Valuing ESOP Shares

1
Valuing ESOP Shares
DUFF PHELPS, LLC

• Presented by
• Lee Bloom

18th Annual Ohio Employee Ownership Conference
Akron, OH April 16, 2004
2
Overview of Valuation Components
Enterprise Value
Add Cash and Non-Operating Assets
Less Debt and Contingent Liabilities
Aggregate Equity Value
Divide by Shares -gt Price per Share
3
Value Components
Debt

Equity
4
Valuation Basis
130
Control Value
100
Marketable Minority Interest Value
65
Non-Marketable Minority Interest Value
5
Determining the Value
Valuation Conclusion
6
Assess Valuation Methods
Apply Valuation Methods
5
4
Analyze Historical Performance
1
3
2
Project Future Performance
Analyze the Industry
6
Valuation Methodologies

• Comparable Companies
• Discounted Cash Flow
• Comparable Transactions
• Asset Values
• Liquidation
• Final Analysis - Judgment

7
Comparable Company Analysis

• Valuation based on comparison to publicly traded
  companies
• Analysis of financial performance and qualitative
  characteristics
• Selection of trading multiples
• No company will be exactly similar

8
Typical Valuation Multiples

• Equity Multiples
• Price / Earnings (P/E)
• Price / Book Value
• Enterprise Multiples
• Enterprise Value / EBITDA
• Enterprise Value / EBIT
• Enterprise Value / Revenues

9
Risk Factors

• Relative Size
• Breadth of Customer Base
• Diversity of Product Offering
• Diversity of Geographic Footprint
• Leverage

10
Growth Factors

• Industry Outlook
• Reinvestment Requirements
• Acquisition Strategy
• New Products
• Leverage

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Discounted Cash Flow Analysis

• Project future cash flow generated by the company
• Discount cash flows to the present at an
  appropriate discount rate
• DCF analysis captures company specific
  assumptions, making it a very robust analysis

12
Project Future Performance

• Revenue growth
• Operating margins
• Working capital needs
• Capital assets needs
• Risk adjusted discount factor

13
Typical Valuation Timetable
Week
Valuation Activity
0 to 1
1 to 3
3 to 4
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DUFF PHELPS, LLC

• Lee S. Bloom
• Managing Director
• DUFF PHELPS, LLC
• 311 S. Wacker Drive, Suite 4200
• Chicago, IL 60606
• [phone]
• Lee.Bloom_at_duffllc.com
• www.duffllc.com