1. M&A TOOLKIT
Valuation:
Value Creation principles
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2. The value creation of the deal is the difference between the
price paid and the value of the business bought by the acquirer
DEAL VALUE CREATION
$m 50 800 250
150 750
600
550
Current Market Acquisition Price Paid Value creation Value to Value of Base business
Capitalisation Premium acquirer synergies value
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3. The synergies must exceed the acquisition premium if the target
is accurately priced “as is”
DEAL VALUE CREATION
$m
100 850 250
150 750
600 600
Current Market Acquisition Price Paid Value creation Value to Value of Base business
Capitalisation Premium acquirer synergies value
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4. There is no way to calculate the acquisition premium in a private
deal
DEAL VALUE CREATION
$m 50 800 250
150 750
600
550
Current Market Acquisition Price Paid Value creation Value to Value of Base business
Capitalisation Premium acquirer synergies value
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5. You can analyse the market estimate of value creation by
watching the share price of acquirer and target during a deal
First rumour
On first rumour on 23rd May, Anheuser-Busch share
price jumps $5
(+$4,000m market capitalisation)
On the same day, Inbev share price drops by €3
(-$2,500m market capitalisation)
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6. When a deal is underway, share prices respond to events in the
deal process
First rumour
PV($70) Credit crisis;
Agreed Closure speculation that
@$70 high % Inbev might walk
Offer away
@$65 Inbev
cancels
rights
issue
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7. An annotated share price graph helps you understand the deal
What conclusion would you
reach if the stock traded
above $12.2?
Why doesn’t the stock
Coke offer at trade at $12.2?
HK$12.2/share
Post-
announcement, what
drives stock price
volatility?
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