PREVIEW. Table of contents I METHODOLOGY...7

Transcription

1 Table of contents I METHODOLOGY...7 Foreword...9 Business valuation as an ethical and professional commitment...9 The market multiples valuation method...10 Industry trading multiples...12 How to read the industry reports...14 Trading multiples summary...16 Caution in the use of industry trading multiples...16 Changes made since previous editions...17 Disclaimer...17 II INDUSTRY REPORTS ON TRADING MULTIPLES...19 Fossil fuels industry...21 Oil & Gas Drilling...21 Oil & Gas Equipment & Services...22 Integrated Oil & Gas...23 Oil & Gas Exploration & Production...24 Oil & Gas Refining & Marketing...25 Oil & Gas Storage & Transportation...26 Coal & Consumable Fuels...27 Basic materials industry...28 Commodity Chemicals...28 Diversified Chemicals...29 Fertilizers & Agricultural Chemicals...30 Industrial Gases...31 Specialty Chemicals...32 Construction Materials...33 Metal & Glass Containers...34 Paper Packaging...35 Aluminum...36 Diversified Metals & Mining...37 Gold...38 Precious Metals & Minerals...39 Silver...40 Steel...41 Forest Products...42 Paper Products...43 Heavy industry...44 Aerospace & Defense

2 Building Products...45 Construction & Engineering...46 Electrical Components & Equipment...47 Heavy Electrical Equipment...48 Construction Machinery & Heavy Trucks...49 Agricultural & Farm Machinery...50 Industrial Machinery...51 Trading Companies & Distributors...52 Services to businesses...53 Commercial Printing...53 Environmental & Facilities Services...54 Office Services & Supplies...55 Diversified Support Services...56 Security & Alarm Services...57 Human Resource & Employment Services...58 Research & Consulting Services...59 Transportation and infrastructure...60 Air Freight & Logistics...60 Airlines...61 Marine...62 Railroads...63 Trucking...64 Airport Services...65 Highways & Railtracks...66 Marine Ports & Services...67 Secondary goods and services...68 Auto Parts & Equipment...68 Tires & Rubber...69 Automobile Manufacturers...70 Motorcycle Manufacturers...71 Consumer Electronics...72 Home Furnishings...73 Homebuilding...74 Household Appliances...75 Housewares & Specialties...76 Leisure Products...77 Photographic Products...78 Apparel, Accessories & Luxury Goods...79 Footwear...80 Textiles...81 Casinos & Gaming...82 Hotels, Resorts & Cruise Lines...83 Leisure Facilities...84 Restaurants

3 Education Services...86 Specialized Consumer Services...87 Advertising...88 Broadcasting...89 Cable & Satellite...90 Movies & Entertainment...91 Publishing...92 Distributors...93 Catalog Retail...94 Internet Retail...95 Department Stores...96 General Merchandise Stores...97 Apparel Retail...98 Computer & Electronics Retail...99 Home Improvement Retail Specialty Stores Automotive Retail Homefurnishing Retail Basic goods and services Drug Retail Food Distributors Food Retail Hypermarkets & Super Centers Brewers Distillers & Vintners Soft Drinks Agricultural Products Packaged Foods & Meats Tobacco Household Products Personal Products Health care industry Health Care Equipment Health Care Supplies Health Care Distributors Health Care Services Health Care Facilities Managed Health Care Health Care Technology Biotechnology Pharmaceuticals Life Sciences Tools & Services Technical services in finance and real estate Insurance Brokers

4 Real Estate Operating Companies Real Estate Services Information technology Internet Software & Services IT Consulting & Other Services Data Processing & Outsourced Services Application Software Systems Software Home Entertainment Software Communications Equipment Computer Hardware Computer Storage & Peripherals Technology Hardware, Storage & Peripherals Electronic Equipment & Instruments Electronic Components Electronic Manufacturing Services Technology Distributors Office Electronics Semiconductor Equipment Semiconductors Telecommunications Alternative Carriers Integrated Telecommunication Services Wireless Telecommunication Services Energy, gas and water utilities Electric Utilities Gas Utilities Multi-Utilities Water Utilities Independent Power Producers & Energy Traders Renewable Electricity III TRADING MULTIPLES SUMMARY TABLE

5 I METHODOLOGY 7

6 Foreword As in previous editions, this yearly updated research 1 presents historical average industry trading multiples, which may be used, as empirical indicators, to derive an appraisal value when carrying out valuations of businesses and business interests. The second section of this publication presents the following multiples: Price to Sales (P/S) Price to Earnings (P/E) Price to Book Value (P/BV) Price to Book Value less Goodwill and Intangibles (P/BVGI) Enterprise Value to Ebitda (EV/Ebitda) Enterprise Value to Ebit (EV/Ebit). The above named ratios have been calculated for one hundred and thirty four different industries. These empirical indicators are based on market and financial data, which has been collected as of December, 31 st of the years , for more than twenty thousand listed companies. Business valuation as an ethical and professional commitment While there are a number of circumstances 2 that may lead to a business valuation, they all have one common characteristic: the existence of conflicting financial interests among the parties involved, which the valuer has to contribute in safeguarding while carrying out his valuation assignment. This is no easy task, since even if performed with honesty, transparency and sense of commitment, every business valuation is characterised by varying degrees 1 This edition has been prepared by: Ascanio Salvidio, Maria Valeria Di Benedetto, Antonio Ricciardella 2 The following list presents few examples, making no claim of being complete: acquisitions, mergers and demergers; increases in capital, contributions, withdrawal of shareholders; civil proceedings, arbitration, criminal cases; impairment tests; business crises and recovery; tax assessment of capital gains. 9

7 of uncertainty and is influenced by the quality and the quantity of available information. Aside from the applied valuation approach, a business valuation also depends on the level of expertise of the person carrying out the assignment, the time at his disposal, and the purpose for which the valuation is required. As such, even valuers with many years of experience may derive erroneous conclusions, if the information provided for the valuation is incomplete, inaccurate or, at times, deliberately misleading. Therefore, an accurate and properly conducted valuation requires a fair and transparent collaboration from all parties involved. The market multiples valuation method The market multiples valuation method is widely used to determine the appraisal value of a business or business interest. The underlying idea is that, given the purchase price of Company A, it is possible to draw conclusions about the value of Company B, if the two companies present comparable characteristics 3. More precisely, by associating the purchase price paid for Company A to its key financial figures (for example, by relating the acquisition price to the acquired company s sales, or profits, etc.), one obtains ratios, i.e. multiples that can be applied to the corresponding financial figures of Company B, in order to assess the value of the latter. Assuming that the purchase price of Company A is 500 million and the net earnings of the company are 30 million, the Price-to-Earnings (P/E) ratio would be equal to 4 : , For example: similarities could exist in terms of activity carried out, growth expectations, financial structure, taxation, etc. 4 Throughout this research, we will use comma as decimal separator, following the continental European standard of numbering. So, as an example, for readers other than continental Europeans, 16,5 (sixteen-comma-five) shall be read as 16.5 (sixteen-point-five). 10

8 Furthermore, we assume Company B s profit to be 43 million. Consequently, its value (or more correctly, its probable price ) would be calculated as follows: 16, ,1 The above example is deliberately simplistic, since it assumes, on one hand, a perfect match of all relevant characteristics of the two companies, and on the other hand, the ability of the multiple, in this case the P/E ratio, to capture directly and completely the variations in value related to variations in profits. In real cases however, the occurrence of these ideal conditions is hardly found, since: the comparability of companies is almost always limited or approximate; variations in the individual multiples taken as a reference do not necessarily imply similar changes in value of the companies in relation to which they have been calculated. Hence, in most cases, choosing the appropriate multiples to use for a company or business interest valuation is a very laborious and complex process. While specialist literature will provide a more in-depth explanation, this process may be broken down into different phases which can be summarised as follows: selection of so-called raw multiples, calculated in relation to the prices paid for the equity of companies having similar characteristics to those of the one to be evaluated. Raw multiples may be determined either on the basis of market prices of stocks of listed comparable companies (so-called trading multiples, as featured in this research) or on the basis of purchase prices of the companies entire share capital or of shareholdings in the same (so-called transaction multiples); analyses of raw multiples to identify the meaningful correlations between key financial figures of companies in a given industry and the value which investors attribute to such figures; correction of the identified multiples to reduce, wherever possible, any differences between the underlying comparable companies and 11

9 the company being evaluated (preparation of the so-called adjusted multiples); application of the adjusted multiples to the data of the company being evaluated in order to determine its value. When appropriate, further corrections may be required 5. It should be noted that the use of multiples generally presupposes the simultaneous adoption of other valuation methods 6. In these instances to verify the plausibility of the conclusions reached by the latter a multiples valuation will be used. The case of multiples valuation results placed on an equal footing with those derived from the use of other approaches is rather infrequent. Industry trading multiples In order to determine the average industry trading multiples presented in this research, data were collected for the years from the stock market and from the financial statements of more than twenty thousand listed companies selected on the basis of the following criteria: main location in a geographical area that is economically developed or rapidly developing, or, where the development is more modest, that is of significant geopolitical importance or is close to more advanced areas 7 ; market capitalisation not lower than 10 million Euros over the observation period; 5 Such further corrections may, as an example, consist of the following: adjustments to trading multiples to possibly neutralize their implied liquidity premiums when they are used to value an unquoted business; adjustments to transaction multiples to appropriately take in account possibly implied control premiums; size-premiums adjustments, etc. 6 The use of trading multiples in a valuation is frequently associated with the application of methods based on discounting expected income or cash streams, like the income capitalization, the discounted cash flow method, etc. 7 The selected companies are therefore primarily located in North America, the European Union and in the developed or rapidly developing countries of Asia (China, India), of Oceania (Australia, New Zealand), as well as in the most important economies of Latin America (Argentina, Brazil, Chile, Mexico), Eastern Europe (the Baltic republics, Bulgaria, Czech Republic, Romania, Russia, Slovakia, Ukraine), eastern Mediterranean (Israel, Turkey) and Africa (Egypt and Republic of South Africa) 12

10 exclusion of companies operating in the banking, financial, insurance and property sectors; exclusion of companies with a high level of diversification that could not be allocated to a specific sector. The companies selected were aggregated into one hundred and thirty four industry sectors. The accounting data and the financial market information was drawn from the Standard & Poor s Capital IQ 8 database. For each of the selected listed companies, the following two groups of trading multiples have been calculated: Price to Sales (P/S), Price to Earnings (P/E), Price to Book Value (P/BV) and Price to Book Value less Goodwill and Intangibles (P/BVGI), determined as the ratios between: o o the average market capitalisation of the month of December of each year 9 and, respectively, the sales, the earnings, the net book value and the adjusted net book value (book value less goodwill and intangible assets) for the LTM determined as of December 31 st of the same year. The above calculation may be concisely expressed by the following formula: Average market capitalisation of December LTM figures (sales or earnings or net book value or adjusted net book value) Trading multiple Enterprise Value to Ebit (EV/Ebit) and Enterprise Value to Ebitda (EV/Ebitda), determined as the ratios between: 8 Standard & Poor s Capital IQ http// is the property of 9 Considered last twelve months (LTM) periods ending on 31 st December 2010, 2011, 2012, 2013, 2014 and

11 o the average market capitalisation of the month of December of each year 10 increased by the LTM net financial debt and, respectively, o Ebitda (earnings before interest, taxes, depreciation and amortization) and Ebit (earnings before interest and taxes) determined as of December 31 st of the same year. The above calculation may be concisely expressed by the following formula: Average market capitalisation of December LTM figures of Net Debt Trading multiple LTM figures (Ebit or Ebitda) The decision to refer to the LTM figures was made necessary in order to bring the trading multiples of those companies whose financial years end on a date other than December 31 st in line with the calculation period chosen. For each industry, the average annual trading multiples were estimated excluding those ones: falling, because of their size, into the first and last decile of the respective industry, to prevent (even if in subjective, but nevertheless, systematic way) distortions due to their extreme values; having a negative numerator, since they are devoid of any useful meaning for the purpose of this research. How to read the industry reports The second section of this study is divided into one hundred and thirty four reports, corresponding to the number of industries analysed. Each report presents a table displaying the values of the P/S, P/E, P/BV, P/BVGI, P/Ebitda and P/Ebit trading multiples for the years , as well as their distribution range over the entire span of time. The example illustrated hereinafter is made up of the report relating to the Footwear industry. 10 Considered last twelve months (LTM) periods ending on 31 st December 2010, 2011, 2012, 2013, 2014 and

12 P/S ,4 >=0,00:<0,25 0% 18,9 Ea ,1 >=0,25:<0,50 20% 13,3 ch ,1 >=0,50:<1,00 31% 14,5 rep ,1 18,1 >=1,00:<2,00 32% ,3 20, ,3 >=2,00:<4,00 17% 26,6 ā 1,2 >=4,00 0% 18,6 P/BV ,0 >=0,00:<0,25 0% 2, ,7 >=0,25:<0,50 5% 2, ,6 1,8 >=0,50:<1, ,7 1,9 >=1,00:<2, ,9 2,0 >=2,00:<4, ,1 2,3 >=4,00 ā 1,8 2,0 EV/Ebitda ,7 10,7 >=0,00:<2, ,0 >=2,50:<5,00 14% 8, ,9 >=5,00:<10,0 38% 9,9 >=10,0:<20, ,0 12,0 >=20,0:<40, ,6 14,3 >=40,0 25% 33% 30% ,6 15,6 ā 9,8 11,8 0% 6% 6% 5% 37% P/E >=0,00:<2,50 >=2,50:<5,00 >=5,00:<10,0 >=10,0:<20,0 >=20,0:<40,0 >=40,0 P/BVGI >=0,00:<0,25 >=0,25:<0,50 >=0,50:<1,00 >=1,00:<2,00 >=2,00:<4,00 >=4,00 EV/Ebit >=0,00:<2,50 >=2,50:<5,00 >=5,00:<10,0 >=10,0:<20,0 >=20,0:<40,0 >=40,0 ort is introduced by a short description of the respective industry, followed by a table, similar to the one above, which shows quantitative information and bar charts for each multiple. The information displayed by the table may be interpreted as follows: 0% 4% 2% 0% 4% 5% 0% 10% 11% 16% 12% 26% 24% 33% 30% 30% 48% 45% the average industry trading multiples are listed on the left side of each chart for each year considered. In the example provided, the P/E ratio has the following values: in 2010: 18,9 in 2011: 13,3 in 2012: 14,5 in 2013: 18,1, in 2014: 20,6 and in 2015: 26,6. The ratio s historical average, identified by the ā is:18,6; the distribution of the values of the trading multiples of the individual businesses forming the industry aggregate, measured over the time span, is represented by the horizontal bars on the right side of each small chart. The levels of the distribution are indicated 15

13 beneath the bars, on their left side. The percentage of distribution is reported to their right side. In the example, the distribution of the EV/Ebit ratio of the individual businesses indicates that 5% of the values are equal to or greater than 0 but less than 2.5; 10% are equal to or greater than 2.5 but less than 5, and so on, up to values equal to or greater than 40.0 which represent 0% of the sample. To make them easy to use, the one hundred and thirty four industry reports have been grouped into the following categories: Fossil fuels industry Basic materials industry Heavy industry Services to businesses Transportation and infrastructure Secondary goods and services Basic goods and services Health care industry Technical services in finance and real estate Information technology Telecommunications Energy, gas and water utilities Trading multiples summary The third section of this study contains a summary of the trading multiples of each industry sector. Caution in the use of industry trading multiples The industry multiples presented in this study must be considered as mere empirical indicators, which can be used to carry out preliminary, broad brush valuations. Hence, they are to be seen as a starting point, and their use must be followed by more in-depth valuations. These should generally be carried out through: application of alternative valuation methods, such as those based on discounted profits or cash flows; selection of individual multiples that are more targeted, in terms of comparability, to the specific profile of the business being valued, 16

14 than average multiples relating to an industry as a whole. Such selected multiples shall, if necessary, also be adjusted (adjusted trading multiples) and applied in the appropriate way. Further guidance is provided by specialist literature as well as by appropriate recommendations issued by organisations acting as standard setters for business valuations 11. Changes made since previous editions Structural changes in the businesses of the analysed companies caused by economic, technical and social shifts, have, in some cases, created the need for a partial revision in the aggregation of the collected data. The following tables display the changes in the industry sectors compared to previous editions. Discontinued sectors Photographic Products Computer Hardware Computer Storage & Peripherals Office Electronics New sectors Silver Agricultural & Farm Machinery Renewable Electricity Technology Hardware, Storage & Peripherals Superseded sector name Diversified Metals and Mining (2014 edition) Construction and Farm Machinery and Heavy Trucks (2014 edition) Internet Software and Services (2014 edition) Telecommunications Equipment (2014 edition) 2014 edition 2014 edition 2014 edition 2014 edition Last update First update 2015 edition 2015 edition 2015 edition 2015 edition Revised sector name Diversified Metals & Mining Construction Machinery & Heavy Trucks Internet Software & Services Communications Equipment The data of the companies falling into the new sectors has been also used to determine the trading multiples for the five previous years, thus reproducing the respective historical multiples. Disclaimer The information contained in this study is provided as is and offered without any claim to being complete, exhaustive, theoretically correct, free from errors 11 Among standard setters recommendations, one may refer to International Valuation Standard n. 200, issued by the IVSC International Valuation Standards Council ( paragraphs C1-C7 17

15 (the last mentioned always being possible and not infrequent when a large body of data is being processed). No liability is accepted for any negative consequences arising from its use. Valuation is a complex and difficult task that requires specialist understanding in a broad set of disciplines (like accounting, finance, taxation, etc.). Expert advice should be sought before taking any decision that may rely upon valuation of a business, of a business interest, of a company share, of an investment, of tangible and intangible assets of any kind. salvidio & partners March 2016 Via Antonio Gramsci, Rome - Italy T.: F.: