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In estimating expenditures, Gooch analyzed historic
royalties, capital expenditures, and overhead and had some
discussions with Schlegel UK management. Gooch determined from
this analysis that the royalty rate for the automotive group was
3 percent of sales, that the royalty rate for the building
products group was 3.2 percent of sales, and that capital
expenditures should be 4.5 percent and 2.3 percent for the
automotive and building products divisions, respectively. He
also calculated a terminal value of $47.648 million. Applying
the WACC discount rate to the sales projections and terminal
value, Gooch arrived at a synergistic value of $24.18 million and
a stand-alone value of $17.05 million.
Gooch also used the market multiple approach to value
Schlegel UK, focusing on the market value of invested capital
(MVIC) as the primary indicator of value. MVIC is the sum of the
market value of the common stock of a comparable company, the
market value of the interest-bearing debt of the comparable
company, and the preferred stock. Gooch calculated the following
market multiples using nine purportedly comparable companies:
Comparable Comparable Selected
Multiple Average Median Multiple
MVIC/sales 0.70 0.62 0.65
MVIC/EBITDA 5.50 5.42 5.50
Market value/EBIT 7.05 7.137.00
Price/adjusted
Net income 10.33 10.78 10.50
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