Resch
have we have quite a quite a few participants today. Oh, good. Great. Good. Shall we start? Well, maybe a little overview of what we have planned for you today. In the meantime, I will end this poll here. We’ve already had a little introduction. Maybe I’ll go ahead and introduce myself, Paul. They are one of the founders of Politico previously and mergers and acquisitions myself, like you Leonardo. So I worked at Deutsche Bank, built some of the models there that became standards, then finally decided to to venture out and do my own thing. When we started Politico about six years ago. We built it over a second three year period and then launched another three years ago. I think we actually have a slide for that. Let me jump ahead. Yes, here we go. Well, what is political, it’s an OBC evaluation platform, right? You all know the status quo. You work in spreadsheets, you work with databases, you have to collect data from various different sources, you do your analysis, and then you have to get your results to slides or some other presentable format. And this is where the new ticket comes in. With political all of that happens in one integrated and cloud based solution. So that means we typically save our clients between 30 and 50% of the time, on any given valuation. What does it mean? Well, we connect also with a lot of databases, you know, Capital IQ and a number of other world leading databases where we get our data from, actually some of the statistics here are quite outdated. We’re in over 40 countries by now. You see how fast we’re growing and this presentation is only a few weeks old. Yeah. And rapidly growing number of also of databases and connections in political They’re out. But we’d like to hear a bit more from you know why we have another slide. Apologies. Just a few examples. I think we can skip this one. Let’s Let’s jump straight to your slides, because we’d like to learn how you’re using political.

Leonardo Pansardi Grisotto
Okay. Well, I’m not from the investment banking industry. My whole life I worked with financial consulting more focused on investments or cash flow analysis and most management stuff and this kind of work. So from the, throughout the years, we’ve been required to, to process valuations and to deal with complex situations when it comes to m&a. So I decided to work only with m&a for since 2013, I think, and since from there, I developed my practice. And last year, we merged to three consulting firms here in Brazil, specifically here in the south. We are located included Chiba finite state xoxo itself, enterprise first and Leon Brava, which was my my previous firm. So we put together to eight years of experience in leading deals with national or international investors. Hello, today, we are in seven partners, we have more than seven staff, helping us to deploy not only valuations, but the whole process of mergers and acquisitions. So I’m, I’m glad to be here to talk with you a little bit,

Paul Resch
a very impressive growth story. And I can proudly say we’ve been part of some of the story recently of that story yet, but we were looking forward to, you know, accompanying you on your on further on the further growth path. And how many valuations you guys do every year? Roughly?

Leonardo Pansardi Grisotto
Well, roughly, I used to do from 12 to 20 valuations a year, we’re focused on middle market, so only private mandate is closely mandate. So sometimes when we offer biocide services, we have one client, but we need to process more than one valuation per client, you know, we need to screen the market and then value those targets to our client. So when mandate various valuation so we process on average 2025 valuations a year, okay, isn’t, isn’t

Paul Resch
worth just doing the math in my head? Think about how much time we got, we saved you guys, how many more valuations you can do now, right? If you only need half the time for it?

Leonardo Pansardi Grisotto
Yeah, the timeframe is, is incompatible. Because when we used to do that, using only spreadsheets, and that will take you we’re going to discuss this some points further, but to advance some things here. We used to take a lot of time thinking about all the rows in a spreadsheet, all the rows, now we have political helping us to speed it up. So two together, world class databases, bring it to the table. And then we have not only quality of our data of databases of inputs to serve our valuations, but a wide range of peers and transactions that we can compare in enrich our our reports to our clients.

Paul Resch
Okay, what can you describe the process before you had political What was it like then? Well, the

Unknown Speaker
process

Leonardo Pansardi Grisotto
will be if I can put some things are similar. It would be like I’m mining company, we had to mine to go to run through the market mining data from public databases or for a specific deals or a specific segments. So it’s not it’s not easy to get to gather all this information. When it comes for example, transactions. We deal most part of our time with privately held companies, which doesn’t have public data available. So it’s quite difficult to to retrieve those data. So in order to do that, we took Wix to, to establish or to, to build only a simple table, a simple spreadsheet comparing the company against its peers or against the transactions that have been made in the past. So it took, on average, three, three and a half to three, even one month of work to pull all this things together.

Paul Resch
months of work? Well, I think we I started in the fall in the meantime, to our audience here. And I think we even have one question that relates to our debt, asked people how long it typically takes them to do a valuation. So let’s see, let’s see what our audience has to say this would be interesting. Okay, but I mean, it used to take you a month, I guess political paid off relatively quickly, if I may say so.

Leonardo Pansardi Grisotto
Sure, if we sum up all the salaries and their work rates, so it will pay itself for in just a few days, I think.

Paul Resch
Got it. Right. Good. I think we need to rethink pricing. No, no, no. Thank you for that. Okay. Well, thank you for the introduction to sec. So I think with that, we’ll have a little demonstration of the platform. Right. And we continue our dialogue, while we while we run the audience through the presentation. All right. Cool. the meantime, the results of the second poll, I see it’s 5050 split some to less than 10 valuations a year, some do 11 to 30 evaluations year also, you can’t see that actually. Now you should be able to see that. Yeah. Kitt, let me switch over. And I’d like to remind the audience, if you have any questions, please just ask them on the q&a tool here. That’s the best way to ask or do it on the chat, please. Perfect that. I’m gonna ask

Leonardo Pansardi Grisotto
you something before you start the demonstration, Paul, of course,

Paul Resch
space?

Leonardo Pansardi Grisotto
How did you come with the idea of vertical?

Paul Resch
Yeah, you know, I’ve worked as an analyst in investment banking, and it’s, you know, some parts of my work, I really liked some parts I really didn’t like, and we tried to automate the parts that I didn’t like it. That was really the idea, you know, a tool by, you know, m&a professionals for investment professionals, for professionals write something to make the life easier. And that was that was really the basis for, for what became political, we built the first prototype. And after that, we simply listened to what the clients wanted. And we still do that, right. So we develop very interactive, we are very, you know, collaboratively with with our clients. Good. In the meantime, you should see the dashboards. And I think for today’s demonstration, we could do a private market valuation, that’s probably the easiest, by the way. But lutego also has features or modules where you can value a listed company. That’s capital markets. Maybe I’ll start with a very quick intro also to the resources module, that gives you valuation parameters across the world. So let’s say today, we’re doing valuation in Brazil. And it will propose risk free rates, corporate tax rate, market, risk premia, and so on. And you can choose any other country in the world should you happen to do you know, cross border work, right, a very quick way to get this kind of data. You don’t need to look for it in various different databases anymore, but you get it all from political. So this is country specific data, then we also give you multiples and pizza factors here for various different industries. And you can even filter by country. And then we do the same thing year also for transactions as the same industry classifications here. And then again, the different multiples in each in each sector in each industry. So if you need something quickly, or if you need political just to fill your own models, you can use this, but what normally people will do is they will do a private company valuation and I’ll just call this a test company. Where we do a Brazil Brazilian one, a European one. Let’s do an Austrian one. We’ve never done Austrian one, maybe Germany. Austria is too small. Nobody knows Austria. Yeah, what we could now do is we can select an industry or we could browse industries. So give you different, you know, industry classifications. Let’s find something a German, maybe a construction or machinery company. There we go. machinery. And then we provide a revenue number. Let’s say this company has 1 million in revenues. And now you see there’s also an optional input to a similar public company. The question is do we already know one company out of peer group. If not, we can just leave this empty and the system would just guess, the right peer group. And we could also provide a valuation date. Yes, basically. And I

Leonardo Pansardi Grisotto
may suggest something this particular field here is very important because it helps vertical to retrieve a more qualified information and retrieve more qualified appears. Every time we spend a little bit more time searching a peer company to put right in here. Political cost comes at brings us a much more qualitative set of peers and transaction. So it’s very important you qualify that before.

Paul Resch
Yeah, yeah, I think you’re spot on them, right? Because if we already know one company from the right, it’s very easy for us to find what’s still technically complex, right. But we can find other companies. But if you just give us the country and the revenue and the industry, you know, these industry classifications are very crude, right? So it’s, it’s harder for us to find the right people.

Leonardo Pansardi Grisotto
That’s right.

Paul Resch
Yeah. No, you’re absolutely right there. And it’s, I would agree, it’s the single best thing you can do to get a quick pickup is to already know, one company out of the peer group. And I mean, people ask me for the, you know, the strangest peer groups, right? And you wouldn’t you would be surprised for which industries you can find. Find listed peers, right. Did you know earlier now they’re even listed m&a advisors? I had no idea but in Asia, that’s the thing. Yeah.

Unknown Speaker
Is that so?

Paul Resch
That’s it’s a thing. Yeah. You find anything? Yeah. So So next time you do a valuation for suppose xo itself? I can share it.

Leonardo Pansardi Grisotto
Outside for that?

Paul Resch
Good. Well, we it’s step number two, now qualitative assessment. And you see, you know, the different steps we didn’t get to the P group, then the projections, then transactions devaluation in the export. So it’s always the same, these are always the same steps. So there’s always obviously also less room to make errors, right? Because you have sort of training wheels on when you do your valuation. Right. You can’t completely destroy evaluation with Excel spreadsheets. Obviously, that’s that’s quite easy. Yeah, and so the in this first step, I won’t spend too much time here. But obviously, what we’re doing here, obviously, but what we’re doing here is we’re asking the user to provide some qualitative inputs. But what about management quality? Right? Is there you know, outstanding management, but you know, does the company rely too much on management? Does the company rely too much on individual customers on individual distribution partners, and as you can see, if I change something here, it changes the the the overall average weight, right, and the risk factor, and that has an impact on our cost of equity premium. So this is what we add on top of cap M. And it also has an impact on the discount to trading market, we said we’re applying if you’re trying to capture the firm, specific risk here. Now very popular model module, especially with our transaction advisory clients are m&a corporate finance costs.

Leonardo Pansardi Grisotto
Yeah, especially when we are dealing with privately held companies. So we need to to impact the valuation or the numbers or the peer groups with a more specific cost of equity. So we use this qualitative assessment to do that. It’s very helpful.

Paul Resch
Have you ever tried to do it together with your clients to be done that

Leonardo Pansardi Grisotto
what we do is we set up a Google form and we send to all the partners and they respond to it individually, right we combine those those answers we get an average or median and then we bring that to here so we have a an A overall qualitative assessment assessment for all the company from starting from the views of all partners so it’s quite helpful

Paul Resch
very clever idea. Yeah. But what we found out is that this is a very engaging exercise right because these are you know these sometimes clients struggling with the more technical aspects of valuation right what is pizza what is you know, a margin, but these things here they intuitively understand right? It’s competition Yes, more competition is bad for my valuation, right? Better management quality is good for my valuation and so on. So it’s, it’s intuitively easier to understand right? And the impacts these factors have. Also, for example, when you educate your your clients about, you know, ways to increase the value of a business, right, which might also be interesting in you know, preparing a company for an exit. Good, I think, no need to spend more time here. I think the idea is clear. Let’s jump to the next step. And that’s the peer group. So let’s see what the system proposes now for our German machinery company. We see all German companies here. No surprise there. But it would only, you know, use some some other companies, foreign companies, if you know, there weren’t enough machinery companies in Germany, but in this case, not no problem. Yeah, what do we see here? Well, we see market caps, we see different multiples forward looking multiples, starting with a sales market, we’re going to the price earnings multiple, we calculate depth ratios and credit spreads, as well as Peter factors. And then of course, you can change your vehicle price, so you can work on your pickup and deducted so we could easily add a company to a peer to peer. And we think this one Austrian machinery company, one click, and a few seconds of waiting time and then the system will populate the table and add the financials for this company under IDs. There we go. already loaded. It’s really as quick as that right? No need to, you know, go into databases, calculations yourselves in annual reports and quarterly reports. All of this is done automatically. My favorite feature is the benchmarking feature here because this shows you graphically which companies are outliers. And so we see a singular technologies key here, which grows much faster, but shrank before so it’s a bit of an outlier. So I would just remove this here. And then we have one company here, that’s you know, laggy, which has very high EBIT margin, probably also be too high for a peer group, we will just remove that too. And as I said, overall, just a graphical tool to clean up your Pico because what you typically want to have is a peer group that is very similar to the company you’re valuing. Of course, you can add your own peers, I’ve showed you that but you can also filter, you know by industry, country, and basement also by keyword. So this is something we’re very excited about launching together with version three of our platform in a few weeks from now. They’re out, have I forgotten anything here on the here selection screen,

Leonardo Pansardi Grisotto
oh, the the applied metric down the table. So you can see the usage of the discount and premium above then nine minus 29%. So you have here the peer group, all the median from all the companies, the industry, median, and retrieving machinery industry. So you have this overall picture, and then you have the discount premium to the metric that you that the system is going to apply. And that you’re gonna have to understand for all those companies are bigger companies then than yours, for example. For example, we have here at Evie sales, 2021, median zero point 81 times, Evie sales. So this is for this peer group. So most of these companies are 3 billion to 224 million. So most of them are big companies. So if you’re gonna do a valuation for a middle market company or a privately held company is more company, you’re not going to use 0.1 81 times you’re going to use zero point 58 times because this this is more precise, this is

Paul Resch
behind it. It has all those risk factors that you had input in the previous step qualitative assessment, so only to discover, and this is such an important point you make early on out all right, because what we sometimes hear from from, you know, mid market advisors, yes, listed companies are not relevant for my work, right? Yeah, I only, I only look at transaction items. I mean, of course, we also provide you with transaction might present but we’ll get there in a few minutes. But we think that every additional data point is relevant, right? And even though it’s not directly comparable, the you know, the large global corporations, after you factor in a discount the small company discount the liquidity discount, whatever you want to call it, it just adds another data point in your analysis where then increases the value of your of your valuation. Alright. Very good point. Well, and of course, you in any case, you need the beta factors, right from the large global listed companies, right? You can’t calculate beta factors from from smaller, smaller transactions. One thing to notice that these discounts that they just mentioned can also be overwritten, right. So if you have your own model for you know, a small company discount and you want to use this, you can override everything. So everything is built in a modular way, so you can change stuff. Good. Yeah. And then a few more options here. Show Details. sobhita calculation, just an example. I mean, obviously, we give you all the background calculations here, this case, the beater calculation, and the regression analysis and what goes into the, you know, the data. So that’s definitely also super relevant for you. But what I would also like to show you is, this year show more like this, if you click Show More like this, it will produce a list of companies that are similar to the one you’ve just looked at. So that’s very helpful. Because once you have a peer group, you can then you know, drill down further into certain directions, right? You find a company that you really like. And then you look at companies that are similar to the one you’ve just looked at, right? And you remove some others from your paper, right? And so then key group definition becomes this iterative process, and very intuitive. Okay, I will jump to the next step. And that’s financial projections that I think we should speed up a little bit here. And there now that you remind me if I forget something in my presentation, please. Okay, so financial projections, two options here. But litical estimates is one option. If you don’t have you know, financial forecasts, for example, right? If you are doing a valuation outside in, right, are you representing somebody on the buy side, and you only have a teaser with, you know, only a handful of numbers. But neuticle estimates can really help you build a good valuation a good outside in valuation, right. Keep in mind, you can also upload a financial model. But for now, I want to show you the validity for estimates. So what you see here is basically an overview of the most important financial metrics of a company sales, EBITDA, and so on here from the p&l and capex from the cash flow statement, and then working capital positions and others from the balance sheet. And what’s interesting is that, even though we only provided one number, if you remember 1 billion in revenues, that’s the number you see here, the system has now pre populated everything else. So it’s assuming growth rates here, it is assuming margins, and a certain margin development, and everything else, right. Now, how does the system do this? Right, we don’t have a crystal ball, we can’t look into the future. That’s true. We can’t look into the future for our company here. But what analysts do for the peer group is that they look into the future for the people, right, they built projections. And I want to quickly show you this on the benchmarking tab here. So here, again, you see our peer group. And you see the historic growth rates. But you also see these forecasts here, sales in this case, it’s the sales forecast, growth numbers. And what the system does is it is here is it looks at analyst forecasts, you know, you have these analysts sitting in banks, usually in research houses, and they build financial models for these companies. And they project the future. And what we do is basically, if we don’t know it, we just take the the median growth rate here, and we use this for our company, because we’re basically saying, yes, these large global companies, they’re not directly comparable. But anything that influences their growth rates, their margins should also influence our company’s growth rates and margins. And so with that information about sales profits, or, for example, the EBIT EBIT margins here, we can then build this entire table. And everything that’s green is a forecast based on peers, whereas everything that’s black or gray is basically an extrapolation. So for example, if we just extract extrapolating dates, the sales outstanding to forecast the accounts receivable.

Now, of course, you can override all of this, right, so I could just put in my own numbers, whether this is an absolute number or a relative number, you can just put everything in here, and just build your own forecast. So if you need to do something quickly, this is the way to do it. There is of course, also the option to upload your financials. So in the vast majority of cases, you will build your own financial model, right, you need the flexibility. To build your own operating model, you need the flexibility of a spreadsheet, right. And for these cases, you can open the importer. And you can download the model template work with the model template, I won’t show this now it will be a bit too much for here. And then just drag and drop it here. And you will we will read the data of that model incivility form. And that doesn’t just work with a model template that even works with your very own model templates, or even your clients templates. Just a few small things you need to prepare in your model and then you can read it automatically and beautiful. Is this a feature you guys are using at Zach’s? Oh,

Leonardo Pansardi Grisotto
yeah, that a lot. We have our own model. And we, we we do the export tab to input here in the system and compare against the periods and other things. So

Paul Resch
big time saver. Yeah. That’s right. Well, you’d be surprised so many of our clients, you know, they they’re not even using it right. And so Whenever I show this, they’re always fascinated, because it really does save a lot of time. Yeah. Good. Obviously, you can change a few things here, you can run different scenarios. In this case, we only have a PA case, but you could, you know, create an upside case, the downside case management case by case seller case, you name it. And then some more options here, I won’t go into too much detail, but we give you a few more plausibility checks for your valuation, you can make sure your forecasts are plausible. But I will now proceed to the next step. And that’s transactions. So just like with the peer group, what the system does here, again, is it’s trying to find peers, right? For the company we’re valuing. And here, it’s now decided to do a bit of a pan European approach in machinery, not necessary, and not necessary, I think we could probably get enough peers just by looking in Germany or not sorry, not peers, but comparable transactions, presidential elections. But again, it’s also making a suggestion here, you know, you always see the buyer, you see the target, you see the country and the sub industry, the stake that was acquired and the deal value. And then we also show you the different multiples, right. And now, just like with the peer group, at the end, we calculate the median of all of all the above transactions, we also show you the median here, by the way for machinery overall. So all companies in machinery global, so you have an additional data point to benchmark against. And of course, just like with the peer group, you can refine this, this this list. So here, for example, 1.69, either Dad, it’s probably not a very good one. Normally, what you would do is you would eliminate outliers. What I really like to do is do a search here filter, and do a full text search because he can become really specific, right? I mean, of course, you can just search for machinery. But that would be easier, you can just do the industry search here 3600 industry as machinery deals. So have a look at what Germany has to offer 255 deals in Germany in machinery, that we could, for example, limit this to the last three years, six transactions. And now we can, you know, just just add these deals here very quickly to our list of transactions.

Leonardo Pansardi Grisotto
How many transactions can you add

Paul Resch
to this table? It’s in theory, it’s unlimited. Just keep in mind, when you export everything to PowerPoint, it can mess up your formatting a little bit. But it’s unlimited. One thing, by the way, we are planning to do is to have different tiers of peers, but also have transactions, right? So you have a tier one, tier two, tier three, and then you can do the st you can then switch between the different tiers and see what the effect is. Excellent. Practice. Yeah. Well, and just like with the PS, you could also apply a discount or median here, we’re not proposing anything, because it really depends on you know, the type of fields you have selected here above, right, if you only had 17 billion citizen citizen cope elevator deals, you would probably want to include the discount. In this case, I’ve just decided to remove this outlier transaction and instead focused on the smaller deal I mean, they’re still big right but bit smaller deals to arrive at our valuation multiples for transactions Okay, anything to add anything I forgot Leonardo,

Leonardo Pansardi Grisotto
when a thing is worth dimension is when you have this this kind of table transactions and peer groups easily like that. So, we you, you start putting your analyst or if you are an analyst, you you start using your time more wisely, instead of wasting time searching the whole internet to gather all those data, which lots of times are very hard to to have. So you start really analyzing the deals, analyzing the segments, understanding the drivers behind it, the drivers that move this industry, so you jump from a very operational work to a more strategically and more qualified work. So you stop wasting your time with things that does not add to your client from from their point of view and to start bringing qualitative information insights from the industry. Sometimes when we have this kind of table here for example, trends privately held companies with the multiples right over there. We show them this Wow, I’ve never seen that before. And you’re right, this, this, this, this companies are quite similar to mine. And so we set the expectations. For example, one client of ours, were expecting two times sales. So we said you were wrong. And we proved how he was wrong by showing this right table here. So that transaction, the market is not paying two times sales is paying off 150 125 times the overall market that funds the investors are paying that. So you, as I said, you jump from very operational and data work at your more strategic and insightful work.

Paul Resch
Yep. And I think ultimately, the kind of work that your client likes to pay for, right. Nobody likes to pay for, you know, cost of capital analysis for three days.

Leonardo Pansardi Grisotto
Exactly.

Paul Resch
Yeah. In the meantime, I’ve done a little another little poll. Thank you for contributing here. super interesting results. Leonardo. Can you also see the results as a panelist? Yeah, okay, fantastic. So how long does it typically valuation take to complete in terms of hours? Well, it’s not really ours. I guess I’d stays here to correct this. But yeah, interesting, right. So anything that between one to two days to more than seven days, right? So there is some wide variation there. I assume it’s because we have some political users and some non political users here on the in the audience. Now, but it just proves that, you know, valuation work is takes a long time, right? That’s why it’s also paid well, I guess. Good. Okay. With this, let’s jump to the most exciting part, because now we go to the actual valuation. Until now, all we’ve done was really collected some inputs for our valuation right. Next step is now where it all comes together. So what the system does now is it’s using all these inputs, it’s performing cost of capital analysis, it’s running. Well, as you can see here, it’s almost too quick enough, I have a new computer everything so fast. But it’s then also showing all the results in one nice overview chart. We used to call this a football field chart. So what you see here at the top are the four different DCF based methods that we have, we have five actually one mistake here. Yeah, but if I look at this, they’re suggesting a valuation of let’s say, well, eight, nine, maybe 100,000, maybe a million right. Further down here, we see trading comparables. And here, by the way, I haven’t even explained like the blue range here for the DCF based methods is based on a sensitivity analysis, you already see we’re changing the terminal growth rate, and we’re changing the whack, right. And that’s how you get the sensitivities. In the midpoint you get the green dots. For the trading comparables, it’s a bit different. Here, the blue bar, the blue range here shows a range around where the peers are trading. And if you remember, we entered the discount to where the peers are, what the PSR 29% discount. So that’s where the green.is to the left here, of that range. And then further down, we have transaction comparables. That’s a typical, that’s typically what you see right here, you have control premiums, these are typically higher than the trading comps, some outliers here to the north, some outliers to the south. And then finally, also a leveraged buyout analysis 22 times entry exit, probably a bit aggressive. So if I see this, I will probably override this. I see 18 times here, well plausible eight to eight times here 11 times, why don’t we change this to maybe a 15, that’s probably still get. So as you can see, I can directly make some changes here, and everything will update in real time. It’s also something very nice. If you want to do this kind of analysis with your clients, you can immediately show them what the effects are of, you know, changes here to your parameters. Rest looks fine. system also, by the way, proposal proposes a range here in light blue, I think that range is probably a bit too wide. But we can narrow that down further. Once we’ve chosen the methods we want to show. Here we’re bridging the gap between enterprise value and equity value, you can make adjustments to the net debt, when in the process. Finally, some more pension obligations are found or whatever it is, this is where you can enter this stuff. And it will update the equity value. And in a very nice graphical way of showing the web calculation here. So in this part here, we see that the capital asset pricing model, mostly the various different adjustments we’re making. That’s all green basically is the cost So that could be part of this, this tree of this branch, and a cost of debt is in dark blue here. And then everything below is really that the side calculations. So I don’t wanna go into too much detail, but every valuation method has one box here one one piece of paper. So we tried to make it very intuitive and multiples. See one outlier here, that cue tech, he, we probably should have excluded that one. So mom, it was either EBIT, mitogens, price earnings, all the different activities you would expect for the trading comps. Then here the transaction costs. Not too many contributors here for for PE, for example, I could just hide this method there. If I hide it here. If I also hide this one, what you see at the top is that these methods are now disappearing, right? So we only see two multiples left. Very useful, right? Because you always have one or two methods that are outliers. And in this way, you can, you know, you can hide those outliers.

Right, I’ve already showed how to adjust the parameters. One last thing I want to show you here before we close this demo is the exports because this is really everybody’s favorite feature. Because it’s so quick, and it really replaces the most annoying part of the work. So why don’t we export into the indicative valuation report in English, I just hit the Export button. And what the system does now is and this this might take a few minutes, because it’s depending on how many people are working on it. This is now generating a full valuation reports on the browser. Maybe while we wait for that, let me start another poll. There are you have you built your own report? So are you using mostly the existing reports we offer?

Leonardo Pansardi Grisotto
We have our own report, but we are using some parts of the report that vertical exports to us. In our report, for example, the whack whack table that that graph is is is very elegant and very, very easy to explain to our clients. So we use that in a full

Paul Resch
shot. Yep. What you could explore is also the the the option to build your own templates. Not many people are using this yet. But it’s well see, the download has just started. Maybe I’ll show you the PowerPoint first. One thing after another. So this, I think I have to share my screen again and share the PowerPoints. So this is what this looks like here. Just very quickly. Typical exports, everything you saw earlier on the screen. Now, in a presentation, you know, you can edit stuff, you can you know, change the descriptions, you can change everything right, this is just really a PowerPoint presentation. nicely formatted, you know, best practice 37 pages in this case, you can use either in its entirety, or individual slides, like a an atom. So this is how this works. Yep, thank you. And then very quickly, I pointed out that there’s also an option to design your own template, you can do this by clicking on the plus button, and then download our template, edit the template to really make it match your needs your design, if you have your own company design, we upload it and then political will export into this template. Unfortunately, it’s only possible in words I had in PowerPoint doesn’t work with page break and a few other things. But, you know, we even had clients who could be very creative and use the landscape word and rebuild the PowerPoint this way. So it’s it’s incredible. Yeah, two people come up with Okay. Now I’m glad to share the results of the poll. A full 63% think it’s very important to improve the valuation processes, and a 30 and further 38% think it’s important. No one thinks no one’s neutral and topic and nobody thinks it’s not important at all. So that’s very good. So everybody who contribute to that with an either very important or important, please speak to us. We’d like to show you a bit more about the cuticle and and what it could what it could do for you. Good. That concludes our little presentation of the platform 45 minutes just like we promised an hour Do we have anything anything open anything we haven’t discussed, or that you would like to add?

Leonardo Pansardi Grisotto
Well I think We covered most part of the important points and relevant features of the the system that we use here.

Paul Resch
Agree, I? So we have one question from the audience, he had a question, you can just put it in the chat or in the q&a. Or if you want, I think we can also give you speaking rights here. I haven’t tried that yet. Either you decide. Let’s give him a few seconds. Any other questions? Please? Let us know. Okay, if you value in a not public health company, can you feed the information in the system? Yes, well, it depends on what kind of information you’re talking about. But for what you can do, for example, is you can upload your own transaction multiples. So if you have, you know, everybody has worked on transactions that are not public, but maybe you know, you want to reuse that data, you can, of course, upload that in political and you will be able to use that API factory. That’s a great example. I hope everybody’s following the chat here. Yeah, I mean, look, there. First of all, for beer factories, beer distributors, there are a large number of public peers, and also a large number of transactions. There was a big wave of consolidation in the industry A few years ago, I happen to work on one project there even and, and a lot of that is public, because these companies, you know, in depth, and they can you name it, they’re all huge companies, they usually report report their their transactions. So yeah, you should definitely be able to value a beer factory even pops, by the way, once I’ve done a valuation for a pop, I thought this is impossible. There is a lot of data out there on pops, especially in the UK. Thank you any quick question? Okay. There are no further questions.

Leonardo Pansardi Grisotto
One thing I remembered here, we were discussing these days, our own model, and we were talking about market base discount rates. So if we had to use US market databases, or Brazil’s databases or download that, and Professor demo data, databases, so what we’re going to use to, to input to serve as an inputs for our own model. So we stopped discussing that and we moved to vertical and that party you showed from market based data. And we started from using directly from there and stop chatting and discussing about what will be the best measure? And because because it’s all there, all the good metrics from Capital IQ, which is one of the the best databases in the world. So we started discussing this, the thing, this kind of things and starting, as I said, analyzing the module.

Paul Resch
Great. And I think that’s exactly the plan. I think we reached our goal, right? Because we want you to think about, you know, as you said, the strategic things, right? Leave the number crunching to us. Because you can rely on our numbers and our models. I think that’s, it’s great to hear. Excellent. Well, Your Honor, it’s been a pleasure. Thank you for for joining us today. great having you here. I look forward to working together with you.

Leonardo Pansardi Grisotto
All right. Thank you.

Paul Resch
To the audience. Thank you very much for tuning in today. And please speak to us if you’re interested. Thank you very much.

The post Valutico Webinar with Zaxo appeared first on Valutico.

Valutico Webinar with Zaxo

m.guerville — Wed, 07 Apr 2021 18:11:51 +0000

Transcript:

Paul Resch
Good afternoon. Good morning, everybody. We will start shortly. see most of you joining right now. Thank you for bearing with us. Alexandra, are we ready? Can we start?

Paul Resch
Thank you very much, Alexander for the introduction. Leonardo. Good afternoon or good morning, I guess. How are you?

Leonardo Pansardi Grisotto
We are in the middle. Coming from morning going to afternoon.

Paul Resch
cover the whole planet.

Leonardo Pansardi Grisotto
It’s okay. Good morning, everyone. Thanks this

Leonardo Pansardi Grisotto
That will be only me. I mean that. No, no, no, we

Paul Resch
worth just doing the math in my head? Think about how much time we got, we saved you guys, how many more valuations you can do now, right? If you only need half the time for it?

Paul Resch
Okay, what can you describe the process before you had political What was it like then? Well, the

Unknown Speaker
process

Leonardo Pansardi Grisotto
Sure, if we sum up all the salaries and their work rates, so it will pay itself for in just a few days, I think.

Leonardo Pansardi Grisotto
you something before you start the demonstration, Paul, of course,

Paul Resch
space?

Leonardo Pansardi Grisotto
How did you come with the idea of vertical?

Leonardo Pansardi Grisotto
That’s right.

Unknown Speaker
Is that so?

Paul Resch
That’s it’s a thing. Yeah. You find anything? Yeah. So So next time you do a valuation for suppose xo itself? I can share it.

Leonardo Pansardi Grisotto
Outside for that?

Paul Resch
Have you ever tried to do it together with your clients to be done that

Leonardo Pansardi Grisotto
yeah, that a lot. We have our own model. And we, we we do the export tab to input here in the system and compare against the periods and other things. So

Leonardo Pansardi Grisotto
How many transactions can you add

Paul Resch
Yep. And I think ultimately, the kind of work that your client likes to pay for, right. Nobody likes to pay for, you know, cost of capital analysis for three days.

Leonardo Pansardi Grisotto
Exactly.

Leonardo Pansardi Grisotto
Well I think We covered most part of the important points and relevant features of the the system that we use here.

Leonardo Pansardi Grisotto
All right. Thank you.

Paul Resch
To the audience. Thank you very much for tuning in today. And please speak to us if you’re interested. Thank you very much.

The post Valutico Webinar with Zaxo appeared first on Valutico.

Aldi valuation webinar and transcript

Valutico — Sun, 28 Mar 2021 18:11:41 +0000

Good afternoon, and good morning. And Good evening, everyone, we’re gonna sell pretty soon I wanted to give you a heads up, we’ll be willing to give you a couple extra minutes just to make sure that we have as many folks as we can have. But do not worry, we shouldn’t be starting in two minutes. Thank you. All right, maybe in the interest of time, and to be respectful, respectful of all of you that join early or right on time, I want to get started a little bit. Welcome, everyone to our velluto Weekly Webinar.

Today, what we’re going to be doing is mostly use evaluation we did recently publicly of the German retailer LD, and use that opportunity to walk you through all the different steps that the platform can perform and how we arrived in literally minutes at performing that valuation. So today, I’ll be sharing with you a little bit about wt co as a company about the platform. But really, I want to spend most of the time in getting into the nitty gritty of how did we do that valuation? How could you do evaluations such as the one that we’re going to share, and eventually save some time for q&a, any comments, anything like that, as well. So without further ado, let’s get started.

My name is Mathieu Guerville. I am the value Beco team actually joined early last year and based in the US where the company has expanded tremendously, and is one of the nearly 30 countries where we have a presence. But historically velluto has actually started in Vienna, Austria. And it boils down to a need that was identified in about four years ago, in solving the pain that is doing a business valuation, our founders adhered to sentence business valuation is more out than science, and sort of from doing it themselves, but also hearing that sentence over and over again, they realized that they disagreed with it, they realized that really, when it comes down to it, a valuation is actually a little bit like a craft. It’s somewhat of a hybrid between art and science. And there was a better way to potentially do them at scale, with quality, but yet speed and accuracy at the same time. So between that realization, and the understanding of the market for valuation, and its evolution, which you can see on the right hand side, more and more financial data being available, spreadsheets, not being able to cope with that amount of data, robotic process automation, or RPA, becoming more and more widespread in other functions of Finance. And essentially, all the older macro trends, River Delta, remote work, collaboration, etc. All of this led to the creation of ldquo. And its launch at the end of 2017. Today, we serve about 150 customers in 26 countries. I feel like we need to update this slide almost every day.

I think as of yesterday, we are in South Africa as well. So make that 27 or 28 countries. The goal is for tomorrow to be the global standard and how people devaluation, we have a lot of ways to go. There are 1000s of professionals such as yourselves, that perform valuations every week, every month every year. And so we want to make sure that whoever needs to gain that productivity and whoever needs to get the data edge, we can end up in your hands. And so there’s a lot of room for us to improve there. I’ll go pretty quickly. But the foundation of LED go is really around the idea that while we want to leverage technology for what it’s good for saving time, yielding productivity, efficiency and accuracy, we want to make sure it never takes away from usability as professional service person to exert your opinion to exert you. Alright, so back at it. I think I’ve bored you enough with PowerPoint slides, it’s probably time we move on into the platform. Just again, some of the big names that trust us right now, some of the largest accounting and audit networks are working with us. And we hope really that not only from a global perspective, reaching into new markets, geographically speaking, but also a new use cases, we recently started adding venture capital firms and private equity firms joining us as well. And if any of you are in that situation where you do not represent a typical use case of valuation, we would love to hear from you.

So by all means, please get in touch with us. What we’ll do now is actually go directly into the value Ico app. As you may have gathered from the discussion earlier, this is obviously a tool that is available in the browser. It doesn’t require you to download anything. And what that does for you is it really enables you to always work on the most recent version. We make updates to the data obviously, but also to some of the features and functionality on a regular recurring basis. And so by delivering the service as a cloud based application, you are getting sort of the best of both worlds with regard to 24 seven support, yet at the same time. In the flexibility, if something were riddled with the calculation, and I’ll do it on our back end, and you, you can still do it really on any sort of device, including mobile devices. Now, when you land here we are on the landing page of a signed user in Valutico. Now, obviously, my homepage is going to look a little bit different from yours. Granted, that I have a few additional perks, such as the impairment testing module, which is currently in beta, please feel free to reach out to us if you’re interested in that it’s currently not available publicly. And it’s something else I want to call your attention to, if some of you in the audience actually advisors on transactions and are looking to grow your business, we have a feature right here, where you can actually collect interest from business owners that have contacted us to get a preliminary evaluation and a quick opinion about how much they could hope to garner from a transaction. And so you can see right now, my profile being set global, I see quite a lot of them.

But this is a perspective on what we call my voluto. And the amount of small business owners and actually some of them not quite that small, and that I’ve reached out and are looking to be helped in a transaction. Now back to the main screen, you’ll notice we have three main modules, and I’ll walk through them in right to left folder for reasons that will become apparent in a second. Our most commonly used module is this private market one right here on the left, and this is the one we will use to value LD as we did in that LinkedIn post that probably attracted you here. That module is the more robust one that contains all the features and all of the inputs that you would want to do in the case of a private company, where you as an expert, and potentially as a provider, to that company will have all that data. The module in the middle of my screen right here, right now in capital nuggets, is actually one that is extremely helpful for investment managers, only if you’re doing just a little bit of strategic research. And you want to see a valuation perspective on any publicly traded company, anywhere in the world. So our data set has about 50,000 listed companies.

Obviously, that number moves every day with IPOs, mergers and other things like that. But this is a way and we’ll do one in a second to what literally be one click away from seeing how a public company could be assessed. And then finally, we’ll play with that a little bit, which is that the logical resource module, which is a very quick glance at some key indicators, such as trading multiples for certain industries, risk free rates in various countries, etc, etc. And so in this case, what I’m going to do, and let’s say I’m in the US, and I want to see about Canada, are looking to expand there, for instance, this resource module will give me access. Hey, hi. So what we have here in add resource module is essentially a very quick way to get that information in one centralized location. I know most of you deal with these information, things like your risk free rate, the corporate tax rate, things like that, and perhaps you depend on multiple sources to find out information.

This is our way of making that easier for you. Just one quick glance, quick glance. Now we break down that inflammation by country. And that’s obviously something that can be in some cases, pushing you towards navigation towards you know, looking at different countries one after the other. But overall, you’ll find that lots of information that is here will be actually transcribed when it’s specific to your project, you will find that information woven in directly your workflow. Not a trading tab right here is actually again, for Canada in this particular case, looking at a trading multiples of public listed companies, across different industries. And so this is something that you will again, see in our actual valuation workflow, you’ll see where that data is coming in, and how it actually becomes directly relevant to any particular project you’re doing. And then finally, we have here the transaction tab, which likewise will be something that will be funneled back into the application. And so if you just wanted a quick overview of what are roughly the going prices, if you will, in terms of multiples in one particular country, that is where you will find out that it’s in the resource tab. Now let’s head back home to our main dashboard. And what I think we could do is I’ll walk you through how to create a private valuation. And more importantly, I will reopen the Aldi project that I did for the original blog post. And we will walk through every one of the assumptions that we made and actually deconstruct the, the options that were given to me and see kind of how we arrived at it. In a case where you don’t work off an existing valuation like we will in a second, you would actually create a project very simply right here by giving it a shot. company name. So acne, the classic, casual name for American companies, you would want to indicate the location of the company. And that obviously will actually affect what we saw in the resource tab, the peers that we were recommend the industry, multiples, etc, will be based mostly on the region in which you’re doing that valuation.

But there’s flexibility, you can always change some of those things going forward, that from an industry perspective, you have two options really available to you, you can either search it. And so here machinery, and you can see all the different subcategories of machinery for instance. Or you can actually navigate using two very commonly use taxonomies, the neci and the nacsw. And so really up to you, we know some folks have a degree of comfort and can recite their nacsw codes by help. If you prefer to just do a simple query and search by keyword, you obviously have that option radio, then, the only final thing we will ask you to do to create a new project is to allocate a currency obviously, and then the annual revenue estimates for the company you’re trying to value. Everything else is optional. Beyond that, know, when you’re looking at the two fields that are below that, they’re both optional. What they do is that in the case of similar public company, and you can see actually right there, since we’re going to do LD, let’s try to find a similar company in a retail space. This is to anchor our pa recommendation engine, and to make sure that we see the recommendation with at least one name that you are very comfortable with. And that way, when the engine actually recommends 1215 or 20 additional peers, it is going to be grounded in that decision you made right here. And then finally, for some folks at some time may need to do valuations that are backdated, maybe for tax purposes, or impairment testing for that matter. This is something that we have enabled where you can actually choose the date at which the valuation will be anchored to and obviously that changes some things regard to trading multiples, etc, etc. Now, because obviously, we’ve done that valuation already for LD, I’m going to show you how you can really recover some of your prior work here. And you can see some of the many evaluations that I’ve done over time.

Aldi is right here conveniently with a starting with an A, you don’t have to go to file. And you can have that information right there that that valuation was originally done on March 1 2021. When I click on this, it will take us all the way to the end result. And I will navigate us back as if we were creating that valuation from scratch today. So if you’ve read that post and remade, you already know sort of our findings and where we recommended devalue land. So instead, what we’ll do is we’ll navigate back to essentially that workflow, you see up top, where we start with the company information, which we just entered. And the first real step of work is going to be what we call the qualitative assessment. So let’s go into it and get a qualitative assessment done on LD. Now Being that this is a case where we already did devaluation, you’ll see all of those weights have already been adjusted, I want to walk you through what they mean, and why we’ve made some decisions that we’ve made. so far. The intent, I will zoom out a little bit, by the way, so you can see a little bit more, the intent of this practice is really visible at the bottom of my screen right here, we want to apply a certain cost of equity premium, according to our cost of capital method, which is the cap m model. And we want to apply a discount to trading multiple and when we’re going to compare Aldi, to otter publicly listed companies. And both of those things are a result of the overall risk factor that we assigned to the company. So every leverage that you find here, and they’re neatly grouped by topics, whether it’s General, whether it’s about the market, with the management team, et cetera, et cetera, every one of those factor actually plays a role. And you can see how much of a role it is on the right hand side, we have the weight of these parameters. Every one of those factors plays a role into moving their risk factor. So in this case, LD is obviously a sizable it is private, but it is sizable.

So I updated when I did this evaluation, to go from a neutral ranking of three, all the way to ranking it as a large company. When I do that you should see up here, as well as at the bottom, how that affects the score right here. And this is obviously you know, reflective of a discount, full size or discount for lack of marketability, all those different factors that you normally sort of have a soft perspective on in your head. They’re reflected in a much more quantifiable and more embodied, documented way. So that if you have multiple folks in the firm doing that kind of work, you can see how they arrived at recommending falling cents, it goes to the equity premium of 3.1. So we haven’t really reinvented anything here. All of the factors that are listed on this page, and I’ll walk you through a few more of them are things that you as professionals are already looking at what’s new is the ability to view it all in one page to document it. And actually, to have traceability, we issue an audit trail, if I were to make a change here, that would actually be reflected in a document that shows me that on Tuesday, March 18, I made a change to this particular reading. And this was the impact to my cost of equity premium, etc, etc. So some of the factors that we take into account, obviously, things like market size, for grocery retailing, that’s obviously going to be enormous market. market growth, on the other hand, is probably less attractive than some of the other markets that are out there. And then in terms of market share, LD may be private, but they are in the top 10 largest global retailers. Therefore, I wanted to give them credit for that and rank them relatively high. When it comes to competition. This is obviously a highly cutthroat, highly competitive market. So I want it to represent that I could have frankly gone even a little bit more aggressive here. And market has really high exposure to business cycle, we know that for a fact, obviously, this category is affected quite a bit. By the economic cycles, when people have you know, higher unemployment, spend a little bit less on groceries, maybe you’re down market to different kind of retailer, etc, etc. Now, other factors that may be a little bit less obvious are going to be around the management team, not only their quality overall, but also the strength of the bench, if you will. And in that case, with a little bit of research that I did on my own, obviously, you would know that a lot better if they were your clients, and you were doing his work yourself. But I wanted to actually say that Aldi has a relatively strong bench and does not depend too much on one or two individuals.

Therefore the reliance on key persons, I marked that as relatively low on the sales front, things that all professionals use to m&a. That’s actually my background, this is always something you want to do as part of your due diligence. How much do you rely on the top customers is 80% of your revenue coming from 20% of the customers? Oh, is that a little bit more of a healthier customer base overall. And so this is what I wanted to reflect right here, customer lock in, I think there is very little little lock in or even loyalty necessarily in the grocery market. That’s why I wanted to reflect that as very low. So overall, the intent here was to try to represent our understanding of how LD operates. And by modifying those factors radio to eventually present a credible perspective on the overall risk factor which yield eventually a credible cost of equity premium, as well as discount to trading multiple. If you have any questions, by the way, feel free to use the q&a function. But I believe there’s also a chat function that is activated, and so feel free to put it at any point in time, I will try to keep an eye on it.

Obviously, I’m a little bit distracted by keeping an eye on the main screen, but don’t hesitate. When you’re done with the quality of assessment, you can follow up here again, we’re going to move into the peer selection phase. And so in the selection phase, if you recall, I had actually used Kroger as an example of a company to preload in our data set. And that work was obviously done a couple weeks ago. But the set of peers does not evolve that much, if at all. What I did at the time, was really make sure that I curated a somewhat global because Aldi is a global company, I didn’t want to over represent, let’s say Germany, where Aldi is from.

And I wanted to curate a somewhat global representation of retailers that have a similar profile toAldi. So retailers that I think were initially included. And I removed were things like the Home Depot, which is a hardware store in the US and others that I was less familiar with. But really what you do here, this is the end result that I arrived at. But in the process of doing that, what you would want to do is look at the set that we provide. And based on your own understanding of it, as well as the little hints that we can give you here in terms of description, is to decide which companies to add or remove. And so let’s say that in, in this case, in particular, we’d like to remove this Belgian company, for whatever reason, you would use that menu right here and say I wish to remove this company. When you do that, especially as you remove more than one, what you end up doing is you curate a set of peers that is more relevant to your particular target.

And therefore the median that we extract from that set of peers is going to be hyper targeted to the company you’re trying to evaluate. And so in this case, you can see that the median of the various multiples we provide right here is readily available. And here you’ll find that number that we calculated in the quality of assessment. Our work in a qualitative assessment recommended that we have Apply in 19% discount to trading multiple. So that is why the platform is doing right here. If I decided for some reason that maybe for revenue multiples, I wanted to apply a less steep discount, I am still totally empowered to do that myself. And I can help code a lesser number right here in terms of the discount, oh, health code, an actual number by hand right here and say, you know, I would like to just have a point five times sales multiple right here. Now, interestingly enough, LD is a pretty easy to box and sort of company. In other cases, you may have a company that sort of fits between two buckets is it a digital entertainment company or software company for thinking of, I don’t know, Spotify, for instance. And so what you can do here is use that little plus sign and add an additional, an additional industry.

So let’s see if there’s anything else that we could look at that might make some sense here. And let’s let’s just go with food products, maybe just just in case, to see maybe Aldi should look to do vertical integration instead of actually being maybe producing more white label. And so what I view now is three perspectives. I have my perspective on the median of the peers that I selected across Evie over sales, Evie over EBITDA, EBIT, and net income.

And I have the perspective of what are the trading multiples for the industry overall, as well as the auto industry that I added. And from there, I can really decide what I want to do. Now I showed you how to remove a pier, I showed you what we do have it here dado. Now let’s look at how we can add some. So let’s say I want to look at companies, I’ll go straight into the sub industry actually, and see if I can find some additional retailers, food and staples, retailing. And maybe I feel like I have not really represented the Asian market. I’m not actually quite sure if LD is present in Asia. But we’ll see this is the fun of doing a live valuation without a safety net. And so let’s see what we’re finding. I looked for publicly listed companies in the food and staples retailing in Japan, just you can see you get a perspective in case alldis in those markets. And I find 106 companies, I can view the list of results right here. And it looks like Lawson, which is I believe a Australian company, maybe also listed in Japan, so maybe I will just include them. Now once I’ve added a company, well, if I look at just the set that was already there, I can also do a little bit of a deep dive, if I wanted to look at calls also an Australian company and see where is this data coming from? The lirico is very transparent about where our data is coming from, and what date most specifically and how we did every single calculation. Some of our clients that are using workflow, IRS compliance or even FCA compliant sort of work, want to make sure that in the output that they provide, there is a full traceability of how every number has been calculated. And so that’s what we provide right here, you’ll find the method that we use, obviously, multiples are very simple decisions that we make. But nevertheless, we want to be very transparent about how we arrived at this. If I wanted to also perhaps make a more educated guess, or Oh, a more educated selection, when it comes to my beta be delivered or unlevered. The the levered aspects will come into play on the later stages when we decide to tweak maybe the tax rates and things like that. But I also have the ability to do that either at the scale of the entire set of fears and look at my beta right here, including the median for the various industries that selected where my peers are located. And where we have selected to position our sales. Well, I could look at the beta at the perspective of one single company and see the beta calculation for them which we use a rolling five year monthly average to perform By the way, that data is also downloadable, if you wish to do some analysis on you. Now, final thing I usually do is before I move on from a set of peers, you know, they look good at first glance, but maybe something is going on there that I would want to make sure I catch. And so usually I go into that benchmarking tab right here.

And what the benchmarking tab will do is visually show me the rate of growth and some measures of profitability for all of these companies across different time horizons. So I can see some of the momentum that’s going on. And I could potentially decide to remove some companies Metro here I see as add tremendous growth over the past few years. But you know, we’re still in low double digits, we’re not looking at something like 50% growth or maybe they made an acquisition and the multiple might be thrown off a little bit. So I opted to keep them in in some cases.

I do a lot of those demos on software companies. And you’ll find really very, very wide ranges with profitability that are extremely negative, as well as sales growth that you know, in double, triple or quadruple digits percentage wise. And that gets a little bit more cumbersome and you want to make sure that you can spot any potential outliers. And that way make that decision. For instance, in this case, let’s say a company has invested a lot in capex really stands out, you can see the median is 2.6. These guys, Lawson is actually more than doubling that, I may actually decide to remove them, just on the basis of that they may not seem like a perfectly good match. Once I’ve done that, I’m sure you can guess where we’re going next, if you are following along the top of my screen, and so we’ll move on to financial projections. Now when we get to financial projections, and this was actually a little bit of a complicated one given at Aldi, albeit as big as they are, provides very, very little information about what to do in terms of financial performance. And so we had to use the Veliko estimates, the lirico estimates are perspective on creating a simplified p&l, cash flow statement and balance sheet, essentially all of the key items that you need to do a DCF by extrapolating the data from the peers and the analyst consensus estimates that come with them. So in reality, the only number that I entered initially, when I made this Aldi valuation was this right here 120 billion euros of revenue, every single number after that was created automatically by value to go by simply using the rate of growth of its peers. And so in that case, you can see that for 2021, we’re estimating that the company will get to about 120.7. And I can go to the benchmarking tab right here and see where that comes from. It comes from my little sales tab right here, the median estimated sales growth of my peer group. Now, for the sake of flexibility, we allow you to change that however you see fit, if you think Aldi is not being affected as much as its peers, and you want to say maybe give it the one full percent right here, you can actually do that. When I do that, you’ll notice that numbers switch from being green, which is an extrapolation from builder to go into being blue, which is data you’ve entered yourself. In this particular case, we had done a little bit of research prior to developing the company and found out that we estimate the gross margin to be about 3%. And so I actually had played with the numbers. This is where you’ll see a lot of blue on these lines to reflect the EBITDA, the EBIT and net income that will be consistent are these credible with a 3% gross margin case? No, when I said 3% gross margin case, I use the word case I could really say a scenario.

And this is actually what we did is we represented two different scenarios in which to value LD. One is where we aggressively by hand fed into the model some new assumptions representing what a 3% gross margin might look like. And another one was actually just you take always the analyst consensus estimates and stick to those numbers. And so if I go back to that other scenario, you can create unlimited scenarios. By the way, maybe you will doing a scenario of management case versus synergy case in the case of an acquisition. Or maybe you’re doing a different scenario in terms of different growth estimates for a particular company that are not tied to an acquisition or something like this. But you have the ability just at the click of a button, as I just did, to switch between scenarios. And so this is my peer case out of March 9 2021. And you can see here, that actually, my epidemiology is quite a bit higher than the one I had in my other case, they will we see yield different valuations. And so you have to make sure we documented everywhere, that when you arrive into valuation, just check which case you’ll actually be valuing at the moment. Now, a couple other nifty aspects of this platform when it comes to the financial projections, not only do we seed everything with the peer data and let you adjust as you wish, and most of the adjustments can be held coded as a value such as you know the ML in billions of euros right here, we’ll have coded as a percentage of mlj.

It was our rate of growth, full revenue. really making is flexible to represent your assumptions however you like to build them. You can do a couple of other things. One is adjust the length of your forecast. In the US especially in industries like software, we tend to do pretty short forecasts, three to five years gain, maybe capital intensive industries, you would want to do longer forecasts, five, 710 years. We give you that flexibility. You’re right here again at the click of a button. As I add those forecasts in year 2026, and 2027, just showed up, you can see just like that, by magic, everything is already prefilled. For you, again, based on assumptions that aren’t grounded in market data, this is not it simple straight line estimate, wherever we can, we use actual market data to see that information. Couple other things you can do before we move on, is download that data and work on it. And whatever tool you’re most comfortable with, whether it’s Google Sheets to collaborate with many older folks, whether it’s Excel, or whatever else you’re using, you can do that very easily, and then eventually re upload whatever work you’ve done, and led code will ingest that information back and represent it as a new scenario, essentially. So very simple right there.

And then eventually, once you’re comfortable with your assumptions, I always recommend checking the validation tab, which is sort of like the plausibility check shows you various different dimensions or derivative of the numbers that you’ve entered as a way to see if anything really seems outlandish. For instance, right here, I think I played with the capex assumptions. But nothing strikes out as extremely out of the ordinary. But in some cases, you’ll see a finger right here, that will spike a little bit, maybe because of an analyst consensus estimate that drops in the algae or fill a particular pier or something, this is your perfect age to spot those sort of bumps in your model, and smooth them out. Now, if you’re doing a project that’s obviously a little bit more involved, and you are working directly with the client, this is not like a pitch meeting, you have actual data of a lot of their operations, and maybe a cap structure, and a cap table and capital structure, you can make some adjustments in there as well. Here we have pension obligations that were not represented, we probably could have added some I don’t have the assumptions of the top of my head, but I’m sure I’ll do some pension obligations, I could really add any older sort of maybe things that I would want to do, maybe I want to write an ESL plan, or something, I guess. And eventually that gets reflected into the net, that bridge that we’ll see in a couple pages. I don’t see any q&a or any chat, comments.

So I will keep plowing forward. But don’t be shy, feel free to interrupt me at any point. And I will be happy to take your questions. I know this is a lot to digest in very little time. As I click on Next, we’re obviously headed to to transaction time. Again, if you’re following up there, this should be pretty self evident. And the transaction tab will work in a manner that’s very similar, you should feel very comfortable with by now already, because we spent enough time on the pier selections at the dynamics of the user interface is very, very similar. Valutico makes some recommendations and will give you 10 1520 different transactions that the platform believes are relevant. And that seems pretty much on point right here. Lots of acquisitions. In the past, maybe I would want to remove some of the older ones in the food and staples, retailing. And lucky for us lots of great information here, lots of multiples that aren’t available, etc, etc. The mechanics from here, exactly like the peers, maybe I want to remove this transaction because it is now almost 13 years old. So this is actually perhaps a little bit too old to be particularly helpful.

This one as well. And so the removing feature extremely simple. If I wanted to add some transactions, this is something that’s not done very frequently, because you don’t often know by the name of a transaction by now, but you could do a simple search right here. Or more often, what you’ll want to do is do a filtered search. And what you’ll notice here is actually a feature that is yet to make it but will soon appear on the pier transactions on the pure selection tab is a full text search. And so right here, you can see that we have about 800,000 precedent transactions that are available, including over 150,000 I believe, where multiples available. And what you can do is try to narrow it down quite a bit. And so if I’m looking at transaction in the food and staples, retailing and let’s say I want to look only the past five years, so five years would be 2016 mid March.

And I’m going to look at a set that is about 300 transactions. And now if I wanted to narrow down and maybe look at convenience, maybe Aldi is looking to expand into the convenience store. And so I’m going to add the keyword convenience here. And just like that, we narrowed down our search from 300 plus results to just 87. Now maybe I want to remove anything that was a minority interest taken now 50% 51% and above. And maybe you also want to remove deals that would be too small less than 100 million And just like that, we’ve narrowed down to 14 transactions that could be quite interesting, right there. So I am not, I believe familiar with most of these. But this one is relatively sizable, it is in the US, and it is in the right category. So I’m going to edit, we’re looking at performance food group. And then once I’ve added it, I can do a quick Double, double take and make sure that I’m actually really comfortable with that transaction by clicking on the details tab. And right here, I will find a snippet of description of that bathroom transaction. And that way, I can read a little bit more through it and figure out do I actually want to include it is it really a relevant transaction for my for my particular project, eventually, once you build a list of transaction that you’re comfortable with the object is obviously the same is to find the multiple that you are comfortable with. In this case, we provide you the median, we suggest a discount, or premium as the case may be. And then we let you decide really when you will do. And so let’s just go here, manually rounding it up, 2.5, maybe doing a slight discount of 5% on the EBITDA, multiple 5% on this, and not sure why we were at this original various discount, but given an Aldi is, I believe less profitable than its peers at your discount status.

I want to apply this deeper discount right here. Once I’m comfortable here, a quick glance, Oh, you know what, I happen to work in the retail industry. I don’t but let’s pretend. And I knew if a custom transaction, I know if a transaction that is not publicly available.

And so what you do here with the simple mechanism is if you have a particular expertise, we have a lot of clients that say, you know, I do a lot of healthcare acquisition. And so I have a lot of data from my industry that nobody else has that cap IQ doesn’t that pitchbook doesn’t, I want to be able to import that in, this is how you would do that, you would add the information about a deal that you know, and that way, obviously, the more I add the oil, move the median, and also eventually you obviously appear in my report, and I can share with my clients. And so we’ve done it now that we have completed that final step, the bulk of our work is done, there will be a little bit of fine tuning that’s available to us. But really, by and large, the the work has been finished. And we’re going to get to evaluation. Now this valuation is because I fiddled with the numbers a little bit might look a little bit odd.

But directionally speaking, we should be looking pretty good, especially when it comes to the multiples based approach I played with the p&l a little bit too much, especially giving it giving LD a lot of credit for our profit margins were above the industry averages, and therefore my income based approaches DCF and even the equity based approach are going to be relatively rich. But when you look at the training comps, we have a very nice, very narrow range right there that you could feel very comfortable is likely where the company value would net out if they were to were pumped to go public. None of I’ve done that. I have my ranch right here. And I can actually go and dive a little bit more into each of those methods and see graphically in some cases or in tabular fashion in otters. How exactly do we arrive at those estimates. So right here is my net that bridge, which I added zero for the sub that we WC show up if we add created an additional item on that table. Right here is the full breakdown. And I will zoom in a little bit I was zooming out earlier so we can see everything that may come closer here. Here’s a full breakdown of how we arrived at our walk of 4.5%, which is really low. But upon verification, it is common in the grocery and around high volume retail industry to have pretty low wax. And so you can see all the different assumptions that we made. And by the way, if there’s any of them that you don’t like, you’re just one click away from adjusting them right here. Now for the sake of discussion, we’ll bypass that and just assume that we’re pretty comfortable with this, including our gearing, I think the gearing is right here. I’ll target that ratio.

And so this is a feature People often ask about, then we can see sort of the full build out of the cash flows that yield our DCF in Turning the sensitivity table obviously, because of our very little work, you can see here we have this number right here, it’s just a limitation of the growth model that’s used by literally everyone in the industry, when you come to very, very low wax, that overlap, innocence even table with a perpetual growth rate. And if there’s a method that I don’t particularly like, in this case, actually, I kind of want to hide the DCF. Because we have so little information about how well LD is doing, we have so little information about how much of their cash they’re spending in capex and things like this, I may actually opt to hide my DCF valuation. And when I do that, it’s not simply going to remove it visually, it would, if I had not held coded or random myself, it would actually restrict the range a little bit and give you that little narrow sort of field that you usually you know, obviously, you want to go to a client’s with something like plus or minus 10, or 15%. If I look at other methods, obviously, going further down the table, I’ll see old traditional methods of representing the information, you’re trading multiple, as a nice little histogram charts.

And then our transactions are going to be represented right here. And all of this is obviously something that you could click on to see more details, etc, etc. When you’re happy with the results, and if you feel like you don’t necessarily have to do a lot of adjustments with the various parameters around right here, you could actually do two things, you could stop right here at this web version and share this.

This is actually what we did, those of you who consulted the blog post and read through it, you may have seen a link that will lead you on this page. This is exactly how you would accomplish that you would copy that link right here, decide to make the valuation public. And then if you change your mind and want to do some more work on it, then you don’t want anyone to access it while you’re working on it, you turn it back to private right here. The one thing to note we also disclose right here we’re looking at a pure case, if you remember, I had two different scenarios. If I wanted to show the 3% gross margin case that we created, I would just go back to financial projections, or reload that scenario. And you would just be one click away from recreating one. So that’s one option. The other option is going to be to do an expo if you work with clients, and you would rather send them a Word document or PowerPoint, rather than sending them to a web view such as this, you can do that as well, I’ll show you in a second. One final thing I wanted to show you on that page was something that actually is a huge time saver, whether you are in private equity or doing lbos occasionally, or you just want to compare, just to get a perspective on what other bidders potentially you could be seeing. We actually provide an LBO model. And you’ll see it at the bottom of my page, the LBO model comes with its own set of parameters, which I can address right here in terms of the targeted leverage, as well as the exit and entry multiples.

And so this is very flexible. This is something you only do on that page, we don’t element, we don’t let you ask you as you build a separate financial projection, we only manipulate from this simple parameters right here.

So from an external perspective, we offer multiple languages, basically every language that our current clients are speaking, and we’d love to add a new language if we can add a new client that requires it. But what I did is I created already a PowerPoint version, I will share my oral desktop in order to do that. And I will show you kind of what the what the end result looks like. Actually, let me share my PowerPoint. Alright. So the outcome that you have here is a document that would actually be branded to your colors, if you join us and provide us with your logo, etc. you would have your information represented in there two colors that you prefer to logo that you prefer. And then one thing to point out is that I know sometimes, you know, before going to a meeting, you need to make a quick adjustment, or remove a peer because it might offend a plant or maybe change a number around something. Everything that’s in there is actually editable. None of this is pasted as an image. And so if you wanted to not show accounts payable for whatever reason, or if you wanted to potentially make some adjustments here and remove that sensitivity table will make it bigger or smaller, you can actually do that. Again, everything is easily editable. And we also provide in a format that’s even more customizable, a word Expo. And so in the word Expo, you can have as many placeholders as you’d like.

Likewise, things are editable. And we allow you to essentially tell us for instance, I would like to have an old child. We don’t provide the old child that we provide the placeholder. That way the analyst or whoever is doing the work on your team. always follows a particular format and weak producing output that flows with how you normally work. So that’s the gist of what I wanted to show you today. I will go back to the platform, and I will pay close attention to the chat and the q&a section.

Let’s go back to the valuation screen, it’s going to sing in the export tab. Any questions, comments? See, none of the chats will now none of the q&a was done here. Let me see. I believe we may have. All right, well, I’ll show you a couple more things. And since we have more time, we’re essentially done with the demonstration, I’ll show you a couple of additional things if you have time to stick around. A couple of things that are nice, right here, you have the support feature built in intercom. And so what this allows you to do is to ask any questions or you as you’re using the platform, you can essentially look for answers that have already been provided. So if you’d like an FAQ aspect, you could schedule a demo from that tab. Or you could actually send us a send a message to our support team. We have support team in North America and in Europe. So we cover really a lot of the timezone in which you work. And we also pride ourselves in everyone on the team being not only capable of supporting you from a technology perspective, but also from a valuation perspective. And so if you have technical questions with regard to some of the methods that we’re using, etc, this is also something that you can ask via this forum. And a motor needs feature of the platform, which is something that some of our clients really love to use, is we have a means to let you provide feedback. And so if you use this little widget right here, you can actually say, I would like the LBO model to be based on it been done multiple instead of EBIT, and you submit the insight, and because we build our features based on your feedback, we will essentially aggregate all of the friend points that have been made. And our product team uses that as intelligence to make a product roadmap decision. So this is also a nice feature that our clients have your voice really matters to us. And we really want to make sure that we represent your wishes in our product roadmap. Speaking of product roadmap, I will show you a little bit of an overview right here, some of the things that are coming up, there will be some major improvements in the UI and UX coming up in the next quarter or so. But also some little invisible sort of things, the machine learning algorithm is getting better every month. And so from initially seeding with just one company like Kroger we did for Aldi, up until giving you a bigger, but also more targeted list of recommended peers. This is something that’s constantly improving the increased customizability.

This is something that’s going to show up especially in areas such as a qualitative assessment, where you’ll be able to decide how much value to assess to each of the different components of it. And then other aspects such as co product augmentation, better collaboration, beyond sharing, simply a model, doing access to API’s better data inputs, and also an ESG model that will come up for those of you that ever do environmental, social and governance factors in your evaluation.

The post Aldi valuation webinar and transcript appeared first on Valutico.

Aldi valuation webinar and transcript

m.guerville — Sun, 28 Mar 2021 18:11:41 +0000

The post Aldi valuation webinar and transcript appeared first on Valutico.