Technology Buyouts - Valuation, Market Screening Application, Opportunities in Europe

Foreword The public market valuation of technology companies throughout the 1990s is probably one of the most interesting phenomena in recent financial history. No sector has generated more enthusiasm among investors, and no sector has created more millionaires, albeit mostly on paper. Once the bubble burst, the correction process was brutal. The price of technology companies dropped by over 70 percent on average, and a significant number of companies went out of business, while others were simply avoided by the investment community. I Tilman Pohlhausen asks a valid question: Did this downturn in valuation lead to some companies being unjustly undervalued, given their past and expected cash flows? If so, he continues, would such companies be suitable for a concept rarely heard of previously for technology companies: a buyout, possibly even financed to a high degree by debt? The idea is not new. In contrast to Europe, a number of well-financed private equity funds in the United States exclusively target the technology sector for buyouts. What is new, however, is that many more technology companies, because of their lower valuation, could become targets of buyout investors in Europe, as well. Ultimately, with his analysis of the buyout attractiveness of European technology companies, the author attempts to estimate the validity of this perception.

List of contents

1 Introduction.- 1.1 Theoretical Formulation.- 1.2 Method and Procedures.- 2 The Market for Leveraged and Management Buyouts.- 2.1 Definitions.- 2.2 History.- 2.2 Value Generation.- 3 The Emergence of Technology Buyouts.- 3.1 Definition of a Technology Company.- 3.1 Investment Rationale.- 3.2 Technology Buyout Investors.- 3.2 Current Trends.- 3.3 Findings and Interpretations.- 4 Overview of Leveraged Buyout Valuation.- 4.1 Weighted Average Cost of Capital Method.- 4.2 Adjusted Present Value Method.- 4.3 Changing Costs of Capital Method.- 4.4 Equity Cash Flow Method and Internal Rate of Return.- 5 Simplified Valuation Model.- 5.1 Inputs.- 5.2 Leverage.- 5.3 Projections.- 5.4 Valuation.- 5.5 Special Cases.- 5.6 Model Limitations.- 6 Adjusting for Technology Risk and Return.- 6.1 Technology Risk.- 6.2 Technology Return.- 6.3 Implications.- 7 European Technology Market Screening.- 7.1 Model Extension.- 7.2 Model Application.- 7.1 Top European Technology Buyout Candidates.- 7.2 Findings and Interpretation.- 7.3 Suggestions for Further Research.- 8 Summary and Conclusion.- References.- List of Appendixes.- Appendix A: Field Description Sheet.- Appendix B: Excel Instructions.

About the author

Tilman E. Pohlhausen ist als Analyst bei JP Morgan in London tätig.

Summary

Foreword The public market valuation of technology companies throughout the 1990s is probably one of the most interesting phenomena in recent financial history. No sector has generated more enthusiasm among investors, and no sector has created more millionaires, albeit mostly on paper. Once the bubble burst, the correction process was brutal. The price of technology companies dropped by over 70 percent on average, and a significant number of companies went out of business, while others were simply avoided by the investment community. I Tilman Pohlhausen asks a valid question: Did this downturn in valuation lead to some companies being unjustly undervalued, given their past and expected cash flows? If so, he continues, would such companies be suitable for a concept rarely heard of previously for technology companies: a buyout, possibly even financed to a high degree by debt? The idea is not new. In contrast to Europe, a number of well-financed private equity funds in the United States exclusively target the technology sector for buyouts. What is new, however, is that many more technology companies, because of their lower valuation, could become targets of buyout investors in Europe, as well. Ultimately, with his analysis of the buyout attractiveness of European technology companies, the author attempts to estimate the validity of this perception.

Additional text

Since 2000, technology companies have experienced dramatic losses in public
market valuation. The question is whether this decline in prices opened
the door for a concept hardly yet applied to this sector: leveraged and
management buyouts. Tilman E. Pohlhausen explains why buyouts of companies
in the technology sector have barely taken place and why this is changing.
He shows how the attractiveness of a buyout target can be estimated, what
makes analyzing technology buyouts different from traditional buyouts,
and why there might be opportunities for private equity investors in the
European technology markets. The author provides a free MS Excel model
on the book's accompanying web-site that allows the screening of major
technology indices using a fully adjustable scoring model to identify potentially
attractive buyout targets.

Product details

• Authors: Tilmann Pohlhausen
• Publisher: Springer, Berlin
• Languages: English
• Product format: Paperback / Softback
• Released: 05.12.2012
• EAN: 9783824477586
• ISBN: 978-3-8244-7758-6
• No. of pages: 108
• Dimensions: 150 mm x 213 mm x 8 mm
• Weight: 200 g
• Illustrations: XVI, 108 p.
• Subjects: Social sciences, law, business > Business > Economics; Management, C, Technology, Finance, Valuation, Private Equity, M&A, Finance, general, Economics and Finance, Buyout, LBO model