P age | 1
| | | | |
CFI FMVA EXAM UPDATED EXAM
QUESTIONS WITH VERIFIED SOLUTIONS.
Transaction Comps Analysis - correct answer -LTM EBITDA as most | | | | | | | | |
common value driver for transaction comps
| | | | | |
[Explanation: Transaction multiples deal with historical information. | | | | | |
Getting hold of LTM figures from the past is easier and more reliable
| | | | | | | | | | | | |
than forward looking figures from the past. EBIT and EBITDA are
| | | | | | | | | | |
commonly used value drivers.]
| | | |
! When a listed company is bought, the pre-deal share price can be
| | | | | | | | | | | |
compared to the offer price, leading to a control premium.
| | | | | | | | | |
! If the target is a private company, we will not be able to establish a
| | | | | | | | | | | | | | |
control premium
| |
! For an asset deal only the EV is usually communicated to the public
| | | | | | | | | | | | |
! In a merger of equals, enough information should be given to
| | | | | | | | | | |
populate the multiples grid fully
| | | | |
BUT, For an asset deal, the control premium will NOT be readily
| | | | | | | | | | |
observable
|
TRANSACTION COMPS} Qs} | |
Which of the following factors is least likely to result in raising total
| | | | | | | | | | | |
% premium paid over the current share price?
| | | | | | |
, P age | 2
| | | | |
High proportion of cash consideration
| | | |
| Scarcity of assets | |
High value of synergies
| | |
Competitive tension - correct answer -High proportion of cash| | | | | | | |
consideration
|
[NOT Scarcity of assets => wld lead to a higher premium than would
| | | | | | | | | | | |
otherwise be the case]
| | | |
TRANSACTION COMPS} CONTROL PREMIUMS | | |
| E.g.}
A acquires B. An analyst calculates the present value of synergies at
| | | | | | | | | | |
100m.
|
The unaffected share price was 12 and the bid price was 16. The
| | | | | | | | | | | |
| fully diluted number of shares was 10m.
| | | | | |
What was the control premium and how much value was
| | | | | | | | |
created/destroyed assuming that the analyst is correct?
| | | | | | |
(A) Control premium was 33.3% and the transaction destroyed
| | | | | | |
60m of value
| | |
(B) There was no control premium and the transaction neither
| | | | | | | |
created nor destroyed any value
| | | | |
(C) There was no control premium and the transaction created
| | | | | | | |
40m of value
| | |
, P age | 3 | | | | |
(D) Control premium was 33.3% and the transaction created 60m of
| | | | | | | | |
value
|
Precedent transactions help assess market demand for certain
| | | | | | |
types of assets
| | |
&
Precedent transactions give a realistic view of valuation levels or
| | | | | | | | |
premiums paid
| |
Differing market conditions at the time of a transaction can - correct
| | | | | | | | | | |
answer -Control premium = % increase of bid price over the
| | | | | | | | | | |
unaffected share price, and the value created is the difference
| | | | | | | | | |
between the present value of synergies and the total premium paid.
| | | | | | | | | | |
Control premium is calculated as (Offer Price - Pre deal Share Price)
| | | | | | | | | | |
- 1.0
| |
=> E.g. ANSWER = (D) Control premium was 33.3% and the
| | | | | | | | | |
transaction created 60m of value
| | | | |
=> Control premium is (16..0) - 1.0, and value created is 100.0m
| | | | | | | | | | | | |
- (16.0 - 12.0) * 10.0m = 60.0m
| | | | | | | |
-----------------The offer price is taken from the final offer | | | | | | | |
announcement date, NOT deal closing date. Analysts are
| | | | | | | |
interested in how much acquirers were willing to pay, not how much
| | | | | | | | | | | |
they ended up paying which can be clouded by volatile prices of the
| | | | | | | | | | | | |
acquirer's shares in an equity consideration.
| | | | | |
, P age | 4
| | | | |
When calculating premium for a transaction comp, the offer price on
| | | | | | | | | |
the date of the deal closing is NOT used
| | | | | | | | |
Takeover rumours require analysts to look further back in time to find
| | | | | | | | | | |
the pre-deal unaffected share price
| | | | |
As businesses mature, acquisition multiples reduce
| | | | |
A hostile takeover typically involves a higher premium paid than a
| | | | | | | | | |
friendly takeover
| |
OFFER PRICE} The offer price, incorporating the offer premium, is
| | | | | | | | |
multiplied by diluted shares outstanding, including the new shares
| | | | | | | | |
created, to get equity value.
| | | | |
Then financial liabilities are added and financial assets subtracted to
| | | | | | | | |
calculated EV. Then divide by EBITDA.
| | | | | |
Value created or destroyed is the difference between the present
| | | | | | | | |
value of synergies and the total premium paid. Diluted shares
| | | | | | | | | |
outstanding is used rather than basic.
| | | | | |
&
To calculate total premium paid, premium paid per share is
| | | | | | | | |
multiplied by diluted shares outstanding, rather than basic shares.
| | | | | | | | |
| | | | |
CFI FMVA EXAM UPDATED EXAM
QUESTIONS WITH VERIFIED SOLUTIONS.
Transaction Comps Analysis - correct answer -LTM EBITDA as most | | | | | | | | |
common value driver for transaction comps
| | | | | |
[Explanation: Transaction multiples deal with historical information. | | | | | |
Getting hold of LTM figures from the past is easier and more reliable
| | | | | | | | | | | | |
than forward looking figures from the past. EBIT and EBITDA are
| | | | | | | | | | |
commonly used value drivers.]
| | | |
! When a listed company is bought, the pre-deal share price can be
| | | | | | | | | | | |
compared to the offer price, leading to a control premium.
| | | | | | | | | |
! If the target is a private company, we will not be able to establish a
| | | | | | | | | | | | | | |
control premium
| |
! For an asset deal only the EV is usually communicated to the public
| | | | | | | | | | | | |
! In a merger of equals, enough information should be given to
| | | | | | | | | | |
populate the multiples grid fully
| | | | |
BUT, For an asset deal, the control premium will NOT be readily
| | | | | | | | | | |
observable
|
TRANSACTION COMPS} Qs} | |
Which of the following factors is least likely to result in raising total
| | | | | | | | | | | |
% premium paid over the current share price?
| | | | | | |
, P age | 2
| | | | |
High proportion of cash consideration
| | | |
| Scarcity of assets | |
High value of synergies
| | |
Competitive tension - correct answer -High proportion of cash| | | | | | | |
consideration
|
[NOT Scarcity of assets => wld lead to a higher premium than would
| | | | | | | | | | | |
otherwise be the case]
| | | |
TRANSACTION COMPS} CONTROL PREMIUMS | | |
| E.g.}
A acquires B. An analyst calculates the present value of synergies at
| | | | | | | | | | |
100m.
|
The unaffected share price was 12 and the bid price was 16. The
| | | | | | | | | | | |
| fully diluted number of shares was 10m.
| | | | | |
What was the control premium and how much value was
| | | | | | | | |
created/destroyed assuming that the analyst is correct?
| | | | | | |
(A) Control premium was 33.3% and the transaction destroyed
| | | | | | |
60m of value
| | |
(B) There was no control premium and the transaction neither
| | | | | | | |
created nor destroyed any value
| | | | |
(C) There was no control premium and the transaction created
| | | | | | | |
40m of value
| | |
, P age | 3 | | | | |
(D) Control premium was 33.3% and the transaction created 60m of
| | | | | | | | |
value
|
Precedent transactions help assess market demand for certain
| | | | | | |
types of assets
| | |
&
Precedent transactions give a realistic view of valuation levels or
| | | | | | | | |
premiums paid
| |
Differing market conditions at the time of a transaction can - correct
| | | | | | | | | | |
answer -Control premium = % increase of bid price over the
| | | | | | | | | | |
unaffected share price, and the value created is the difference
| | | | | | | | | |
between the present value of synergies and the total premium paid.
| | | | | | | | | | |
Control premium is calculated as (Offer Price - Pre deal Share Price)
| | | | | | | | | | |
- 1.0
| |
=> E.g. ANSWER = (D) Control premium was 33.3% and the
| | | | | | | | | |
transaction created 60m of value
| | | | |
=> Control premium is (16..0) - 1.0, and value created is 100.0m
| | | | | | | | | | | | |
- (16.0 - 12.0) * 10.0m = 60.0m
| | | | | | | |
-----------------The offer price is taken from the final offer | | | | | | | |
announcement date, NOT deal closing date. Analysts are
| | | | | | | |
interested in how much acquirers were willing to pay, not how much
| | | | | | | | | | | |
they ended up paying which can be clouded by volatile prices of the
| | | | | | | | | | | | |
acquirer's shares in an equity consideration.
| | | | | |
, P age | 4
| | | | |
When calculating premium for a transaction comp, the offer price on
| | | | | | | | | |
the date of the deal closing is NOT used
| | | | | | | | |
Takeover rumours require analysts to look further back in time to find
| | | | | | | | | | |
the pre-deal unaffected share price
| | | | |
As businesses mature, acquisition multiples reduce
| | | | |
A hostile takeover typically involves a higher premium paid than a
| | | | | | | | | |
friendly takeover
| |
OFFER PRICE} The offer price, incorporating the offer premium, is
| | | | | | | | |
multiplied by diluted shares outstanding, including the new shares
| | | | | | | | |
created, to get equity value.
| | | | |
Then financial liabilities are added and financial assets subtracted to
| | | | | | | | |
calculated EV. Then divide by EBITDA.
| | | | | |
Value created or destroyed is the difference between the present
| | | | | | | | |
value of synergies and the total premium paid. Diluted shares
| | | | | | | | | |
outstanding is used rather than basic.
| | | | | |
&
To calculate total premium paid, premium paid per share is
| | | | | | | | |
multiplied by diluted shares outstanding, rather than basic shares.
| | | | | | | | |
