Distress Valuation

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   Ian H. Giddy/NYUDistress Valuation-1 Prof. Ian Giddy New York University Distress Valuation  What’s Marvel worth? Who’s winning? Who’s losing?    Ian H. Giddy/NYUDistress Valuation-2 Copyright ©2003 Ian H. Giddy Corporate Financial Restructuring 3 When Default Threatens,Value the Company  Sale to Strategic BuyerAuctionMerged ValueExisting ManagementNew ManagementVoluntary ReorganizationCh 11 ReorganizationGoing Concern ValueVoluntary LiquidationCh 7Liquidation ValueHighest Valuation of Company? Copyright ©2003 Ian H. Giddy Corporate Financial Restructuring 4 Example of Valuation: Zombie, Inc. Zombie, Inc Share Valuation BeforeAfter Shares400,000850,000 Book Value 10.00$ 10.00$ Acquisition Value 8.00$ Management Est. 20.00$ 9.41$NPV, based onEBITDA1,100,0001,100,000WACC17.48%11.22%Growth2.5%2.5%Debt10,100,0005,600,000  Going Concern Value (6.43)$ 8.62$ Option value?Bank lenders BeforeAfter Debt (at market)7,182,7494,500,000 Equity (NPV value)03,876,905Total7,182,7498,376,905    Ian H. Giddy/NYUDistress Valuation-3 Copyright ©2003 Ian H. Giddy Corporate Financial Restructuring 6  Valuation in Distress Restructuring  q Liquidation value q  Acquisition price q Enterprise value Copyright ©2003 Ian H. Giddy Corporate Financial Restructuring 7  Enterprise Valuation in Distress Restructuring  q Multiples q FCFF discounted at WACC q  APV q Capital Cash Flows q Option Value   Ian H. Giddy/NYUDistress Valuation-4 Copyright ©2003 Ian H. Giddy Corporate Financial Restructuring 8 Multiples in Distress   Allied IndustriesMultiples: Enterprise ValueIndustry (D+E)/EBIT 12.9 Allied EBIT 32 Allied est. Enterprise Value 412.8   Source: morningstar.com Do these make sense?   Do these make sense? Copyright ©2003 Ian H. Giddy Corporate Financial Restructuring 9 Free Cash Flows to the Firm @ WACC  Historicalfinancialresults  Adjust for nonrecurringaspectsGaugefuture growth  Adjust for noncashitemsProjected salesand operatingprofits after taxProjected free cash flowsto the firm (FCFF)Year 1FCFFYear 2FCFFYear 3FCFFYear 4FCFFTerminal year FCFF Stable growth modelor P/E comparablePresentvalue of freecash flows + cash,securities &excess assets - Marketvalue of debt Value of shareholdersequity …   Discount to present using weightedaverage cost of capital (WACC)
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