A QUESTION FOR CORPORATE FINANCIERS: What is the highest price a client could possibly pay for this deal?
If you work in corporate finance/M&A and have felt excluded from our quant questions, there is an alternative. BPP Professional Education is providing a series of questions related to valuations. You are invited to add your comments below. Extreme acclaim will go to whoever provides the most accurate and comprehensive answer first. We'll post the official answer at 12pm tomorrow (Thursday).
Just before a pitch to a client, your MD is told the client is contemplating an acquisition this year with cash synergy benefits estimated at 10m pa in perpetuity, and a cost of 100m.
The Cost of Capital is 9%. Restructuring costs are paid out in cash over 3 years (equally spaced beginning year zero).
What is the NPV of the deal? What is the highest possible price that the client could pay? What should be the MD's advice to the client? What other factors might be considered that influence the deal?
