Category Archives: M & A

VALUING AND PRICING THE COMPANY (Re-posted)

Dr. John Psarouthakis, Founder and former CEO, JPIndusries,Inc., a Fortune 500 industrial corporation. Publisher of www.BusinessThinker.com

Before you can begin final negotiations on price, you need to determine the value of the company. You can use several techniques to value a company.  We recommend the discounted cash flow value approach as the most accurate method although other approaches are useful in preliminary stages of your search to give you a sense of the range of the estimated price.

Timing and Scope of the Valuation Process

An initial calculation of valuation can be done on a fairly mechanical basis, based on information provided to you by the seller using established formulae and guidelines.  However, determining the accuracy of the financial data that the seller provides you is an on-going part of the evaluation process that should take place throughout preliminary and formal due diligence up to the closing.  Thus valuation takes place along with negotiations throughout the deal-making process.  One of the key objectives of due diligence is to surface any information that might affect the accurate valuation of the company. If your team does not have a financial auditor you should hire one to verify the accuracy of the historical data.

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VALUING AND PRICING THE COMPANY (Reposted)

Dr. John Psarouthakis, Founder and former CEO, JPIndusries,Inc., a Fortune 500 industrial corporation. Publisher of www.BusinessThinker.com

Before you can begin final negotiations on price, you need to determine the value of the company. You can use several techniques to value a company.  We recommend the discounted cash flow value approach as the most accurate method although other approaches are useful in preliminary stages of your search to give you a sense of the range of the estimated price.

Timing and Scope of the Valuation Process

An initial calculation of valuation can be done on a fairly mechanical basis, based on information provided to you by the seller using established formulae and guidelines.  However, determining the accuracy of the financial data that the seller provides you is an on-going part of the evaluation process that should take place throughout preliminary and formal due diligence up to the closing.  Thus valuation takes place along with negotiations throughout the deal-making process.  One of the key objectives of due diligence is to surface any information that might affect the accurate valuation of the company. If your team does not have a financial auditor you should hire one to verify the accuracy of the historical data.

Once you verify the completeness and accuracy of existing documents, historical valuation of a company is often relatively easy from a technical standpoint. But it may be a fairly inaccurate reflection of what you can expect from the firm’s financial performance in the future.   Thus, although a preliminary valuation of the company might be done initially when you first receive financial data from the company, refining the financial assumptions about the company’s future performance must take into consideration a wide array of non-financial considerations.  Accurate forecasting requires a thorough understanding of general trends as well, trends specific to your industry, the economy, and of course a thorough understanding of the strengths and weaknesses of the particular company you plan to purchase.  Continue reading



Greek Banks in the Balkans: the big crunch

Ms. Athanasia Dimitriadou, M.B.A. Student – Specialization in Finance

Dr. Periklis Gogas, Associate Professor

Department of Economics

 

Democritus University of Thrace

Mergers and acquisitions are often used as a means of bank expansion both nationally and even more so internationally. Greece joined the EMU in 1999 and was in the first group of EU countries that abandoned their national currencies and adopted the euro in its physical form in 2002. From that point on the Greek banking sector became an integral part of the European monetary and economic union. There were multiple benefits from this integration. On the top of the list was the stability that was guaranteed by the European Central Bank (ECB) and its supervision mechanisms. This stability and the related risk minimization was reflected in the low financing costs of the European banks in general and Greek banks specifically. This fact significantly widened the spread between lending and deposit rates for Greek financial institutions so that profit margins increased. These margins were sufficiently large that Greek banks did not need to invest (at least not greatly) in financial instruments such as Asset Backed Securities (ABS) or other derivative financial instruments that appeared to have high yields. After the crash in the markets were these assets were traded they became widely known as “toxic bonds”.

Greek banks did not have a high exposure to these bonds as they found an alternative source of high revenues: the expansion to neighboring countries in the Balkans. These emerging economies started their financial liberalization process and opened their financial sector to international investors. In Table 1 below we report the most important investments of Greek banks in the Balkans before the Greek Debt Crisis. The five major Greek banks were very active in investing in the Balkans. These were more specifically: the National Bank of Greece, Eurobank, Piraeus Bank, ATE Bank and Alpha Bank. In the first column of Table 1, we present the Greek bank that invested in the Balkans, in the second column we report the acquired foreign bank, in the third column we report the country of the acquired bank and in the final column the percentage stake of participation. In all, fifteen banks were acquired in total or in a major stake by the five systemic Greek banks.

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