Case Notes/Answers
Talbros Automotive Components Limited Relative
Valuation, by Umang Gupta, Monika Chopra
Discussion Questions:
1. What are the advantages and disadvantages of comparable company analysis versus comparable
transaction analysis?
2. What is the use of various multiples in valuation? What factors affect the choice of one multiple
over another when selecting multiples for firm valuation?
3. How is DCF different from multiple valuation, and why will an analyst prefer the multiple method
over DCF?
4. How do we choose comparable firms and comparable transactions for valuation?
5. Calculate the value of Talbros, using both comparable company analysis and comparable
transaction analysis.
, W16540
Teaching Note
TALBROS AUTOMOTIVE COMPONENTS LIMITED: RELATIVE
VALUATION
SYNOPSIS
The case brings out a situation requiring valuation of an auto ancillary client of a leading investment bank
based in New Delhi, India. The client wanted to increase revenues from the two-wheeler and four-wheeler
vehicle segments by acquiring original equipment manufacturer (OEM) customers. The financial analyst
of the investment bank, Abhishek Agarwal, was assigned the task of evaluating the options and identifying
the right target for the client. He used comparable company analysis and comparable transaction analysis,
through three valuation ratios—enterprise value-to-sales (EV/sales); EV-to-earnings before interest, tax,
depreciation, and amortization (EBITDA); and price-to-earnings per share (P/E ratio)—to arrive at a
valuation of Talbros Automotive Components Limited (Talbros) as the best target for the client.
For comparable company analysis, Agarwal also compiled a list of four publicly traded firms that were
similar to the target company. Since this technique offered only the base valuation, there was a need to
estimate the control premium in order to calculate the transaction value. For comparable transaction
analysis, Agarwal identified some of the transactions in the auto parts and equipment industry. The
objective was to arrive at the final valuation range by combining the results of both techniques (i.e.,
comparable company analysis and comparable transaction analysis), which could be achieved by combining
the results of the comparable company and comparable transaction analyses with a football field analysis.
LEARNING OBJECTIVES
The case focuses on teaching students to:
Use comparable company analysis and comparable transaction analysis for valuation of a firm.
Identify a group of comparable firms and the reasons behind their selection.
Understand how to compare firms by using various financials on a year-on-year (YoY) basis.
, Page 2 8B16N054
Compute the control premium by evaluating firms that have undergone a merger in a sector.
Develop a conceptual understanding of how the comparable company/transaction method may differ
from the discounted cash flow (DCF) valuation method.
Become familiar with the use of the football field method to calculate the final value of a firm.
POSITION IN COURSE
The case can be used to discuss firm valuation with MBA or executive education students in the areas of
corporate finance, business valuation, mergers and acquisitions, and financial modelling. It will help
students understand the procedure of extracting data from key financial statements for valuation of a firm.
As compared to a DCF valuation, the case highlights the use of multiples with a comparable company
analysis and a comparable transaction analysis. The case also provides insight on how to calculate the
transaction premium for comparable company valuation. It can be useful in understanding the differences
between the comparable company and comparable transaction analyses, as well as the use of multiples in
implementing the two approaches.
RELEVANT READINGS
Donald M. Pamphilis, Mergers, Acquisitions, and Other Restructuring Activities, 6th ed. (New Delhi,
India: Elsevier, 2012), 235–322.
Enrique R. Arzac, Valuation for Mergers, Buyouts, and Restructuring, 2nd ed. (New Delhi, India:
Wiley, 2015), 66–80.
Joshua Resenbaum, Joshua Pearl, Investment Banking: Valuation, Leveraged Buyouts, and Mergers
and Acquisitions, 2nd ed. (New Delhi, India: Wiley, 2015), 13–131.
Supplementary Material
The following material has been added as appendices to this teaching note:
Monika Chopra and Umang Gupta, Talbros Automotive Components Limited: Relative Valuation—
Instructor Spreadsheet (London, ON: Ivey Publishing, 2016). Available from Ivey Publishing, product
no. 5B16N054.
ASSIGNMENT QUESTIONS
1. What are the advantages and disadvantages of comparable company analysis versus comparable
transaction analysis?
2. What is the use of various multiples in valuation? What factors affect the choice of one multiple over
another when selecting multiples for firm valuation?
3. How is DCF different from multiple valuation, and why will an analyst prefer the multiple method over
DCF?
4. How do we choose comparable firms and comparable transactions for valuation?
5. Calculate the value of Talbros, using both comparable company analysis and comparable transaction
analysis.
Talbros Automotive Components Limited Relative
Valuation, by Umang Gupta, Monika Chopra
Discussion Questions:
1. What are the advantages and disadvantages of comparable company analysis versus comparable
transaction analysis?
2. What is the use of various multiples in valuation? What factors affect the choice of one multiple
over another when selecting multiples for firm valuation?
3. How is DCF different from multiple valuation, and why will an analyst prefer the multiple method
over DCF?
4. How do we choose comparable firms and comparable transactions for valuation?
5. Calculate the value of Talbros, using both comparable company analysis and comparable
transaction analysis.
, W16540
Teaching Note
TALBROS AUTOMOTIVE COMPONENTS LIMITED: RELATIVE
VALUATION
SYNOPSIS
The case brings out a situation requiring valuation of an auto ancillary client of a leading investment bank
based in New Delhi, India. The client wanted to increase revenues from the two-wheeler and four-wheeler
vehicle segments by acquiring original equipment manufacturer (OEM) customers. The financial analyst
of the investment bank, Abhishek Agarwal, was assigned the task of evaluating the options and identifying
the right target for the client. He used comparable company analysis and comparable transaction analysis,
through three valuation ratios—enterprise value-to-sales (EV/sales); EV-to-earnings before interest, tax,
depreciation, and amortization (EBITDA); and price-to-earnings per share (P/E ratio)—to arrive at a
valuation of Talbros Automotive Components Limited (Talbros) as the best target for the client.
For comparable company analysis, Agarwal also compiled a list of four publicly traded firms that were
similar to the target company. Since this technique offered only the base valuation, there was a need to
estimate the control premium in order to calculate the transaction value. For comparable transaction
analysis, Agarwal identified some of the transactions in the auto parts and equipment industry. The
objective was to arrive at the final valuation range by combining the results of both techniques (i.e.,
comparable company analysis and comparable transaction analysis), which could be achieved by combining
the results of the comparable company and comparable transaction analyses with a football field analysis.
LEARNING OBJECTIVES
The case focuses on teaching students to:
Use comparable company analysis and comparable transaction analysis for valuation of a firm.
Identify a group of comparable firms and the reasons behind their selection.
Understand how to compare firms by using various financials on a year-on-year (YoY) basis.
, Page 2 8B16N054
Compute the control premium by evaluating firms that have undergone a merger in a sector.
Develop a conceptual understanding of how the comparable company/transaction method may differ
from the discounted cash flow (DCF) valuation method.
Become familiar with the use of the football field method to calculate the final value of a firm.
POSITION IN COURSE
The case can be used to discuss firm valuation with MBA or executive education students in the areas of
corporate finance, business valuation, mergers and acquisitions, and financial modelling. It will help
students understand the procedure of extracting data from key financial statements for valuation of a firm.
As compared to a DCF valuation, the case highlights the use of multiples with a comparable company
analysis and a comparable transaction analysis. The case also provides insight on how to calculate the
transaction premium for comparable company valuation. It can be useful in understanding the differences
between the comparable company and comparable transaction analyses, as well as the use of multiples in
implementing the two approaches.
RELEVANT READINGS
Donald M. Pamphilis, Mergers, Acquisitions, and Other Restructuring Activities, 6th ed. (New Delhi,
India: Elsevier, 2012), 235–322.
Enrique R. Arzac, Valuation for Mergers, Buyouts, and Restructuring, 2nd ed. (New Delhi, India:
Wiley, 2015), 66–80.
Joshua Resenbaum, Joshua Pearl, Investment Banking: Valuation, Leveraged Buyouts, and Mergers
and Acquisitions, 2nd ed. (New Delhi, India: Wiley, 2015), 13–131.
Supplementary Material
The following material has been added as appendices to this teaching note:
Monika Chopra and Umang Gupta, Talbros Automotive Components Limited: Relative Valuation—
Instructor Spreadsheet (London, ON: Ivey Publishing, 2016). Available from Ivey Publishing, product
no. 5B16N054.
ASSIGNMENT QUESTIONS
1. What are the advantages and disadvantages of comparable company analysis versus comparable
transaction analysis?
2. What is the use of various multiples in valuation? What factors affect the choice of one multiple over
another when selecting multiples for firm valuation?
3. How is DCF different from multiple valuation, and why will an analyst prefer the multiple method over
DCF?
4. How do we choose comparable firms and comparable transactions for valuation?
5. Calculate the value of Talbros, using both comparable company analysis and comparable transaction
analysis.
