Transcript GREENFIELD VS ACQUSITION

GREENFIELD VS
ACQUISITION
Presented To The CIM
Capstone Students
at
Middle Tennessee State University
by
William B. Allen
Allen & Associates
1
WHY DO IT ?







EXPAND YOUR MARKET
COMPLIMENT YOUR MARKET
CONSOLIDATE THE MARKET
MAKE MORE MONEY
INFLATE EGOS
REVENGE (GET EVEN WITH THE
BASTARDS)
SOUND BUSINESS DECISION
2
TYPES OF
DECISIONS

MANAGEMENT (WHY)

FINANCIAL (MONEY)

MANAGEMENT (GOOD BUSINESS)
3
ESSENTIAL STEPS

MARKET RESEARCH STUDY

ECONOMIC FEASIBILTY ANALYSIS

ANALYSIS OF MARKET & MONEY
4
MARKET STUDYY








SIZE
TRENDS
PLAYERS
CAPACITY
DEMAND VS SUPPLY
OPPORTUNITIES
FORECAST
PROFITABILITY
5
PLAYERS

STRATEGIES

STRENGTHS

WEAKNESSES

MANAGEMENT
6
READY MIX MARKET

YARDS (PRODUCTION & SP LAST 5 YRS-NEXT 10)

PLANTS (NUMBER &CONDITION)

TRUCKS (NUMBER & CONDITION)

LABOR (WAGE RATES/UNION/NON UNION)

RAW MATERIALS (AVAILABILITY/COST)
7
AGGREGATES






TYPE
QUALITY
TONS & SP (LAST 5 YRS-NEXT 10YRS)
PLANTS
CAPACITY
RESERVES
8
CEMENT

NUMBER OF SUPPLIERS

COST

AVAILABILITY
9
SOURCES OF
INFORMATION







PCA/CEMENT COMPANIES
ADMIX COMPANIES
CHAMBER OF COMMERCE
POWER COMPANIES
EDUCATIONAL INSTITUTIONS
INTERNET
PLAYERS
10
GO - NO - GO DECISION
BASED ON MARKET
PLUS
VALUE
MINUS
SIZE
4
5
PRICE
TRENDS
4
4
PROFIT
PLAYERS
3
3
LABOR
DEMAND
4
3
PLAYERS
GROWTH
5
5
SUPPLY
20
20
11
ECONOMIC FEASIBILTY
GREENFIELD
COSTS
 LAND
 PERMITING
 EQUIPMENT
 CONSTRUCTION
 PERSONNEL
 STARTUP
 LOSSES
12
GREENFIELD VS
ACQUISITION
Presented To The CIM
Capstone Students
at
Middle Tennessee State University
by
William B. Allen
Allen & Associates
13
GREENFIELD VS
ACQUISITION
Presented To The CIM
Capstone Students
at
Middle Tennessee State University
by
William B. Allen
Allen & Associates
14
WHY DO IT ?







EXPAND YOUR MARKET
COMPLIMENT YOUR MARKET
CONSOLIDATE THE MARKET
MAKE MORE MONEY
INFLATE EGOS
REVENGE (GET EVEN WITH THE
BASTARDS)
SOUND BUSINESS DECISION
15
TYPES OF
DECISIONS

MANAGEMENT (WHY)

FINANCIAL (MONEY)

MANAGEMENT (GOOD BUSINESS)
16
ESSENTIAL STEPS

MARKET RESEARCH STUDY

ECONOMIC FEASIBILTY ANALYSIS

ANALYSIS OF MARKET & MONEY
17
MARKET STUDYY








SIZE
TRENDS
PLAYERS
CAPACITY
DEMAND VS SUPPLY
OPPORTUNITIES
FORECAST
PROFITABILITY
18
PLAYERS

STRATEGIES

STRENGTHS

WEAKNESSES

MANAGEMENT
19
READY MIX MARKET

YARDS (PRODUCTION & SP LAST 5 YRS-NEXT 10)

PLANTS (NUMBER &CONDITION)

TRUCKS (NUMBER & CONDITION)

LABOR (WAGE RATES/UNION/NON UNION)

RAW MATERIALS (AVAILABILITY/COST)
20
AGGREGATES






TYPE
QUALITY
TONS & SP (LAST 5 YRS-NEXT 10YRS)
PLANTS
CAPACITY
RESERVES
21
CEMENT

NUMBER OF SUPPLIERS

COST

AVAILABILITY
22
SOURCES OF
INFORMATION







PCA/CEMENT COMPANIES
ADMIX COMPANIES
CHAMBER OF COMMERCE
POWER COMPANIES
EDUCATIONAL INSTITUTIONS
INTERNET
PLAYERS
23
GO - NO - GO DECISION
BASED ON MARKET
PLUS
VALUE
MINUS
SIZE
4
5
PRICE
TRENDS
4
4
PROFIT
PLAYERS
3
3
LABOR
DEMAND
4
3
PLAYERS
GROWTH
5
5
SUPPLY
20
20
24
ECONOMIC FEASIBILTY
GREENFIELD
COSTS
 LAND
 PERMITING
 EQUIPMENT
 CONSTRUCTION
 PERSONNEL
 STARTUP
 LOSSES
25
WHY DO IT ?







EXPAND YOUR MARKET
COMPLIMENT YOUR MARKET
CONSOLIDATE THE MARKET
MAKE MORE MONEY
INFLATE EGOS
REVENGE (GET EVEN WITH THE
BASTARDS)
SOUND BUSINESS DECISION
26
TYPES OF
DECISIONS

MANAGEMENT (WHY)

FINANCIAL (MONEY)

MANAGEMENT (GOOD BUSINESS)
27
ESSENTIAL STEPS

MARKET RESEARCH STUDY

ECONOMIC FEASIBILTY ANALYSIS

ANALYSIS OF MARKET & MONEY
28
MARKET STUDYY








SIZE
TRENDS
PLAYERS
CAPACITY
DEMAND VS SUPPLY
OPPORTUNITIES
FORECAST
PROFITABILITY
29
PLAYERS

STRATEGIES

STRENGTHS

WEAKNESSES

MANAGEMENT
30
READY MIX MARKET

YARDS (PRODUCTION & SP LAST 5 YRS-NEXT 10)

PLANTS (NUMBER &CONDITION)

TRUCKS (NUMBER & CONDITION)

LABOR (WAGE RATES/UNION/NON UNION)

RAW MATERIALS (AVAILABILITY/COST)
31
AGGREGATES






TYPE
QUALITY
TONS & SP (LAST 5 YRS-NEXT 10YRS)
PLANTS
CAPACITY
RESERVES
32
CEMENT

NUMBER OF SUPPLIERS

COST

AVAILABILITY
33
SOURCES OF
INFORMATION







PCA/CEMENT COMPANIES
ADMIX COMPANIES
CHAMBER OF COMMERCE
POWER COMPANIES
EDUCATIONAL INSTITUTIONS
INTERNET
PLAYERS
34
GO - NO - GO DECISION
BASED ON MARKET
PLUS
VALUE
MINUS
SIZE
4
5
PRICE
TRENDS
4
4
PROFIT
PLAYERS
3
3
LABOR
DEMAND
4
3
PLAYERS
GROWTH
5
5
SUPPLY
20
20
35
ECONOMIC FEASIBILTY
GREENFIELD
COSTS
 LAND
 PERMITING
 EQUIPMENT
 CONSTRUCTION
 PERSONNEL
 STARTUP
 LOSSES
36
ECONOMIC FEASIBILTY
ACQUSITION
COSTS
 PURCHASE
 PROFESSIONAL FEES
 EQUIPMENT CHANGE/UPDATE
 PERSONNEL CHANGES
 SYSTEMS CHANGES/UPDATE
 SYNERGIES
37
DETERMINE THE VALUE
OF EACH METHOD

CASH FLOWS GENERATED

NPV OF CASH FLOWS
38
VALUE

THE TRUE VALUE OF ANY
COMPANY IS THE NET PRESENT
VALUE (NPV) OF THE FUTURE
CASH FLOWS GENERATED BY
THE COMPANY’S ASSETS
39
SOME BASIC ANALITICAL
METHODS USED

METHODS
• PAYBACK
• INTERNAL RATE OF RETURN (IRR)
• PROFITABILITY INDEX
• NET PRESENT VALUE (NPV)
40
PAYBACK




-Co+ C1 + C2 + C3 + C4 = 0
-10,000 + 5,000 +5,000 =0
Payback = 2 years
Weaknesses:
• Time value of money
• Future cash flows past payback
41
DICOUNTED CASH FLOW RATE OF RETURN
OR INTERNAL RATE OF RETURN
(DCFRR OR IRR)
 DISCOUNT
RATE THAT
MAKES NPV = 0 IS THE
IRR
42
PROFITABILITY INDEX
(BENEFIT-COST RATIO)


Profitability Index = PV ÷ (-Co)
If index is greater than 1 project
is acceptable
43
NPV-(DISCOUNTED FREE
CASH FLOW) METHOD



LOOKS AT BUSINESS AS A
POOL OF UNENCUMBERED
ASSETS
SEPARATES THE FINANCING
DECISION OF ASSETS FROM
THEIR INTRINSIC VALUE
DISCOUNTED PRESENT VALUE 44
FREE CASH FLOW



FREE CASH FLOWS CONSIST OF
EBIAT PLUS
DEPRECIATION & DEPLETION & ITC
PLUS
TERMINAL VALUE OF THE ASSETS
LESS

CAPITAL EXPENDITURES AND

CHANGES IN WORKING CAPITAL
45
SCHEDULES REQUIRED











REVENUE FORECAST
EQUIPMENT DEMAND
CAPITAL EXPENDITURES
DEPRECIATION
EQUIPMENT SOLD
RAW MATERIAL COST/PIT COSTS
PLANT & DELIVERY VARIABLE COSTS
FIXED COSTS
PROFORMA INCOME STATEMENT
WORKING CAPITAL
TERMINAL VALUE
46
CONTRIBUTION &
PROFIT SUMMARY
REQUIRED INFO:
 SALES & YARDS
 VARIABLE COSTS
 MARGIN
 FIXED COSTS
 PROFIT
 EBITDA
47
SUMMARY

DO YOUR HOME WORK

TOUCH ALL THE BASES
• MARKET
• ECONOMICS

ANALYZE MARKET &
ECONOMICS
48
SUGGESTED READINGS

VALUING A BUSINESS by Shannon P. Pratt
REVIEWING A BUSINESS APPRAISAL REPORT by

BUSINESS VALUATION HANDBOOK by Desmond &





Shannon P. Pratt
Kelly
HOW TO PRICE A BUSINESS by Raymond C. Miles
PRINCIPLES OF CORPORATE FINANCE by Richard
A. Brealey & Stewart C. Myers
THE ART OF M&A by Reed & Lane and Edson
VALUATION “Measuring & Managing the Value of
Companies” by Copeland, Koller & Murrin
49