The integrated theory of business valuation provides a conceptual framework for disciplined analysis of valuation questions. Too often, valuation analysts are tempted to view individual components of a valuation assignment on a piecemeal basis. Adhering to the integrated theory helps valuation analysts develop base valuation conclusions, discounts, and premiums that are rooted in a shared perspective of the subject company and the subject ownership interest. In Part 1 of the series, Chris Mercer and Travis Harms described the integrated theory conceptually. The discussion was rooted in careful definitions of cash flow, risk, and growth at the various levels of value. In this event, they take a more practical turn, exploring how the conceptual framework of the integrated theory manifests itself in the primary methods analysts use to derive indications of value. Specifically, the speakers will examine how valuation analysts calculate enterprise cash flows for use in the income approach, how market participants assign and quantify risk in deriving the discount rates used in the income approach, address the guideline public company method under the market approach using the integrated theory to explain how to draw proper analogies between cash flow, risk, and growth attributes of the subject enterprise and those same attributes of the selected guideline companies, and consider the unique challenges market participants face when confronted with guideline transaction data (what the data do and do not tell us about how the transacting parties were evaluating cash flow, risk, and growth attributes of the target company).

• Income Approach (Cash Flows)

• Reconciling single-period capitalization and discounted cash flow methods;

• Defining enterprise cash flows;

• Defining equity cash flows;

• Reinvestment rates and interim growth rates;

• Terminal growth rates;

• Expected cash flow and the integrated theory;

• Marketable minority interest level: public company equivalent;

• Financial control level: private equity cash flows;

• Strategic control level: strategic acquirer cash flows; and

• Assessing the reasonableness of projected enterprise cash flows.

• Income Rate Approach (Discount Rate)

• Return basics: realized versus required returns;

• Components of the weighted average cost of capital;

• Cost of debt capital;

• Capital structure;

• Market participants and the WACC;

• The levels of value and the WACC; and

• Assessing overall reasonableness.

• Market Approach (Guideline Public Companies)

• Relationship of the income and market approaches;

• Adjusting valuation multiples for differences in risk and growth;

• Direct quantification of the fundamental adjustment;

• Guideline public company multiples and the enterprise levels of value; and

• Assessing overall reasonableness.

• Market Approach (Guideline Transactions)

• Attributes of guideline transaction data;

• Drawing valuation inferences from guideline transaction data;

• Drawing valuation inferences from control of premium data; and

• Minority interest discounts inferred from observed control premiums.