Page | 1
CFI FMVA EXAM UPDATED EXAM
WITH VERIFIED SOLUTIONS.
Transaction Comps Analysis - correct answer -LTM EBITDA as
most common value driver for transaction comps
[Explanation: Transaction multiples deal with historical
information. Getting hold of LTM figures from the past is easier
and more reliable than forward looking figures from the past. EBIT
and EBITDA are commonly used value drivers.]
! When a listed company is bought, the pre-deal share price can
be compared to the offer price, leading to a control premium.
! If the target is a private company, we will not be able to establish
a control premium
! For an asset deal only the EV is usually communicated to the
public
! In a merger of equals, enough information should be given to
populate the multiples grid fully
BUT, For an asset deal, the control premium will NOT be readily
observable
TRANSACTION COMPS} Qs}
Which of the following factors is least likely to result in raising total
% premium paid over the current share price?
, Page | 2
High proportion of cash consideration
Scarcity of assets
High value of synergies
Competitive tension - correct answer -High proportion of cash
consideration
[NOT Scarcity of assets => wld lead to a higher premium than
would otherwise be the case]
TRANSACTION COMPS} CONTROL PREMIUMS
E.g.}
A acquires B. An analyst calculates the present value of synergies
at 100m.
The unaffected share price was 12 and the bid price was 16.
The fully diluted number of shares was 10m.
What was the control premium and how much value was
created/destroyed assuming that the analyst is correct?
(A) Control premium was 33.3% and the transaction destroyed
60m of value
(B) There was no control premium and the transaction neither
created nor destroyed any value
(C) There was no control premium and the transaction created
40m of value
, Page | 3
(D) Control premium was 33.3% and the transaction created 60m
of value
--------------------------------
Precedent transactions help assess market demand for certain
types of assets
&
Precedent transactions give a realistic view of valuation levels or
premiums paid
--------------------------------
Differing market conditions at the time of a transaction can -
correct answer -Control premium = % increase of bid price over
the unaffected share price, and the value created is the difference
between the present value of synergies and the total premium
paid.
-----------------
Control premium is calculated as (Offer Price - Pre deal Share
Price) - 1.0
-----------------
=> E.g. ANSWER = (D) Control premium was 33.3% and the
transaction created 60m of value
=> Control premium is (16..0) - 1.0, and value created is
100.0m - (16.0 - 12.0) * 10.0m = 60.0m
-----------------The offer price is taken from the final offer
announcement date, NOT deal closing date. Analysts are
interested in how much acquirers were willing to pay, not how
much they ended up paying which can be clouded by volatile
prices of the acquirer's shares in an equity consideration.
, Page | 4
-----------------
When calculating premium for a transaction comp, the offer price
on the date of the deal closing is NOT used
-----------------
Takeover rumours require analysts to look further back in time to
find the pre-deal unaffected share price
-----------------
As businesses mature, acquisition multiples reduce
-----------------
A hostile takeover typically involves a higher premium paid than a
friendly takeover
-----------------
OFFER PRICE} The offer price, incorporating the offer premium,
is multiplied by diluted shares outstanding, including the new
shares created, to get equity value.
Then financial liabilities are added and financial assets subtracted
to calculated EV. Then divide by EBITDA.
-----------------
Value created or destroyed is the difference between the present
value of synergies and the total premium paid. Diluted shares
outstanding is used rather than basic.
&
To calculate total premium paid, premium paid per share is
multiplied by diluted shares outstanding, rather than basic shares.
-----------------
CFI FMVA EXAM UPDATED EXAM
WITH VERIFIED SOLUTIONS.
Transaction Comps Analysis - correct answer -LTM EBITDA as
most common value driver for transaction comps
[Explanation: Transaction multiples deal with historical
information. Getting hold of LTM figures from the past is easier
and more reliable than forward looking figures from the past. EBIT
and EBITDA are commonly used value drivers.]
! When a listed company is bought, the pre-deal share price can
be compared to the offer price, leading to a control premium.
! If the target is a private company, we will not be able to establish
a control premium
! For an asset deal only the EV is usually communicated to the
public
! In a merger of equals, enough information should be given to
populate the multiples grid fully
BUT, For an asset deal, the control premium will NOT be readily
observable
TRANSACTION COMPS} Qs}
Which of the following factors is least likely to result in raising total
% premium paid over the current share price?
, Page | 2
High proportion of cash consideration
Scarcity of assets
High value of synergies
Competitive tension - correct answer -High proportion of cash
consideration
[NOT Scarcity of assets => wld lead to a higher premium than
would otherwise be the case]
TRANSACTION COMPS} CONTROL PREMIUMS
E.g.}
A acquires B. An analyst calculates the present value of synergies
at 100m.
The unaffected share price was 12 and the bid price was 16.
The fully diluted number of shares was 10m.
What was the control premium and how much value was
created/destroyed assuming that the analyst is correct?
(A) Control premium was 33.3% and the transaction destroyed
60m of value
(B) There was no control premium and the transaction neither
created nor destroyed any value
(C) There was no control premium and the transaction created
40m of value
, Page | 3
(D) Control premium was 33.3% and the transaction created 60m
of value
--------------------------------
Precedent transactions help assess market demand for certain
types of assets
&
Precedent transactions give a realistic view of valuation levels or
premiums paid
--------------------------------
Differing market conditions at the time of a transaction can -
correct answer -Control premium = % increase of bid price over
the unaffected share price, and the value created is the difference
between the present value of synergies and the total premium
paid.
-----------------
Control premium is calculated as (Offer Price - Pre deal Share
Price) - 1.0
-----------------
=> E.g. ANSWER = (D) Control premium was 33.3% and the
transaction created 60m of value
=> Control premium is (16..0) - 1.0, and value created is
100.0m - (16.0 - 12.0) * 10.0m = 60.0m
-----------------The offer price is taken from the final offer
announcement date, NOT deal closing date. Analysts are
interested in how much acquirers were willing to pay, not how
much they ended up paying which can be clouded by volatile
prices of the acquirer's shares in an equity consideration.
, Page | 4
-----------------
When calculating premium for a transaction comp, the offer price
on the date of the deal closing is NOT used
-----------------
Takeover rumours require analysts to look further back in time to
find the pre-deal unaffected share price
-----------------
As businesses mature, acquisition multiples reduce
-----------------
A hostile takeover typically involves a higher premium paid than a
friendly takeover
-----------------
OFFER PRICE} The offer price, incorporating the offer premium,
is multiplied by diluted shares outstanding, including the new
shares created, to get equity value.
Then financial liabilities are added and financial assets subtracted
to calculated EV. Then divide by EBITDA.
-----------------
Value created or destroyed is the difference between the present
value of synergies and the total premium paid. Diluted shares
outstanding is used rather than basic.
&
To calculate total premium paid, premium paid per share is
multiplied by diluted shares outstanding, rather than basic shares.
-----------------
