Page 54 - FINAL CFA II SLIDES JUNE 2019 DAY 6

EXAMPLE: Valuing a merger target using comparable company
analysis: Mia Yost, an investment banker, has been retained by the Gracico READING 25: MERGERS AND ACQUISITIONS
Corporation to estimate the price that should be paid to acquire Albert Garage
Systems, Inc. (AGSI). Yost decides to use comparable company analysis to MODULE 25.3: TARGET COMPANY VALUATION
value AGSI and has gathered information on comparable firms and recent
acquisitions shown in the following figures to help with her analysis. Calculate
the appropriate valuation metrics and using the mean of those metrics,
estimate the price that Gracico should pay for AGSI.

Step 3: Calculate descriptive statistics for the relative value metrics and apply those
measures to the target firm.

The next figure applies these mean values to the statistics for AGSI. Since the four
relative value metrics all produce estimates that are relatively close, it is appropriate to
Answer: use an average of the four estimates as the estimated value for AGSI.
Step 1: Identify the set of comparable firms.
We can check off Step 1 as complete with the first table “Comparable
Company Data.”
Step 2: Calculate various relative value measures based on the
current market prices of companies in the sample.
Using the data from the table “Comparable Company Data,” the
appropriate relative value measures for each firm are calculated in
the following table.