American Cable Communication was looking to acquire AirThread Connections to increase profitability and scale up its business. The acquisition would provide benefits such as better product offerings through complementary services, expansion into new markets to diversify revenue sources, and cost savings from utilizing ACC's fiber lines. Based on a valuation using DCF and EV/EBITDA multiples, ACC should pay $8-9.5 billion for ATC, applying a 15% private company discount to the $9.4-11.3 billion firm value range.
American Cable Communication was looking to acquire AirThread Connections to increase profitability and scale up its business. The acquisition would provide benefits such as better product offerings through complementary services, expansion into new markets to diversify revenue sources, and cost savings from utilizing ACC's fiber lines. Based on a valuation using DCF and EV/EBITDA multiples, ACC should pay $8-9.5 billion for ATC, applying a 15% private company discount to the $9.4-11.3 billion firm value range.
American Cable Communication was looking to acquire AirThread Connections to increase profitability and scale up its business. The acquisition would provide benefits such as better product offerings through complementary services, expansion into new markets to diversify revenue sources, and cost savings from utilizing ACC's fiber lines. Based on a valuation using DCF and EV/EBITDA multiples, ACC should pay $8-9.5 billion for ATC, applying a 15% private company discount to the $9.4-11.3 billion firm value range.
American Cable Communication was looking to acquire AirThread Connections to increase profitability and scale up its business. The acquisition would provide benefits such as better product offerings through complementary services, expansion into new markets to diversify revenue sources, and cost savings from utilizing ACC's fiber lines. Based on a valuation using DCF and EV/EBITDA multiples, ACC should pay $8-9.5 billion for ATC, applying a 15% private company discount to the $9.4-11.3 billion firm value range.
Download as DOCX, PDF, TXT or read online from Scribd
Download as docx, pdf, or txt
You are on page 1/ 3
Valuation of AirThread Connections
Base overview: American Cable Communication (ACC) was looking at potential
acquisition targets to increase profitability as well as viability. With competition making significant investments to build out their product capabilities ACC needed to scale up its business to make sure it wasnt left behind. One of the potential targets was AirThread Connections (ATC), a large regional cellular provider. The deal would be beneficial in terms of: 1. Better product offerings: The two business combined would complement each other and help them in providing bundled services 2. Entering new markets: Could help the companies expand into the business market thereby reducing their reliance on the retail/residential customers ensuring smoother and more stable cash flows. Increased cost and operating efficiency 3. Value addition: ACCs fiber lines could save ATC more than 20% in backhaul costs Based on our valuation we arrive at a firm value in the range of $9.4- $11.3bn. We believe this should be the range within which ACC should buyout ATC. However ATC being a private firm suffers from illiquidity and using a private company discount of 15% we arrive at a valuation in the range of $8-$9.5bn. Firm value Using DCF
9,439
Using EV/EBITDA Multiple
Firm value (applying a 15% private company discount)
2005 2006 2007 Service revenue % growth Equipment revenue % of service revenue Total Revenue % yoy growth rate System operating expenses % of service revenue COGS Equipment COGS SG&A % of total revenue EBIT (Operating Income) % of revenue EBIT(1-t) Tax rate Capex % of total revenue D&A % of capex Net capex Accounts receivable Inventory Prepaid Expenses Accounts payable Deffered Service revenue Accrued Liabilities Non cash WC Non cash WC % of revenue
2827.0
Projected Year Ending
2009 2010
2008
2011
2012
3214.4
3679.3
4194.3
4781.5
5379.2
5917.2
6331.4
13.7%
14.5%
14.0%
14.0%
12.5%
10.0%
7.0%
203.7
258.7
267.0
314.8
358.8
403.7
444.1
475.2
8.0%
7.3%
7.5%
7.5%
7.5%
7.5%
7.5%
3030.7
3473.1
3946.3
4665.1
5409.3
6169.9
6931.3
7510.6
n/a
14.6%
13.6%
18.2%
16.0%
14.1%
12.3%
8.4%
604.1
639.7
717.1
838.9
942.9
1050.0
1130.9
1190.3
21.4%
19.9%
19.5%
20.0%
19.7%
19.5%
19.1%
18.8%
511.9 251.3 %
568.9 219.9 %
640.2 239.8 %
755.5
861.2
968.9
1065.8
1140.4
240.0%
240.0%
240.0%
240.0%
240.0%
1217.7
1399.6
1555.6
1803.6
2056.2
2313.2
2544.5
2722.6
40.2%
40.3%
39.4%
38.7%
38.0%
37.5%
36.7%
36.3%
206.9 5.2% 124.1 40%
309.4 8.9% 185.6 40%
451.1 14.9% 270.7 40%
490.1
555.5
582.3
561.9 12.0% 337.1 40% 653.1 14.0% 705.2 108.0%
745.0 13.8% 447.0 40% 757.3 14.0% 804.0 106.2%
970.4 15.7% 582.2 40% 925.5 15.0% 867.4 93.7%
1267.7 18.3% 760.6 40% 1060.5 15.3% 922.4 87.0%
1504.4 20.0% 902.6 40% 1164.1 15.5% 952.9 81.9%
362.4 46.15x 92.7 163.83 x 32.1 1.1% 254.1 39.20x
407.4 45.63x 117.2 163.09 x 35.0 1.1% 254.9 35.18x
435.5 42.61x 101.0 136.18 x 41.6 1.2% 260.8 32.23x
