Week 4

MODULE 4
PRIVATE EQUITY
AND VENTURE
CAPITAL
By Professor Stefano Caselli
Universit Bocconi and SDA Bocconi
Content 1
1. Company Valuation Fundamentals
2. Company Valuation Fundamentals: The Pillars of DCF
3. A Case of Company Valuation for PE Investment
4. Applying Company Valuation to PE Settings
5. Applying Company Valuation to VC Settings: The VC Method

6. Launching Your Own Startup: Suggestions
7. PE and M&A Interview with Eugenio Morpurgo
8. PE and IPO Interview with Luca Peyrano

9. PE, Turnaround, and Restructuring Interview with Raffaele Legnani
1
Introduction
This week deals with the issue and concrete application of company valuation.
This clip provides you with an overview of the fundamentals of company valuation,
while in subsequent clips some specific valuation models will be focused on and their
application to PE.
3
1
Company Valuation
Company valuation is the assessment of companys value.
Concerning PE, company valuation is a fundamental step since the PEI needs to know
the value of the company in which it is investing to decide to buy either newly
issued shares or already existing.
4
1
Company Valuation
The process of company valuation is the core of the investing phase.
We will use corporate finance theory to do that.
However, what is peculiar about PE is that equity has to be calculated in two
different moments:
Time 0: The moment in which the PEI decides to invest and in which the PEI
buys the shares of the private company
Time n: The moment when it exits
These two moments are correlated and they

are related to the generation of IRR.
In the first moment you should minimize
equity value, on the contrary at time n you
have to maximize equity value.
5
1
Company Valuation: The Macro
Components of a Balance Sheet
Current Current
Assets Liabilities
Fixed Assets NFP
Financial Other
Investments Liabilities
Intangible
Equity
Assets
6
1
Equity Value: The Pillars for Company
Evaluation
The most popular way for calculating the equity value is represented by discounted
cash flow (DCF), where the rationale behind this model lies the assumption that the
value of the company is made up by the present value of the cash flows (CF) that the
company will generate over the following years discounted at the weighted average
cost of capital (WACC).
How do you calculate CF for the following years?

The PEI bases the estimation on a sound and reliable business plan.
7
1
Equity Value
The general equation to calculate the equity value for an n-maturity perspective of
investment is:
n
CFt
Equity = + TVn + (SA M NFP)
t=1 (1 + WACC) t
Enterprise Value
Where:
TV is the terminal value at time n
SA are surplus (non-operating) assets
M represents the equity held by minority shareholders
NFP is the net financial position
SA, M and NFP refer (if they exist) to the time in which the valuation is made
8
1
Multiples
At the same time, the multiples method is also very widespread. This takes into
consideration the company together with its peers.
For this reason, this method is used together with the DCF to develop a fine tuned
valuation.
The most used multiples are:

EV/EBITDA
EV/EBIT
EV/S
9
1
Multiples
Enterprise value/EBITDA gives a strong advice about How many times do you have to
EV/EBITDA multiply the EBITDA to buy the company? It is based on the capability of the firm to
produce gross margin.
Enterprise value/EBIT gives a strong advice about How many times do I have to multiply
EV/EBIT the EBIT to buy the company? It is based on the capability of the firm to produce
operating profit.
Enterprise value/sales gives a strong advice about How many times do I have to multiply
EV/S the sales to buy the company? It is based on the capability of the firm to produce sales.
10
Content 2



2
Introduction
After an overview of the DCF, in this clip we will individually analyze all the parts of
the formula used to calculate the equity value, bearing in mind that the DCF is based
on the generation of cash flow.
n
CFt
t=1 (1 + WACC)t
Enterprise Value
12
Cash Flow WACC TV NFP, M, SA 2
DCF
The items composing DCF are the following:
Cash Flow
WACC
kd
ke
TV
NFP
Minorities (M)
Surplus Assets (SA)
13
Cash Flow
PROFIT AND LOSS (OR INCOME) STATEMENT
+ Sales and other operating revenues

- Operating costs (including R&D)
= EBITDA Gross margin
-Depreciation
= EBIT Operating profit
+ Other income Typically financial and not operating income
- Interest expenses
= EBT
- Income taxes
= NET INCOME OR LOSS
14
Cash Flow
CASH FLOW
EBIT
- Income taxes
+ Depreciation
- Increase in net working capital
- capital expenditure CAPEX
= CASH FLOW
This is the most widespread way to calculate the Free CF for the firm (i.e. the cash flow
available for financers and shareholders without considering a new debt issuance and the old
debt repayment).
Some authors call it also unlevered cash flow or cash flow for the firm to highlight the fact
that it does not provide any information about the capital structure.
15
WACC
The concept of cost of capital refers to:
Cost of debt (kd or id)
Cost of equity capital (ke or ie)
That together are necessary to calculate the weighted average cost of capital (WACC).
16
WACC:
The Cost of Debt
The cost of debt:
id* = id (1 t)
Where:
id stands for the average weighted cost of debt calculated either by dividing the
interest expenses by the financial liabilities or by taking into consideration every single
rate referring to different financings.
t stands for the corporate tax rate.
id* = interest rate net of taxes
17
WACC:
The Cost of Equity
The cost of equity capital is calculated through the Capital Asset Pricing Model (CAPM)
formula:
ie = rf + (rm rf)
Where:
rf stands for the risk free rate (the rate of return yielded by a risk-free investment
coherent in terms of maturity with the investment itself)
rm = rf + risk premium (i.e. the exceeding return investors expect from the market,
measured with historical series, with respect to a risk-free investment)
stands for the degree of correlation between the investment and the market
18
WACC:
The Cost of Equity
The coefficient of a stock is a regression of returns of the stock against the returns on a
market index.
When a company is not listed, it is necessary to compute the beta using the data of the
comparable companies. Here follows the steps:
1) Identification of the beta of a comparable (one or more)
2) Deleveraging of the beta with comparable companies data
3) Re-leveraging of the beta using the target company data
Unlever means to exclude the effect of capital structure while relever means to re-
calculate the beta coefficient using the capital structure of the firm
19
WACC:
The Cost of Equity
The procedure to unlever is:
u = / [1+(1 t)(D/E)]
Where D and E are the market value of debt and equity of the chosen comparable
companies.
And the procedure to relever is:
* = u x [1+(1 t)(D/E)*]

* = target company data
20
WACC:
The Cost of Equity
Once equity and debt cost of capital have been computed, the WACC is:
iWACC = id* x (D/(D+E)) + ie x (E/(D+E))
Where WACC represents an effective measure of the cost of all liabilities for the company
taken into consideration.
21
Terminal Value
The terminal value (TV) is a crucial item necessary to calculate the equity value. The
formula is as follows:
CFn x (1 + g)
(WACC g)
TVn=
(1 + WACC)n
Where g represents the perpetual growth rate by which the company is supposed to grow
every year.
22
Surplus Assets,
Minorities, and NFP
In the end, as seen in the previous clip, we need to deduct (if they exist):
Surplus Assets
Minorities equity
Net Financial Position
from the enterprise value in order to obtain the equity value.
23
Content 3



3
Introduction
Through this exercise we will see the application of the equity value through the DCF.
This set of slide presents the solution for the Old Winery case.
Through this case a company valuation within PE is treated through a time horizon of
four years.
This means that the stream of CF has to be calculated over the whole investment
period.
25
3
Inputs Income Statement
Income Statement (/000): Data presented in the business plan
2015 2016 2017 2018

Sales 49,860 52,756 56,698 61,721
Operating Costs 39,379 40,910 43,782 45,714
EBITDA 10,481 11,846 12,916 16,007
Depreciation - 1,768 2,305 2,305 2,388
EBIT 8,713 9,541 10,611 13,619
Other Income - - - -
Interest Expenses - 300 36 36 36
EBT 8,413 9,505 10,575 13,583
Taxes - 1,648 4,074 4,378 5,710
NET INCOME 6,765 5,431 6,197 7,873

26
3
Inputs
Inputs to compute the Cash Flow Statement (/000): Data presented in the Business plan
2015 2016 2017 2018

(+) Depreciation 1,768 2,305 2,305 2,388
(-) Increase in the Working Capital (-) 9,788 4,500 500 500
(-) Capex (-) 3,000 3,975 1,322 500
Comparable companies inputs
Beta EV/Sales EV/EBITDA D/E

Mondavi (US) 0.73 6.2 26 9.45
Beringer (US) 0.94 5.5 22.9 5.25
Southcorp(AUS) 1.02 8.5 24.9 8.25
Bodegas (SP) 0.89 8.5 26.7 8.35
Campari (ITA) 1.23 6.7 24 7.35
Antinori (ITA) Not listed 4.9 26.9 7.85
27
3
Inputs Expected Holding Period (n) 4
Other Necessary Inputs: g rate /g) 0.25%
Surplus Assets (SA) 12,000
Minorities (M) -
Net Financial Position (NFP) 10,000
The aim of the PE in this case is to compute the equity value through the formula:
n
CFt
t=1 (1 + WACC) t
28
Cash Flow
Starting with the EBIT, we compute the CF for the
period taken into consideration:
2015 2016 2017 2018

(+) EBIT 8,713 9,541 10,611 13,619
(-) Income Taxes - 1,648 4,074 4,378 5,710
(+) Depreciation 1,768 2,305 2,305 2,388
(-) Increase net working capital - 9,788 4,500 500 500
(-) Capex - 3,000 3,975 1,322 500
CASH FLOW 3,955 703 6,716 9,297
29
WACC
Following the steps in the WACC calculation, we need to compute:
a. Cost of debt net of tax id* = id (1 t)

b. unlevered u = / [1+(1 t)(D/E)]
c. relevered * = u [1+(1 t)(D/E)*]
d. Cost of equity ie = rf + (rm rf)
e. WACC iWACC = id* x (D/D+E) + ie x (E/D+E)
30
WACC
a. Cost of Debt net of Taxes cost of debt 2.4%

id* = id (1 t) Corporate tax 35%
Net cost of debt capital 1.56%
b. unlevered
u = / [1+(1 t)(D/E)] beta unlevered 0.159337
c. relevered
* = u [1+(1 t)(D/E)*] beta relevered 0.32116
31
WACC
d. Cost of Equity risk free rate (rf) 1.25%

ie = rf + (rm rf) risk premium rate (rm) 7.75%
beta 0.962
final beta 0.32116
Cost of equity capital 3.34%
e. WACC
iWACC = id* x (D/D+E) + ie x (E/D+E) WACC 2.25%
32
Terminal Value
Computation of the terminal value (TV), using the following formula:
CFn x (1 + g) 9,297 x (1 + 0.25%)

(WACC g) (2.25% 0.25%)
TVn= = = 425,482.50
(1 + WACC)n (1 + 2.25%)4
33
Surplus Assets,
Minorities, and NFP
Expected Holding Period (n) 4
g rate (g) 0.25%
Surplus Assets (SA) 12,000
Minorities (M) -
Net Financial Position (NFP) 10,000
(SA M NFP) = (12,000 0 10,000) = 2,000
34
3
Equity Value
n
CFt
t=1 (1 + WACC) t
Equity = 10,245.54 + 425,482.50 + 2,000 = 437,728.04
35
Content 4


4
Introduction
In PE deals as said in the previous clips, there is a double valuation issue regarding
equity.
As a matter of fact the PEI wants the equity value to be as low as possible in the
beginning of the investment while the value has to be as large as possible by the end
of the investment.
37
4
Inputs
The exercise that follows is based on the assumption that the liquidity is not an issue
for the exit from this investment.
In this company, the business plan is solid and the assumptions are very reliable.
Such is the case for investments made in expansion financing.
38
4
Inputs
The issue can be addressed by following these steps:
1. Calculating equity at time 0
2. Calculating equity at time n

In this case another business plan would be needed, which a PEI does not have in
this case. So the next step is to calculate the IRR with the numbers available at
the moment of valuation.
39
4
Inputs Income Statement
Inputs from the business plan
Expected EBITDA at exit ?
Expected holding period 3
Expected NFP at exit ?
Expected EBITDA multiple at exit 4
PE Investment 4,500
Post money share percentage 30%
40
4
Equity Value at the End of Investment
Because the holding period is three
Business Plan Holding Period years, exiting occurs in 2017.
2015 2016 2017 2018 2019 2020

Sales 35,000 39,000 43,000 45,000 50,000 54,000
Operating costs - 31,000 33,000 37,000 39,000 43,000 46,500
EBITDA 4,000 6,000 6,000 6,000 7,000 7,500
Depreciation - 1,500 1,500 1,500 2,000 2,000 2,000
EBIT 2,500 4,500 4,500 4,000 5,000 5,500
Other income - - - - - -
Interest expenses - 120 100 100 75 75 75
EBT 2,380 4,400 4,400 3,925 4,925 5,425
Taxes - 816 1,483 1,483 1,308 1,641 1,808
NET INCOME 1,564 2,917 2,917 2,617 3,284 3,617

Net Financial position 4,500 4,000 4,000 3,500 3,500 3,000

Increase net working capital 1,000 1,000 1,200 1,200 1,200 1,200
Capex 5,000 1,000 1,000 5,000 1,000 1,000

CASH FLOW -6,316 -483 -483 -3,808 859 1,692
(EBITDA Taxes NFP) 41

4
By using a multiple of 4 (as presented in the inputs table) we obtain the EV: 24,000 /
000.
Because the equity value is only part of the enterprise value, we need to deduct the
value of the NFP to get the equity value:
Equity value (/000) = 24,000 4,000 = 20,000
Given that the PE has the 30% of this equity, at the exit it represents 6,000 /000
after having made an investment of 4,500 /000 three years before.
The IRR is 10.06%.
It is good or bad?
Nobody can tell except for the investors themselves.
42
4
For this reason, when the PEI undertakes an investment, running a sensitivity analysis
is a common practice, by which the PEI combines on the one hand the EBITDA
multiples and on the other hand it combines the holding period.
EBITDA MULTIPLES
3 4 5 6 7 8
HOLDING PERIOD
1 -6.67% 33.33% 73.33% 113.33% 153.33% 193.33%

2 -3.39% 15.47% 31.66% 46.06% 59.16% 71.27%
3 -2.27% 10.06% 20.12% 28.73% 36.32% 43.15%
4 -1.71% 7.46% 14.74% 20.86% 26.16% 30.87%
5 -1.37% 5.92% 11.63% 16.36% 20.43% 24.01%
6 -1.14% 4.91% 9.60% 13.46% 16.76% 19.64%
43
Content 5


5
Introduction
The venture capital method (VCM) focuses on the relation among the expected IRR,
the growth of the firm and the percentage of shares the PEI has to buy in order to
become an active owner of the venture-backed company.
This approach can be used (and it is typically used):

For deals where the phase of price setting is fundamental
For seed and startup deals in where it is difficult to determine the percentage of
investment for the equity investor.
45
Step 1 Step 2 Step 3 Step 4 Step 5 5
The Venture Capital Method
The venture capital method gives an answer to a very simple question: how many
shares does a PEI have to buy considering the investment made and the expected IRR?
This method develops over the following steps:
Step 1: The future value of the investment

Step 2: The TV calculation
Step 3: The percentage of shares the PEI will own after the investment
Step 4: The amount of share the VBC has to issue
Step 5: The value of the newly issued shares
46
Inputs
Data Inputs
Value of the Investment 4,500,000
Expected IRR 45%
Expected holding period 5
Terminal year net income 3,500,000
P/E comparable Ration 12
Number of existing shares 100,000,000
47
Step 1: The Value of the Investment
This activity concerns the calculation of the future value of the investment,
considering the expected holding period and the expected IRR, where the expected
IRR derives from the different constraints the investor has.
Future Value of the Investment = Value of the Investment x (1 + Exp IRR)n
Future Value of the Investment = 4,500,000 x (1 + 45%)5 = 28,843,803.28
48
Step 2: TV Calculation
This activity concerns the setting of the expected holding period and the calculation
of the terminal value.
The P/E ratio can also be a starting point to calculate the TV, in addition to the DCF
method seen in the previous clips.
TV = Value N Net Income x PE Ratio = 3,500,000 x 12 = 42,000,000
49
Step 3: The Percentage of Shares
After having computed the company TV, the investors need to compute the shares
they have the right to obtain in return for the investment made.
Future Value of the Investment 28,843,803.28

% PE shares = = = 68.68%
TV 42,000,000
50
Step 4: The Number of Shares to Be Issued
This activity concerns the calculation of the number of new shares the venture backed
company has to issue equaling to the percentage calculated in the previous step.
Existing Shares x (% of shares)

Number of shares =
(1 - % shares)
100,000,000 x 68.68%
Number of shares = = 219,214.20
(1 68.68%)
51
Step 2: The Value of Newly Issued Shares
This activity concerns the calculation of the price of newly issued shares for the
investor.
Value of the Investment 4,500,000

Price of new shares = = = 20.53
Number of New Shares 219,214.20
52
Content 6



6
Introduction
In this clip some hints and tips will be presented that startuppers should keep in mind
before launching their own business.
As a matter of fact, nowadays this is a very good moment to launch (well-built) start
up in Europe too.
54
6
Favorable Conditions
1) The first condition that may allow you to launch your own startup is the huge
amount of liquidity available in Europe together with the fact that interest rates
are lower these conditions make an investor keen on investing in new
projects.
2) Nowadays there is a widespread interest in alternative investments which PE and

VC belong to.
3) On top of that, especially in Europe, there is a need for growth to enhance the
GDP
55
6
Rules of a Well-Organized Sturtupper
1. Commitment, hard work, and passion
The fact that you, as the founder, believe in your work is a necessary element to
convince external investors and to demonstrate to them that your company is a good
investment.
2. Right team
In order to create a good company you need to hire the right people and the team
should be made up of people as diverse as possible.
3. Promotion of a glamorous idea.

The investor has to fall in love with the idea at the basis of the company because the
investors will trust a good idea provided that the founder believes in that idea too.
56
6
Rules of a Well-Organized Sturtupper
4. Numbers, numbers, numbers!!!
Passion is important as well as commitment. A startupper should never forget about
the numbers: the VC looks for an IRR in the end. Once the idea of the founder is
translated in numbers, the entrepreneur has to make sure that there is room for an
(interesting) IRR.
5. Be a risk lover
The founders have to demonstrate to the investors that they are ready to face and
share the risk with the venture capitalist.
6. Be able to make other people commit

VC will test the entrepreneurs ability to convince other people, and this means that
the start uppers have to be able to convince their own network.
57
6
Final Recommendations
If you want to launch your own start up, remember that investors could be very
different being:
Business angels
High Net Worth Individuals
Incubators
Etc. ...
In any case, you have to remember that you have to select the most suitable one
for your project and needs.
58
Content 7



7
Who Is Eugenio Morpurgo?
Founder and CEO of Fineurop Soditic S.p.A.
Long experience in the M&A world.
Professor of Investment banking at Bocconi University.

7
Q&A
What are the key trends in the M&A market today?
In 2014 we observed a positive trend of the M&A market, which continues through 2015, it
is driven by acquisition financing and the liquidity availability of PE funds and corporations.
Generally speaking, we can say we are very optimistic for the M&A market and we will for
the next 6-7 months.
As for the Italian market, it is dominated by foreign investors, both strategic investors and
PE investors Quality assets seem to be what the investors are more interested in.
In addition, multiples speak for themselves, the EBITDA margin multiple was 9: a record
over the last 15-20 years. I do not think that this is an Italian market bubble, again
acquisition financing is very good and there is still room for mid-size acquisition financing
projects, but this will depend on debt capital market, stock market and on the Grexit,
which may affect these markets in the next 3-4 months (note: the interview was taken in
early July 2015).
As for the Italian domestic market, we still see a lack of strategic domestic investments,
Italian investors are very cautious within Italian boundaries. This is a reason why PE is very
important in Italy.
7
Q&A
PE is one of the main drivers of the M&A market. How do you see the relationship
between PE and M&A today?
PE has a very important share in the worldwide M&A market, in Europe as well
as in the US and this share is going to increase especially in those industries
where corporate strategic barriers are low.
I think that worldwide PE plays a very important role. As for Italy, this is even
bigger for two reasons: in the first place the IPO market is very weak and PE
could replace this IPO market, in addition to that PE can be extremely
important to support domestic groups in consolidation processes.
7
Q&A
M&A is relevant and complex at the same time. In your opinion, what are the key
issues for a company to manage M&A?
Looking at the buy-side, the due diligence has to be extremely accurate,

especially when it comes to the value of the potential synergies and to what
happens in the post-acquisition process.
Looking at the sell-side, there are some opportunities in the IPO and M&A
market and sometimes sellers concentrate on fundamentals and forget to take
into consideration that the market can be very volatile.
There is an M&A cycle, largely depending on the stock market and the liquidity
availability. Therefore, sometimes the right window opens and closes very
quickly. You should catch the right window!
Content 8


8
Who Is Luca Peyrano?
Head of Continental Europe for the London Stock Exchange.
Long experience in managing IPOs.
Great support to SMEs and bigger companies as they enter the financial
markets.
8
Q&A
An IPO is one of the exit mechanisms for private equity and venture capital. How do
you see the relationship between PE and stock exchange and what are the key issues
for an SME that jumps into the stock exchange?
PE is crucial to capital markets, also they are important to spread an equity

culture. PE stands right before the IPO.
There is now an always strong relationship between us and the PE community,
not only on a local level.
In the past, up to 40% of IPOs derived from PE. In these years, half of the
capital raised from the London Stock Exchange comes from VBCs.
8
Q&A
What is Borsa Italiana (the Italian Stock Exchange) doing for SMEs and why SMEs are
usually so reluctant to go public?
In Southern Europe there is a huge number of SMEs, not very close to the
capital markets. It is mainly for them that PE plays a bigger role.
The SMEs usually have a bigger perception of the distance between them and
the stock exchange. This is more of a psychological problem rather than a
technical one. Hence, we are creating markets that can be tailor-made for
smaller companies, and we are trying to engage with companies at an early-
stage of life.
This is why three years ago we launched ELITE, which has proved to be very
successful. It is not a market but a business support program for SMEs in which
we train and coach companies and their managers.
8
Q&A
Can you say something more about ELITE that is becoming an exceptional format to
sustain SMEs towards the capital market? What is the challenge for Borsa Italiana
(Italian Stock Exchange)?
ELITE turned out to be a magical solution, not only for Italian SMEs. It is a
quite recent understanding that let us know why companies would not go public.
It is all about creating the right environment. We provide an early-stage
training, together with top business schools, such as Bocconi University; then we
move to a phase in which companies are pushed towards change. We ask them to
explore new areas, such as business areas or their governance mode.
Eventually we present them to our investors. This program does not necessarily
lead to the stock exchange rather to consider all possible options that can
accelerate growth.
Content 9

9. PE, Turnaround, and Restructuring Interview with

Raffaele Legnani
9
Who Is Raaele Legnani?
Managing director at HIG capital.
Long experience in restructuring and turnarounds.

9
Q&A
Restructuring and "special situations" are part of the relevant business for private
equity. How do you see today the relationship between PE and these areas?
PE can help companies throughout their life cycle. PE can turn ideas into
businesses and can support expansion as well. PE funds can also help in their
restructuring and turnaround phases.
In todays world, even if a company has a very sound business plan, it can be
strongly hit by sudden events which change the value of the company.
This is why PE funds that invest in change are more than welcome!
Without such players in the markets these companies overwhelmed by change
would go bankrupt and we would lose their so-called going concern value.
9
Q&A
What are the key issues for a PE investor that has to manage restructuring and
special situations?
The most important thing is to have the right mindset. The PE has to look at
all those unsuccessful cases and point out those few companies which have a
chance.
This is an important skill for a PE investing in turnaround and restructuring.
9
Q&A
In your experience and in your opinion, what are the key trends in the market for
restructuring and special situations within the PE world?
In the last few years there is an increasing attention of banks towards

distressed debt. For this, they created dedicated teams and they totally
changed their attitude.
Beforehand, they had a very passive attitude: they were more focused on
legal technicalities. Now, they really want to understand the business and
how they can create value in a company. This is a totally brand new mindset.
On the other hand, banks are quite new to this approach and to this way of
doing business. Therefore, I see a clear trend towards a partnership between
banks and PE funds to work together and help distressed companies.
PE can put in money and help banks in spotting the right companies in which
to invest. This could help not only distressed companies but all of the
economy after a domino effect.

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MODULE 4

3. A Case of Company Valuation for PE Investment

4. Applying Company Valuation to PE Settings

5. Applying Company Valuation to VC Settings: The VC Method

7. PE and M&A Interview with Eugenio Morpurgo

8. PE and IPO Interview with Luca Peyrano

These two moments are correlated and they

Fixed Assets NFP

How do you calculate CF for the following years?

The most used multiples are:

2. Company Valuation Fundamentals: The Pillars of DCF

4. Applying Company Valuation to PE Settings

5. Applying Company Valuation to VC Settings: The VC Method

7. PE and M&A Interview with Eugenio Morpurgo

8. PE and IPO Interview with Luca Peyrano

9. PE, Turnaround, and Restructuring Interview with Raffaele Legnani

+ Sales and other operating revenues

id* = interest rate net of taxes

iWACC = id* x (D/(D+E)) + ie x (E/(D+E))

from the enterprise value in order to obtain the equity value.

3. A Case of Company Valuation for PE Investment

5. Applying Company Valuation to VC Settings: The VC Method

7. PE and M&A Interview with Eugenio Morpurgo

8. PE and IPO Interview with Luca Peyrano

9. PE, Turnaround, and Restructuring Interview with Raffaele Legnani

2015 2016 2017 2018

EBITDA 10,481 11,846 12,916 16,007

Depreciation - 1,768 2,305 2,305 2,388

EBIT 8,713 9,541 10,611 13,619

EBT 8,413 9,505 10,575 13,583

Taxes - 1,648 4,074 4,378 5,710

NET INCOME 6,765 5,431 6,197 7,873

2015 2016 2017 2018

(-) Capex (-) 3,000 3,975 1,322 500

Comparable companies inputs

Beta EV/Sales EV/EBITDA D/E

Other Necessary Inputs: g rate /g) 0.25%

Surplus Assets (SA) 12,000

Net Financial Position (NFP) 10,000

2015 2016 2017 2018

(-) Income Taxes - 1,648 4,074 4,378 5,710

(+) Depreciation 1,768 2,305 2,305 2,388

(-) Increase net working capital - 9,788 4,500 500 500

(-) Capex - 3,000 3,975 1,322 500

CASH FLOW 3,955 703 6,716 9,297

a. Cost of debt net of tax id* = id (1 t)

a. Cost of Debt net of Taxes cost of debt 2.4%

d. Cost of Equity risk free rate (rf) 1.25%

CFn x (1 + g) 9,297 x (1 + 0.25%)

g rate (g) 0.25%

Surplus Assets (SA) 12,000

Net Financial Position (NFP) 10,000

(SA M NFP) = (12,000 0 10,000) = 2,000

Equity = 10,245.54 + 425,482.50 + 2,000 = 437,728.04

3. A Case of Company Valuation for PE Investment

4. Applying Company Valuation to PE Settings

7. PE and M&A Interview with Eugenio Morpurgo