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price/cash-flow ratios. He calculated these ratios using five
guideline companies and made adjustments similar to those made
under the DCF method for small company risks and company-specific
risks. He arrived at the following market multiples:
Most Recent 3-year
Multiple Year Average
Price/earnings 5.55 6.63
Price/cash-flow 4.24 4.73
Button applied those multiples to Schlegel UK data from
1988, to the average of the Schlegel UK three most recent fiscal
years (1986-1988), and to a blend of one-half of 1988 and the
first half of 1989. The results of these calculations valued
Schlegel UK from $14 million to $22 million. Button then applied
a 16.3-percent discount for lack of marketability and a control
premium of 35 percent, arriving at a range of values from
$16 million to $25 million. In light of all of the information
and specific circumstances of Schlegel UK, Button concluded that
the most appropriate value under the market approach was
$21 million. Button indicated in his report that the asset
valuation approach was not appropriate and that Schlegel UK
should not be adjusted to take into consideration synergies.
Assessing the values determined under the DCF method and the
market multiple approach, Button concluded that both estimates
provided useful information in determining the value of the
company, but he placed greater emphasis on the market multiple
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