Question

Feid AG is a lorge size manufactunny anpany located in North Germany with 3 strategic business unit; household erectunics , houstrial consumation essen & pistic Injection machnes. Afted an intensive strategic analysis the company decided to pursue external sustess gowth through MSA. 2 acglisition canditates have been selected for the final round. The German electronic equipment moule elurer METER & the French logistic service provided speaked for e-commoce eLoG. Both componds have showed a health development 4 god business Dehr more in the last year for MEIER the M&A experts ave worked out free cash flow plan with a planning period of 5 years the inina investment in the first year amounts 22 milt. The repital cost WACC is assumed at RE 7.5% & the average annual growth rate of free cash flow after planning penod at 10 % . Based on these darta an enterprise uolue EU = 77.umit. has been calchicted. For elog only a 3 years free cash flow plan can be forecasted because of the substantial higher Machet dynamic. The nitici investment in the first year amounts 33 miit. The capiol cast wACC is assumed at 7.676 and the average gourth role of free cash flow after planning peaud y.sul Based on these dada an EV: 50.2 milt has been Calcuicted? Only one candidate canbe selected, which conditch would you prefer Expich the reason of your choice.

Answer 1

Enterprise value is the total price of buying a company as it calculates the accurate value of a company. Formula to calculate EV would be:

Enterprise Value = market value of a common stock or market cap + market value of preferred shares + total debt (including long and short-term debt) + minority interest – total cash and cash equivalents.

To summarise, a company with less or no debt (less Enterprise value) remains an attractive buy option for investors due to the lower risk attached to it and a company with high debt and less cash (more enterprise value) carries a higher risk because the debt raises the costs and therefore it remains less attractive to investors.

Hence, In the given case, for MEIER the enterprise value is less as compared to eLOG which implies that there is less debt in MEIER and the investor would prefer to buy MEIER.