1. Presentation to ICSI On M&A Valuations Regional Conference
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Presentation to ICSI On M&A Valuations Regional Conference
By CA. Manish Khanna
Sept 19, 2015

2. Overview of the Presentation
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Overview of the Presentation
Agenda
Agenda
Introduction to M&A related Valuation
Dynamics of M&A Valuation
Drivers of M&A and Role of an Investment Banker
Valuation Methodologies and the “Football Field”
IPO Valuation
What Matters and is Most Important?
In-depth IPO Valuation

3. Introduction to M&A related Valuation
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Introduction to M&A related Valuation

4. 4/22/ :26 PM
Valuation Overview
Introduction to Valuation
Valuation is a Central Discipline in Investment Banking
Nearly Every Activity in Investment Banking and Private Equity is Driven by Valuation Analyses
Determining the value of the Company is generally the first step
M&A ⇛ Determining the value in a transaction
Equity Capital ⇛ Pricing the Initial Public Offering
Leveraged Finance ⇛ Determining collateral value and/or financing capacity
Securities design and pricing is an extension of the same fundamental concepts
Valuation Requires the Interpretation of Information and Sound Judgment (Balance of “Science” & “Art”)
Information provides a foundation of knowledge about the asset and the marketplace
Interpretation of the information and correct judgment distinguishes the quality of the analysis
At the Core, Valuation is About Finding the Equilibrium Between Risk and Reward
Fair market value is typically defined as the price at which a willing buyer and a willing seller will transact around an asset / company when both have complete information and neither is under any compulsion to act
Obviously, buyers and sellers may value assets differently based on a variety of factors, thereby creating a market 1

5. Valuation Overview (Cont’d)
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Valuation Overview (Cont’d)
Introduction to Valuation
Definition of Key Terms
Firm Value (or “Enterprise Value”)
The total value of an operating business regardless of its capital structure
Equity Value (or “Market Value of Equity”, “Market Value” or “Market Cap”)
The value of an operating business to its equity holders
The value of an operating business after the satisfaction of its creditors and preferred claim holders
Firm Value
Net Debt
Equity Value
less
equals
Net Debt
The sum of:
Total indebtedness for borrowed money
Preferred claims against the value of the business
Less the sum of:
Cash and cash equivalents
Preferred Claims against the Value of the Business
May include preferred stock, “out-of-the-money” convertible securities or minority interests 2

6. Valuation Overview (Cont’d)
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Valuation Overview (Cont’d)
Introduction to Valuation
Definition of Key Terms
Typically involves a premium over the publicly traded equity value
Ability to control the Board, management and strategy of the business
Ability to integrate with other assets and capture synergies
Ability to access all cash flows and create the optimal capital structure
Commonly represented by publicly traded equity value
Assumes adequate liquidity in the market
Generally subject to existing Board, management and strategy
Access to cash flow limited to dividends
Typically involves a discount to the publicly traded equity value
Discount reflects a lack of market history and therefore certain liquidity and valuation risk
Also reflects an attempt to “entice” shareholders of similar companies to buy IPO (bargain price)
Control Value
@ M&A
Fully Distributed Equity Value
@ Trading
IPO Value
@ IPO 3

7. Dynamics of M&A Valuation
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Dynamics of M&A Valuation

8. Drivers of Mergers & Acquisitions
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Drivers of Mergers & Acquisitions
M&A Valuation
Why Deals Happen and Don’t Happen
Why Deals Happen
Why Deals Don’t Happen
Compelling Strategic Rationale for a Transaction
Diversification vs. Focus (Broaden or Narrow Business Mix)
Manage Market Position and Scale (Commit to a Product / Market or Exit)
Geographic Expansion vs. Retrenchment (Globalization / Cost of Entry)
Vertical Integration vs. Outsourcing
Defensive (What If Our Competitor / Pursuer Wins?)
Compelling Financial Rationale for a Transaction
Low Relative Cost or High Relative Opportunity
Financing Markets (Ability to Leverage Equity Returns)
Equity Market Perception / Reaction (Valuation Metrics / Business Model / Growth / Profitability)
Financial Synergies (Different Value Available to Different Owners)
Financial Stress (Company Selling Subsidiary to Raise Cash)
Financial Sponsor Exit
Other Reasons
Management Ego
Change in Management
Insufficient Strategic or Financial Rationale
Management / Board of Directors Resistance (Social Issues)
Market / Shareholder Concerns (Dilution / Lack of Understanding / Credibility)
Inadequate Financial Resources Available to the Buyers
Anti-Trust Considerations
Changes in Relative Valuation
Accounting, Tax, Legal, and Environmental Issues Are Insurmountable
Regulatory (Domestic or Abroad) 4

9. What are the Deal Mechanics and the Process?
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What are the Deal Mechanics and the Process?
M&A Valuation
Types of Deals and Structures
Types of Deals and Processes
Subsid./Private Company Transaction Structures
Exclusive Sale
Private Sale to a Single Buyer
Limited Auction (Formal vs. Informal)
Full Auction (Public vs. Private)
Buy-Side Mandate
Willing Target Pursuing a Sale Process
Unsolicited Approach – Target Attitude Unknown (Formal vs. Informal)
Friendly Negotiations
“Bear Hug” – Target is Resistant (Disclosure Issues)
Hostile Offer
Equity Restructurings
Spin-off – shares of subsidiary distributed tax-free to all parent shareholders on a pro-rata basis
Split-off – shares of subsidiary distributed tax-free to self-selected parent shareholders
Targeted Stock – distributed tax-free in either manner outlined above or IPO’
Leveraged Buyouts and Recapitalizations
Asset Sale
Transaction of specific assets and liabilities
Required if operations are not held in a distinct subsidiary or set of subsidiaries
Provides the buyer the ability to deduct transaction goodwill for tax purposes
Stock Sale 5

10. Role of a financial advisor
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Role of a financial advisor
M&A Valuation
A financial advisor performs a broad range of functions in the M&A process
Drive the Process – From “cradle to grave”
Valuation Advice – Provide comprehensive financial analysis to formulate (buyside) or evaluate (sellside) a bid
Diligence – Assist client in the completion of a thorough and organized diligence process
Marketing – Assist client in preparing diligence materials and public / investor communications
Structuring – Structure transaction to meet the needs of the parties
Market Intelligence – Provide industry knowledge, a perspective on any public market activity and the ability to assess the likelihood of other potential bidders of the target
Bidding Strategy – Advise the client on the best way to ensure success
Financing – Arrange financing alternatives (if necessary)
Negotiations – Increase negotiating flexibility and leverage by acting as a go-between with the other side
Opinion – Deliver fairness opinion (if appropriate)
Market Reaction – Anticipate market reaction and marketability of securities 6

11. What is a Football Field?
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What is a Football Field?
M&A Valuation
A football field summarizes the various metrics and assumptions used to determine the valuation of a company or business segment
Fairness Opinion
Presents the range of “fair value” for a Board of Directors’ consideration in a sale context
Provides guidance to justify a bid value in a buy-side
Sell-Side
Summarizes proposed positioning and target valuation range based on preliminary analysis
Buy-Side
Demonstrates knowledge of the asset, suggests how other buyers might approach valuation and provides bid range guidance
Internal Reference
For example – supports loan to value analysis when examining financing alternatives
Important to remember that the valuation metrics used will vary
depending on both the industry and the assignment 7

12. Summary of Valuation Methodologies
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Summary of Valuation Methodologies
M&A Valuation
Multiple types of valuation analyses will be included in a valuation summary depending on industry, type of presentation, available information and numerous other factors
Metric
Considerations
Trading Value
Control Value
Private Co. Metric
Forward P/E, P/CF, EV/EBITDA, EV/Revenue most common – may show more than one metric 
LTM P/E, P/CF, EV/EBITDA, EV/Revenue most common – may show more than one metric. Operational metrics used too, particularly in commodity-oriented businesses
Make sure to apply premium to unaffected price (i.e. pre-announcement or pre-leak)
Alternatively, may apply premium to trading multiples
Choose appropriate target range of IRR
Solve for price based on fixed leverage and range of exit multiples
Option to show with and/or without synergies
Use for distinct business segments or individual assets with different value parameters
Used as reference point
52-week most common; also 3-months, 6-months, period since significant event
High/low research price targets; check length of time forward and ensure consistent (or discount back)
Trading Multiples
Comparable Transactions
Premiums Paid
Leveraged Buyout
Discounted Cash Flow
Sum-of-the-Parts
Stock Price Trading Ranges
Equity Research Price Targets 8

13. Source of the Assumptions / Data
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Source of the Assumptions / Data
M&A Valuation
An analysis is only as good as its inputs
The Projections
Consideration must be given to which projections to use – can present multiple cases or one case only
Fairness opinion valuations may involve a base case and a downside and should be provided by or blessed by management
Buy-side valuations may involve management case and revised due diligence case
If preliminary valuation, consider adding due diligence contingencies for unknown factors that may impact value
The Key Assumptions
Trading Comps: must have back-up for all analysis and consistently apply methodology (e.g. exclude finance subsidiaries, include / exclude underfunded pension liabilities, etc.)
Transaction Comps: be sure to use publicly available data if creating a fairness opinion for a public company; and be thorough in your search – have rationale for exclusion of deals
Exit multiples: justify LBO and DCF exit multiples through trading and transaction comps or cycle analysis
WACC: perform a detailed WACC analysis to justify discount rates for DCF
Leverage: discuss leverage assumptions to make appropriate LBO valuation
Premiums: clearly define the transaction size, time period and reference point of premiums used in analysis
Share count: use exercisable or outstanding options where appropriate
Change in Control Costs: review proxy materials to determine if change in control costs are relevant
Always keep good back-up of all data sources and assumptions 9

14. Determining Appropriate Valuation Ranges
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Determining Appropriate Valuation Ranges
M&A Valuation
Science, Art or Sanity?
“Science”
Market information; financial data
Mechanics of valuation methodologies
“Art”
Valuation inputs and assumptions are based on industry knowledge, experience and common sense
Senior bankers and industry coverage will opine on the appropriate ranges and assumptions
Individual valuation ranges may seem reasonable, but do they make sense with respect to one another?
i.e., Transaction multiples vs. trading multiples
Are assumptions consistent between methodologies?
i.e., DCF or LBO exit multiples vs. trading multiples or transaction multiples
Is the valuation range too wide or too narrow?
Go back and check the assumptions and calculations
Are there any outliers in the comparable multiples?
Are the earnings drivers correct? (i.e., FCFE & earnings for equity value multiples, EBITDA for enterprise value multiples)
Have I used the right share count (exercisable vs. outstanding options)?
Is implied perpetuity growth rate appropriate?
What metric does the industry trade on?
“Science” vs. “Art”
Step Back and Look at the “Bigger Picture”
Sanity Check 11

15. Preliminary Valuation – the “Football Field”
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Preliminary Valuation – the “Football Field”
M&A Valuation
Preliminary Review of Valuation Parameters
Enterprise Value ($MM):
WACC: 8.0%-10.0%
Terminal EBITDA Multiple: 10.0x
Target 0% 2012 Accretion
MLPs: 11.0x to 13.0x 2012 EBITDA
MLPs: 10.0x to 12.0x 2013 EBITDA
Exit Multiple: 10.0x
IRRs: 10%-15%
Exit Multiple: 10.0x
IRRs: 17.5%-22.5%
Initial EBITDA Multiple: 14x – 16x
EBITDA Multiple Range: 8x – 10x 13

16. Preliminary Valuation Analysis
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Preliminary Valuation Analysis
M&A Valuation
Purchase Price Ratio Analysis
PPR Analysis 14

17. Discounted Cash Flow Analysis
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Discounted Cash Flow Analysis
M&A Valuation
DCF Analysis 15

18. Discounted Cash Flow Analysis (Upside Case)
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Discounted Cash Flow Analysis (Upside Case)
M&A Valuation
The valuation below includes all of the potential expansion projects and is discounted at a 10% rate to account for the additional risk associated with un-contracted projects
DCF Analysis 16

19. 4/22/ :26 PM
IPO Valuation

20. Comparable Company Analysis Defined
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Comparable Company Analysis Defined
IPO Valuation
Comparable Company Analysis Explained
The equity of fundamentally similar, or “comparable” companies tends to be valued on a relatively consistent basis by the public markets
Broadly speaking, if Company A competes in the same industry as Company B, using a similar business model, the equity markets are likely to value the two businesses in a relatively consistent manner
The Comparable Company Analysis seeks to identify a group or “universe” of public companies which are deemed fundamentally comparable to the target and compares the “market trading multiples” of these companies to determine a range of value for the target, expressed in valuation multiples
By analyzing certain key ratios and operating data for each of the comparable companies it is possible to determine how the comparable companies valued relative to their profitability, growth prospects, etc.
Public markets typically place premiums to companies which portrays growth and margin profiles better than those of industry average
As Comparable Company Analysis is based on an analysis of currently publicly trading companies, valuations received by the comparable universe DO NOT typically reflect:
Premium a buyer must pay for control of a company in an M&A transaction; or
Discount the market may place on shares which are newly introduced in an IPO 23

21. Comparable Company Analysis Defined (Cont’d)
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Comparable Company Analysis Defined (Cont’d)
IPO Valuation
Most Widely Used Valuation Tool
What is it?
Use of Trading Multiples
Fundamental valuation tool used for deriving company value
Helps in benchmarking performance and valuations across companies within a sector
Valuation tool based on how comparable companies are valued by the stock market as a multiple of profit, sales or other parameters
Assumes that the stock market is relatively efficient in valuing comparable companies
Importance
Initial Public Offering
Buy-side M&A
Sell-Side M&A
Add-on financings
Share repurchases
Leveraged Buy-out 24

22. Enterprise and Equity Value Multiples
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Enterprise and Equity Value Multiples
IPO Valuation
Equity Value Multiples
Enterprise Value Multiples
Takes into account capital structure in decision making
Denominator after interest expense
Main multiples are
P/E ratio
Equity Market Value / Net Income
Price / Book ratio
Price / CFPS
Focus towards quality of operation
Unlevered Capital Structure
Denominator before interest expense
Main multiples are
EV / Sales
EV / EBITDA
EV / EBIT or EV / EBITA
EV / Capital Employed
EV / Subscribers (telecom, similar ratios based on operating figures in other industries)
Summarize the Results
Summary Statistics
Mean, Median, High Low (The Median is the most meaningful statistic because it will naturally screen outliers)
Outliers should be evaluated and possibly eliminated 25

23. Comparison of Multiples
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Comparison of Multiples
IPO Valuation
Choice of the Multiple Depends on Industry, Profitability, Accounting Regimes
Multiple
Advantage
Disadvantage
EV / Sales
Meaningful for loss-making companies
Very limited impact of accounting differences
Does not take differences in profitability into account
EV / EBITDA
No distortions based on different depreciation policies
Does not take differences in capital expenditures into account
EV / EBIT
Valuation based on quality of operation
Possible distortions based on different accounting policies
EV / Capital Employed
Based on invested capital, which determines potential earnings power
Distortions through accounting differences
P/E Ratio
Focuses on earnings to shareholders
Accounting differences may distort true measures of earnings
Price / CFPS
“Cash is king”
Price / Book
Based on equity, which determines earnings power 26

24. Understanding Key Drivers of “Multiples”
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Understanding Key Drivers of “Multiples”
IPO Valuation
Why Do Comparable Companies Differ in Valuation?
Industry and Sector Outlook
Competitive Position
Research Views
Historical Performance  One of Key Indicators of Future Performance
Revenue Growth
Operating Margins
Qualitative Factors  Impact Market’s Belief of the Company’s Future Performance
Management Quality and Track Record
Corporate and Operating Strategy
Ownership Profile
Cash Flow
Net Income
Regulatory Issues
Environmental Issues
Legal Issues
Valuation ultimately assesses the present value of the potential future financial rewards
Current trading valuations or “multiples” of a Company are a reflection of public market’s belief in the future financial rewards by owning the securities of the Company 27

25. What Else Matters in an IPO?
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What Else Matters in an IPO?
IPO Valuation
Many Factors are Evaluated at Time of IPO
Peer Group: Clear peer group with sizeable number of companies
Only need one; none allows Company / Banks to define the “valuation / story”
Liquidity: % of float vs. other comparable companies
Need adequate IPO size to attract institutional investors
Growth: What are organic and acquisitive growth prospects of the Company?
How do those projects / returns compare vs. peers and how achievable / financeable are they?
Stability vs. Volatility: Is Company’s business volatile, risky, stable, cyclical?
Ability to dampen volatility or smooth out earnings? Capital structure and risk policies
Stage of Company: What stage is the Company experiencing in its life cycle?
Developing, nascent, growth, mature?
Capital structure and cash flow generation / reinvestment
Capital Structure: Credit ratings and leverage vs. peers and appropriate levels for Company / industry
Market Conditions at time of IPO
Management, Board composition and PE backing
Banking relationships and research coverage
Credit support and capital markets access in the future 28

26. Relative Benchmarking
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Relative Benchmarking
IPO Valuation
Enterprise Value ($ in millions)
2010A Reserves (million tons)
Reserves / 2011E Prod.
38.6 yrs
27.8 yrs
25.8 yrs
10.0 yrs
29.8 yrs
EBITDA CAGR: 2011E – 2013E
2010A EBITDA / ton
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Note: Peer group data as per company filing and Wall Street equity research. Market data as of 3/23/2011.
Note: Company B data per Company’s projections. 31

27. Relative Benchmarking: Balance Sheet Strength
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Relative Benchmarking: Balance Sheet Strength
IPO Valuation
2011E EBITDA
2011E Cash Flow from Operations
Total Liquidity (1)
Total Debt/Net Debt/LTM EBITDA
Ba1 (Stable)
BB+ (Stable)
Ba2 (Watch)
BB (Watch)
Ba2 (Watch)
BB (Watch)
Ba3 (Stable)
BB- (Stable)
Ba3 (Stable)
BB- (Stable)
BB- (Watch)
B1 (Stable)
B1 (Pos)
BB- (Pos)
B2 (Stable)
B+ (Watch)
Caa1 (Stable)
B+ (Stable)
Caa2 (Stable)
B- (Stable)
BB- (Watch)
B1 (Stable)
B2 (Stable)
B+ (Watch)
BB- (Pos)
B1 (Pos)
Caa2 (Stable)
B- (Stable)
Ba3 (Stable)
BB- (Stable)
Ba3 (Stable)
BB- (Stable)
Ba2 (Watch)
BB (Watch)
Caa1 (Stable)
B+ (Stable)
Ba1 (Stable)
BB+ (Stable)
Ba2 (Watch)
BB (Watch)
Total Debt Median 2.2x
Net Debt Median 1.9x
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Source: Company information and IBES Estimates.
Note: All companies per 12/31/2010 filings.
Total liquidity is calculated cash & cash equivalents as of latest balance sheet data plus remaining balance on companies’ revolving credit facility, including LOCs. 32

28. Current Trading Multiples
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Current Trading Multiples
IPO Valuation
EV / 2011E EBITDA
EV / 2012E EBITDA
EV / 2013E EBITDA
Primary Comp
Secondary Comps
Others
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Note: IBES consensus estimates as of 3/23/2011. 33