Modeling a Private Company Acquiring Another Private Company
I see lots of resources for modeling the acquision of apublic company by anotherpublic company. But I have seen very little resources for modeling a private co acquiring another private co. Can anyone point to some resources or give a detailed explanation of how it is done?
For example, private co A owns private co B. B wants to acquire private co C and the financing for said acquisition would be supplied, all cash, by A. How would you model theIRR为co A and associated equity dilution analysis. Thanks for any help!
Comments (4)
With aprivate company, since its not publicly traded you can't do a accretion/dilution analysis, instead you typically would rely on aDCFand theIRR为the potential return.
I'm not too entirely sure whats going on in your example, but if Private Company B wants to buy Private Company C, then you would just figure out what purchase price gets you over your hurdle rate and try to acquire Company C at the appropriateIRR.
Actually, why not an accretion/dilution analysis?
Youstill have net incomeand # shares figures.
If you combine revenue, expenses etc., then factor in the interest foregone on cash, you would have your pro-forma net income of the combined entity.
Take this new net income and divide it bynumber of shares outstanding(to getyour new EPS) and you can see whether it isAccretiveor dilutive.
It's not that you couldn't do the analysis, but there's almost no use to it since private companies aren't valued using P/E multiples.
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