Essay About Synergy Value And Current Year

Synergy Value of Suitwars
VALUATION MERGERS AND ACQUISITIONSSUITWARSQ1. What is the value of Synergies?The DCF ValuationWe took the individual valuation of both JOS and MW and then calculated the Synergy value by combining them both.Estimated future cash flows = (Discounted present value of Terminal value)= $1238.32M(JOS) and $450.88M(MW) Total value = $1688.89MTerminal Value of JOS+ MW + Synergy =$ 3639.72MGains from Synergy = $3639.72M-$1688.89M=$1950.83MMost that bidder can bid for target = $450.88M+$1950.83M =$2401.71MShare Price for MW = 450.88/45.0483871 = 10.01Share Price of JOS = 1238.32/28.01 = 44.21  ASSUMPTIONS (NOTES): The synergy benefit take cost reduction and growth increase.The new cost of goods sold after merging is 85%.The new growth rate in the next 5 years after merging is 8.5%.The new growth rate after year 5 is 5%.The new Beta after merging is 1.12. Because the scale of the company after merging will become larger, its easier to borrow money from the market.Risk free rate 3.55% Risk premium = 4.96%Beta of stock = 1.12JOSCurrent Financial InformationMWCurrent Financial InformationRevenues in current year =$1,049.31 Revenues in current year =$2,488.00 COGS as % of Revenues =80.00%COGS as % of Revenues =90.00%Tax Rate on income =38.00%Tax Rate on income =38.00%Interest Expenses =$0.00 Interest Expenses =$0.00 Current Depreciation =$25.00 Current Depreciation =$38.00 Current Capital Spending =$58.86 Current Capital Spending =$137.00 Working Capital as % of Revenue =54.51%Working Capital as % of Revenue =22.55%Projections of growth in earnings Projections of growth in earnings Expected growth rate – next 5 years =9.00%Expected growth rate – next 5 years =5.00%Expected growth rate – after 5 years =4.00%Expected growth rate – after 5 years =3.00%Risk measures Risk measures Beta of the stock =1.12Beta of the stock =1.32