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The focus on the EBITDA of private companies is almost ubiquitous among business appraisers. Join Chris Mercer to learn about the relationship between depreciation (and amortization) and EBIT as one measure of relative capital intensity. This relationship, "the EBITDA Depreciation Factor," is then used to convert debt-free pretax (i.e., EBIT) multiples into corresponding multiples of EBITDA. Mercer presents analysis that illustrates why the pervasive rules of thumb suggest that many private companies were worth 4.0x to 6.0x EBITDA, plus or minus, have had such stickiness. Get insight into the likely impact of the Tax Cut and Jobs Act on private company enterprise value multiples. Hear about a suggested methodology based on the adjusted capital asset pricing model, whereby business appraisers can independently develop EBITDA enterprise value multiples under the income approach and includes private- and public-company market evidence.
Program Agenda
What is EBITDA?
Finding EBITDA
The Gordon Model: Market Value of Equity, Discounted Cash Flow, and Enterprise Value
Developing Enterprises (Total Capital) Indications of Value
A Single-Period Income Capitalization Technique to Capitalize EBITDA
Risk, Expected Growth, Capital Intensity, and EBITDA Multiples
Assumptions to Develop a Range of EBITDA Multiples
A Range of Implied EBITDA Multiples for Discussion
Tradeoffs Between Expected Growth and Risk and the Impact of Value
Risk, Growth, and the EBITDA Depreciation Factor
Market Evidence for the EBITDA Depreciation
Public & Private Market Evidence
Implications for Business Valuation
Learning Objectives
Describe the relationship between EBIT and depreciation (and amortization) and why companies have relatively high or low EBITDA multiples
Examine research about the “EBITDA Depreciation Factor” for public and private companies and learn how capital intensity impacts EBITDA multiples
“Build” multiples of EBITDA for specific assumptions in unique valuation situations using the Adjusted Capital Asset Pricing Model
Employ those multiples to develop indications of enterprise value
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