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Appendix Valuation Model Schedules
1. The valuation summary should be formatted as a:
a. Football Field (shows valuation ranges of all indications and SPT conclusion)
b. Table (summarizes all methods and weightings, has a concluded range)
1
Valuation Conclusions ($ in millions)
METHODOLOGY IMPLIED VALUATION COMMENTS
DCF (Exit Multiple)
■
■
WACC Range: 13.5% - 14.5%
Terminal Multiple: 9.0x - 10.0x
DCF (Perpetuity Growth)■
■
WACC Range: 13.5% - 14.5%
Perpetuity Growth: 3.0% - 5.0%
FY13 EBITDA Trading
Multiples■
FY13 EBITDA Multiple Range: 12.5x - 14.5x and 12.5%
partial control premium for 50% acquisition
FY14 EBITDA Trading
Multiples■
FY14 EBITDA Multiple Range: 10.5x - 11.5x and 12.5%
partial control premium for 50% acquisition
$13,600
$13,700
$18,900
$17,500
$14,900
$15,900
$24,600
$19,500
$0 $10,000 $20,000 $30,000 $40,000
Enterprise Value
Accepted SPT Offer: $16,000
Weighted Valuation Approach
Methodology Low High Weight
DCF (Exit Multiple) $17,500 $19,500 25%
DCF (Perpetuity Growth) $18,900 $24,600 25%
FY13 EBITDA Trading Multiples $13,700 $15,900 25%
FY14 EBITDA Trading Multiples $13,600 $14,900 25%
Weighted Value $15,925 $18,725 100%
Note: Transaction Comparables and Analyst Averages valuation methods can be shown in the football field when relevant
2
Valuation Summary- Comparable Public Companies Method ($ in millions)
• Example 1 (large cable network, minority value):
• Example 2 (high growth digital company, control value):
Selected Multiples Selected Multiples Analysis Implied
LTM Run RateGSN Digital
Low HighComps
MedianSelected as % of Median Enterprise Value Range
EBITDA $22.2 7.0 x -- 8.0 x 6.4 x 109.2% -- 124.8% $155.2 -- $177.3
CY 13
EBITDA $44.2 3.5 x -- 4.5 x 3.8 x 92.1% -- 118.5% $154.8 -- $199.0
Mean / Median 100.7% -- 121.6% $155.0 -- $188.2
Concluded Enterprise Value Range (Minority Basis) $155.0 -- $188.2
Control Premium 25.0% $38.8 $47.1
Concluded Enterprise Value Range (Control) $193.8 -- $235.3
3
Multiples of Comparable Public Companies
($ in millions)
Comparable Public Companies
Valuation Size
Enterprise Value / 12/4/2012
Revenue EBITDA Enterprise Market LTM
LTM CY'12 CY'13 LTM CY'12 CY'13 Value Capitalization Revenue
Pure Play Networks
AMC Networks Inc. 4.3x 4.4x 4.0x 12.0x 11.2x 10.5x $5,705 $3,733 $1,325
Crown Media Holdings Inc. 3.1x NA NA 7.5x NA NA $1,062 $608 $347
Discovery Communications, Inc. 5.4x 5.3x 4.9x 12.2x 11.4x 10.3x $23,946 $20,360 $4,460
Outdoor Channel Holdings, Inc. 1.7x 1.7x NA 12.5x 9.4x NA $125 $184 $76
Scripps Networks Interactive, Inc. 4.6x 4.5x 4.1x 10.0x 9.8x 8.9x $10,346 $9,002 $2,256
Median 4.3x 4.4x 4.1x 12.0x 10.5x 10.3x $5,705 $3,733 $1,325
Mean 3.8x 3.9x 4.4x 10.8x 10.4x 9.9x $8,237 $6,777 $1,693
Diversified Media
CBS Corporation 1.9x 1.8x 1.7x 8.0x 7.6x 7.1x $27,139 $22,159 $14,602
Walt Disney Co. 2.3x 2.3x 2.1x 9.0x 8.5x 7.7x $97,562 $84,439 $42,278
News Corp. 1.9x 1.8x 1.8x 9.3x 9.1x 8.2x $63,084 $57,473 $33,883
Time Warner Inc. 2.1x 2.0x 2.0x 8.5x 8.6x 8.0x $58,984 $42,296 $28,758
Viacom, Inc. 2.2x NA NA 7.8x 7.9x 7.4x $32,308 $24,778 $14,577
Median 2.1x 1.9x 1.9x 8.5x 8.5x 7.7x $58,984 $42,296 $28,758
Mean 2.1x 2.0x 1.9x 8.5x 8.3x 7.7x $55,816 $46,229 $26,820
Global Median 2.3x 2.2x 2.1x 9.2x 9.1x 8.1x $25,543 $21,260 $9,519
Global Mean 2.9x 3.0x 3.0x 9.7x 9.3x 8.5x $32,026 $26,503 $14,256
Comparative Analysis ($ in millions)
4
Comparative Analysis
Size Size Historical Growth Historical Growth
LTM Revenue Enterprise Value 2 Year CY Revenue 1 Year CY Revenue
Walt Disney Co. $42,278 Walt Disney Co. $97,562 Scripps Networks Interactive, Inc. 23% Viacom, Inc. 23%
News Corp. $33,883 News Corp. $63,084 Discovery Communications, Inc. 11% Crown Media Holdings Inc. 13%
Time Warner Inc. $28,758 Time Warner Inc. $58,984 AMC Networks Inc. 10% Discovery Communications, Inc. 12%
CBS Corporation $14,602 Viacom, Inc. $32,308 Crown Media Holdings Inc. 8% AMC Networks Inc. 10%
Viacom, Inc. $14,577 CBS Corporation $27,139 Time Warner Inc. 7% Scripps Networks Interactive, Inc. 10%
Discovery Communications, Inc. $4,460 Discovery Communications, Inc. $23,946 Walt Disney Co. 6% Time Warner Inc. 8%
Scripps Networks Interactive, Inc. $2,256 Scripps Networks Interactive, Inc. $10,346 News Corp. 5% Walt Disney Co. 5%
Starz $1,640 AMC Networks Inc. $5,705 CBS Corporation 5% News Corp. 3%
AMC Networks Inc. $1,325 Starz $2,900 Starz 2% CBS Corporation 1%
Crown Media Holdings Inc. $347 Crown Media Holdings Inc. $1,062 Viacom, Inc. 0% Starz 1%
Outdoor Channel Holdings, Inc. $76 Outdoor Channel Holdings, Inc. $125 Outdoor Channel Holdings, Inc. NMF Outdoor Channel Holdings, Inc. NMF
Historical Growth Historical Growth Projected Growth Projected Growth
2 Year CY EBITDA 1 Year CY EBITDA 1 Year CY EBITDA 1 Year CY Revenue
CBS Corporation 31% Starz 34% AMC Networks Inc. 19% Scripps Networks Interactive, Inc. 12%
Scripps Networks Interactive, Inc. 28% Viacom, Inc. 33% CBS Corporation 14% AMC Networks Inc. 10%
Starz 27% CBS Corporation 27% Discovery Communications, Inc. 10% Discovery Communications, Inc. 7%
Outdoor Channel Holdings, Inc. 24% Crown Media Holdings Inc. 24% Scripps Networks Interactive, Inc. 9% Walt Disney Co. 6%
Discovery Communications, Inc. 21% Outdoor Channel Holdings, Inc. 21% Walt Disney Co. 8% Outdoor Channel Holdings, Inc. 5%
Crown Media Holdings Inc. 20% Discovery Communications, Inc. 20% News Corp. 7% CBS Corporation 5%
Walt Disney Co. 15% AMC Networks Inc. 15% Starz 5% News Corp. 4%
News Corp. 13% News Corp. 15% Time Warner Inc. 2% Starz 3%
AMC Networks Inc. 12% Scripps Networks Interactive, Inc. 14% Viacom, Inc. 1% Time Warner Inc. 0%
Time Warner Inc. 8% Time Warner Inc. 8% Crown Media Holdings Inc. 0% Crown Media Holdings Inc. 0%
Viacom, Inc. 0% Walt Disney Co. 8% Outdoor Channel Holdings, Inc. 0% Viacom, Inc. NMF
Profitability Profitability Leverage
LTM EBIT / LTM Revenue LTM EBITDA to LTM Revenue Total Debt / Enterprise Value
Discovery Communications, Inc. 42% Scripps Networks Interactive, Inc. 46% Crown Media Holdings Inc. 46%
Scripps Networks Interactive, Inc. 41% Discovery Communications, Inc. 44% AMC Networks Inc. 40%
Crown Media Holdings Inc. 39% Crown Media Holdings Inc. 41% Starz 40%
AMC Networks Inc. 29% AMC Networks Inc. 36% Time Warner Inc. 34%
Viacom, Inc. 27% Viacom, Inc. 29% News Corp. 26%
Starz 25% Starz 27% Viacom, Inc. 25%
Time Warner Inc. 21% Walt Disney Co. 26% Discovery Communications, Inc. 22%
Walt Disney Co. 21% Time Warner Inc. 24% CBS Corporation 22%
CBS Corporation 20% CBS Corporation 23% Walt Disney Co. 15%
News Corp. 17% News Corp. 20% Scripps Networks Interactive, Inc. 13%
Outdoor Channel Holdings, Inc. 9% Outdoor Channel Holdings, Inc. 13% Outdoor Channel Holdings, Inc. 0%
5
CapIQ: Public Comparables Screen
• To screen for public comparables on CapIQ, go to Screening > Companies
• Key parameters to set for your search are geographic location, industry classifications, and company type
• Then click, view results
6
Valuation Summary- Comparable Transaction Method ($ in millions)
Selected Multiples Selected Multiples Analysis Implied
LTM Run Rate Starz Low HighComps
MedianSelected as % of Median Enterprise Value Range
EBITDA $436 7.5 x -- 8.5 x 8.0 x 94.3% -- 106.8% $3,270 -- $3,706
Mean / Median 94.3% -- 106.8% $3,270 -- $3,706
Concluded Enterprise Value Range (Control) $3,300 $3,700
7
Comparable Transactions ($ in millions)
Note: * Indicates that transaction is excluded from range.
(1) CBS paid "a little over $100 million" for 50% stake. Estimated $105 million for 50% stake.
(2) Valuation based on $3.0bn purchase price for Comcast’s 15.8% stake in A&E/Lifetime.
(3) With Scripps synergies, the estimated 2010 EV/EBITDA multiple is 9.75x per Deutsche Bank research report dated 11/8/2009 covering Scripps.
Financial Metrics Subscriber Metrics
Announced Network Summary Description EV Revenue EBITDA
EV/
Revenue
EV/
EBITDA
Subscribers
(mil.)
EV/
Subscriber
Revenue/
Subscriber
EBITDA/
Subscriber
RECENT TRANSACTIONS (2009-2012)
03/27/13 TV Guide Network1 Offers entertainment and television guidance-related programming. $210.0 $82.0 $11.0 2.56x 19.1x * 80.0 $2.63 $1.03 $0.14
03/04/13 Outdoor Channel Cable television network offering traditional outdoor related lifestyle programming. $168.2 $77.3 $12.6 2.18x 13.3x 38.1 $4.42 $2.03 $0.33
01/02/13 Current TV Television and online network of news and political programming. $500.0 $108.4 $24.0 4.61x * 20.8x * 58.2 $8.59 $1.86 $0.41
11/05/09 Travel Channel2 Cable television network offering shows related to travel and leisure. $975.0 $193.3 $77.8 5.04x 12.5x 95.0 $10.26 $2.03 $0.82
04/09/09 GSN Television network for games including casino and game show series. $600.0 $139.7 $47.9 4.30x 12.5x 67.2 $8.93 $2.08 $0.71
01/27/09 TV Games ("TVG") Networks Sports television TV network dedicated to horse racing. $50.7 $38.2 NA 1.33x * NA 29.3 $1.73 $1.30 NA
01/05/09 TV Guide Network3 Offers entertainment and television guidance-related programming. $250.0 $103.0 $24.8 2.43x 10.1x 72.4 $3.45 $1.42 $0.34
OLDER TRANSACTIONS (2000-2008)
0 - 30 Million Subscribers
05/04/08 Sundance Channel Network offering films, documentaries, and original programs. $496.0 $90.5 $34.1 5.48x 14.5x 30.0 $16.53 $3.02 $1.14
06/01/07 The Sportsman Channel Operates a television channel and provides hunting and fishing programs. $31.1 NA NA NA NA 6.7 $4.64 NA NA
11/01/05 CSTV Digital sports media company in the United States. $324.9 $39.4 NA 8.25x NA 14.7 $22.10 $2.68 NA
05/01/04 News World International Cable television news channel that broadcasts in the U.S. $70.0 $19.0 NA 3.68x * NA 17.0 $4.12 $1.12 NA
04/20/04 Outdoor Channel Cable channel that broadcasts outdoor related lifestyle programming. $303.0 $31.7 $8.5 9.56x 35.6x * 26.0 $11.65 $1.22 $0.33
08/20/02 Noggin Educational network for preschoolers. $203.0 $25.6 NA 7.93x NA 28.0 $7.25 $0.91 NA
04/01/02 Discovery Civilization Cable channel offering fresh perspectives on history and current events $200.0 NA NA NA NA 14.0 $14.29 NA NA
09/05/01 Health Network The Health Network is a 24-hour health related cable channel. $255.0 $9.1 NA 28.02x * NA 24.5 $10.41 $0.37 NA
07/01/01 BET on Jazz Features a broad variety of jazz productions, films, and docs. $63.0 $6.8 NA 9.26x NA 8.6 $7.33 $0.79 NA
02/01/01 GSN: The Game Show Network Provides live participation shows, game shows, reality series etc. $552.0 $72.9 NA 7.57x NA 33.0 $16.73 $2.21 NA
30 - 60 Million Subscribers
10/12/04 Great American Country Owns and operates a country music video network. $140.0 $12.0 NA 11.67x NA 36.7 $3.81 $0.33 NA
03/25/04 TechTV Cable channel covering technology information, news and ent. $288.0 NA NA NA NA 44.0 $6.55 NA NA
12/01/03 Golf Channel Provides golf entertainment, information and services. $1,162.8 NA $80.3 NA 14.5x 58.4 $19.91 NA $1.38
03/01/02 Game Show Network Owns and operates television network for games in the United States. $932.8 $72.9 NA 12.80x NA 42.4 $22.00 $1.72 NA
11/04/02 Bravo Cable television network with a focus on food and lifestyle. $1,250.0 $152.0 $56.8 8.22x 22.0x 56.0 $22.32 $2.71 $1.01
10/01/01 Outdoor Life Offers programming in outdoor adventure, action sports etc. $650.0 $64.0 NA 10.16x NA 39.0 $16.67 $1.64 NA
10/01/01 Speedvision Cable network devoted to cars, boats, airplanes and motorcycles enthusiasts. $751.0 NA NA NA NA 45.6 $16.47 NA NA
05/22/01 The Golf Channel Provides golf entertainment, information and services. $1,181.2 $109.4 NA 10.80x NA 34.5 $34.24 $3.17 NA
05/01/01 Speedvision Cable network devoted to cars, boats, airplanes and motorcycles enthusiasts. $750.4 $103.6 NA 7.24x NA 40.3 $18.62 $2.57 NA
05/01/01 Outdoor Life Offers programming in outdoor adventure, action sports etc. $615.4 NA NA NA NA 36.0 $17.09 NA NA
60+ Million Subscribers
07/06/08 Weather Channel Produces national, regional, and local weather-related video programs. $3,500.0 $550.0 $294.0 6.36x 11.9x 96.0 $36.46 $5.73 $3.06
10/01/07 Oxygen Cable television network targeting younger women. $925.0 NA $61.2 NA 15.1x 74.0 $12.50 NA $0.83
05/01/07 Travel Channel Cable television network offering shows related to travel and leisure. $684.0 NA $71.4 NA 9.6x 88.0 $7.77 NA $0.81
05/01/06 CourtTV Cable channel offering info on the American system of justice. $1,394.0 NA $83.4 NA 16.7x 85.4 $16.32 NA $0.98
07/04/04 E!, Style, International Channel Programming dedicated to fashion, design, interior decoration, and trends. $3,113.9 $437.0 NA 7.13x NA 133.3 $23.36 $3.28 NA
10/08/03 USA, SCI FI, Trio Operates television networks in the United States. $7,275.0 $1,305.8 NA 5.57x NA 191.2 $38.05 $6.83 NA
07/03/03 QVC Operates as an e-retailer of jewelry, home style, beauty products in the U.S. $14,000.0 $4,381.0 $858.0 3.20x * 16.3x 130.3 $107.44 * $33.62 * $6.58
06/30/03 AMC, IFC, WE National cable television networks. Film, independent and women. $2,500.0 $397.0 $160.0 6.30x 15.6x 162.6 $15.38 $2.44 $0.98
04/22/03 Comedy Central Provides cable television and Internet programming services. $2,450.0 $340.0 $87.0 7.21x 28.2x * 81.8 $29.95 $4.16 $1.06
07/23/01 Fox Family Worldwide Consists of Fox Family Channel and the Fox Kids Network. $3,714.0 $724.2 $197.9 5.13x 18.8x 109.2 $34.01 $6.63 $1.81
02/01/01 AMC, Bravo, IFC, & WE National cable television networks. $3,976.0 $360.0 $123.0 11.04x 32.3x * 151.0 $26.33 $2.38 $0.81
11/03/00 BET Television network in the U.S. primarily serving African American viewers. $2,627.0 $218.0 $128.0 12.05x 20.5x 62.4 $42.10 $3.49 $2.05
05/01/00 TNN and CMT Operates a cable network designed to cater to a young adult demographic. $3,118.0 $413.0 NA 7.55x NA 114.6 $27.21 $3.60 NA
01/18/00 TV Guide and Sneak Preview Serves as a global media company focusing on consumer entertainment. $1,540.0 $74.9 NA 20.56x * NA 88.2 $17.46 $0.85 NA
8
Comparable Transactions (cont.) ($ in millions)
Sources: Kagan, UBS estimates, Bear Stearns estimates, A.G. Edwards estimates, JP Morgan estimates, Capital IQ and various news articles.
Financial Metrics Subscriber Metrics
EV Revenue EBITDA
EV/
Revenue
EV/
EBITDA
Subscribers
(mil.)
EV/
Subscriber
Revenue/
Subscriber
EBITDA/
Subscriber
RECENT TRANSACTIONS (2009-2012)
Low $50.7 $38.2 $11.0 2.18x 10.1x 29.3 $1.73 $1.30 $0.33
High $975.0 $193.3 $77.8 5.04x 13.3x 95.0 $10.26 $2.08 $0.82
Median $250.0 $103.0 $24.4 2.56x 12.5x 67.2 $4.42 $1.86 $0.34
Mean $393.4 $106.0 $33.0 3.30x 12.1x 62.9 $5.72 $1.68 $0.47
OLDER TRANSACTIONS (2000-2008)
Low $31.1 $6.8 $8.5 5.13x 9.6x 6.7 $3.81 $0.33 $0.33
High $14,000.0 $4,381.0 $858.0 12.80x 22.0x 191.2 $42.10 $6.83 $6.58
Median $838.0 $103.6 $85.2 7.93x 15.6x 44.8 $16.73 $2.51 $1.04
Mean $1,795.2 $400.4 $160.3 8.44x 16.0x 64.8 $18.78 $2.66 $1.63
9
CapIQ: Transactions Comparables Screen
• To Screen for transaction on CapIQ, go to Screening > Transactions
• Key parameters to set for your search are geographic location, industry classifications, transaction type, M&A announced date, target
revenue, and total transaction value
• Then click, view results
• Key data columns include Announced Date, Buyer, Seller, Transaction Value, EV/Revenue, EV/EBITDA, etc.
10
Discounted Cash Flow Method ($ in millions)
Discounted Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
2012E 2013E 2014E 2015E 2016E 2017E
Free Cash Flow:
EBIT $482 $450 $474 $498 $506 $479
Less: Taxes ($193) ($180) ($190) ($199) ($202) ($192)
Unlevered Cash Flows $289 $270 $284 $299 $304 $288
Less: Change in Working Capital (91) (96) (101) (106) (108) (102)
Less: Capital Expenditures (27) (29) (30) (32) (32) (31)
Plus: Depreciation and Amortization 27 29 30 32 32 31
Net Unlevered Cash Flows $198 $174 $184 $193 $196 $186
Discount Period 0.5 1.5 2.5 3.5 4.5 5.5
Discount Factor @ 12.2% 94% 84% 75% 67% 60% 53%
Present Value of Net Unlevered Cash Flows $187 $146 $138 $129 $117 $99
Terminal Value Method
NPV of Cash Flows $815 NPV
Terminal Year EBITDA (FY2017E) $510 Terminal Exit Multiple
Terminal Multiple 6.0x $2,349 4.0x 5.0x 6.0x 7.0x 8.0x
Terminal Value $3,059 11.2% $1,914 $2,183 $2,453 $2,723 $2,992
Present Value of Terminal Value $1,533 11.7% 1,875 2,138 2,400 2,662 2,925
% of Enterprise Value 65.3% 12.2% 1,837 2,093 2,349 2,604 2,860
Enterprise Value $2,349 12.7% 1,801 2,050 2,299 2,547 2,796
Implied EV as a Multiple of 2012E EBITDA 5.2x 13.2% 1,765 2,008 2,250 2,492 2,735
Implied EV as a Multiple of 2013E EBITDA 4.9x
Implied Perpetuity Growth Rate 5.8% EV Range $2,000 -- $2,700
Perpetuity Growth Method
NPV of Cash Flows $815 NPV
FCF (FY 2016E) $186 Perpetuity Growth Rate
Perpetuity Growth Rate 3.0% $1,918 2.0% 2.5% 3.0% 3.5% 4.0%
Terminal Value $2,077 11.2% $1,982 $2,054 $2,135 $2,226 $2,330
Present Value of Terminal Value $1,103 11.7% 1,887 1,950 2,020 2,099 2,189
% of Enterprise Value 57.5% 12.2% 1,800 1,856 1,918 1,987 2,065
Enterprise Value $1,918 12.7% 1,722 1,772 1,827 1,887 1,955
Implied EV as a Multiple of 2012E EBITDA 4.0x 13.2% 1,651 1,695 1,744 1,797 1,857
Implied EV as a Multiple of 2013E EBITDA 3.8x
Implied Terminal EBIT Multiple 4.1x EV Range $1,800 -- $2,100
Dis
count R
ate
Dis
count R
ate
11
Comparable Company WACC Analysis – Domestic ($ in millions)
Comparable Company WACC Analysis
Company
Headquarter
Country Debt
Preferred
Stock
Equity Market
Value
Total
Capitalization
Debt to Equity
Market Value
Debt to Total
Capitalization
Preferred Stock to
Total
Capitalization
Equity Market
Value to Total
Capitalization
Scripps Networks Interactive, Inc. United States 1,384.3 0.0 10,129.1 11,513.4 12.0% 12.0% 0.0% 88.0%
CBS Corporation United States 6,467.0 0.0 30,085.6 36,552.6 17.7% 17.7% 0.0% 82.3%
The Walt Disney Company United States 17,457.0 0.0 115,331.3 132,788.3 13.1% 13.1% 0.0% 86.9%
News Corp. United States 16,457.0 0.0 74,058.5 90,515.5 18.2% 18.2% 0.0% 81.8%
Time Warner Inc. United States 19,441.0 0.0 55,746.8 75,187.8 25.9% 25.9% 0.0% 74.1%
Viacom, Inc. United States 8,933.0 0.0 32,893.2 41,826.2 21.4% 21.4% 0.0% 78.6%
Median $12,695.0 $0.0 $44,320.0 $58,507.0 17.9% 17.9% 0.0% 82.1%
Mean $11,689.9 $0.0 $53,040.7 $64,730.6 18.0% 18.0% 0.0% 82.0%
Company
Risk Free
Rate Levered Beta
Unlevered
Beta
Equity Risk
Premium
Size
Premium
Cost of
Equity
Cost of
Debt WACC
Scripps Networks Interactive, Inc. 2.4% 1.11 1.04 6.6% 0.8% 10.6% 3.7% 9.6%
CBS Corporation 2.4% 2.26 2.05 6.6% (0.4%) 17.0% 6.2% 14.7%
The Walt Disney Company 2.4% 1.21 1.12 6.6% (0.4%) 10.1% 2.8% 9.0%
News Corp. 2.4% 1.53 1.38 6.6% (0.4%) 12.2% 6.6% 10.7%
Time Warner Inc. 2.4% 1.17 1.01 6.6% (0.4%) 9.8% 6.8% 8.3%
Viacom, Inc. 2.4% 1.28 1.13 6.6% (0.4%) 10.5% 5.2% 8.9%
Median 2.4% 1.25 1.13 6.6% (0.4%) 10.5% 5.7% 9.3%
Mean 2.4% 1.43 1.29 6.6% (0.2%) 11.7% 5.2% 10.2%
WACC Inputs
Unlevered Beta (Βu) 1.29 Peer group average
Calculated Levered Beta (Βu) 1.43 Calculated Levered Beta = Industry Adjusted Average Unlevered Beta * (1+[(1-Tax Rate) * Target Total Debt / Equity Value])
Market Premium (Rm-Rf) 6.6% Based on simple differences of historical large company stock total returns and government bond income returns
Equity Size Premium (Rs) 1.7% Size premium for companies with equity values in the 5th decile from Ibbotson
Country Risk Premium 0.0% Company's primary revenue is derived from the US
Company Specific Premium 0.0% SPE Team Risk Adjustment
Risk-Free Rate (Rf) 2.4% Based on 20-year Treasury Bond as of 5/2/2013
Pre-Tax Cost of Debt (Rd) 5.7% Median based on comparable companies analysis
Assumed Marginal Corporate Tax Rate (T) 40.0% Damodaran
Equity as a Percentage of Total Capital 80.0% Target % based on comparable companies analysis
Debt as a Percentage of Total Capital 20.0% Target % based on comparable companies analysis
Target Total Debt / Equity Value 18.0% Peer group average
Calculation of WACC:
Cost of Equity (CAPM) Ke = (Levered Beta * Market Premium) + Size Premium + Risk Free Rate
Ke = (1.43 * 6.6%) + 1.7% + 2.4% + 0.0%
Ke = 13.6%
Cost of Debt Kd = Pre-tax Cost of Debt * (1-Tax Rate)
Kd = 5.7% * (1 - 40.0%)
Kd = 3.4%
Calculated WACC WACC = 11.6% % of Debt to Total Capital * Tax Effected Cost of Debt (Kd) + % Equity to Total Capital * Cost of Equity (Ke)
Selected WACC Range 11.0% --- 12.0%
12
Comparable Company WACC Analysis – International ($ in millions)
Comparable Company WACC Analysis
Company
Headquarter
Country Debt
Preferred
Stock
Equity Market
Value
Total
Capitalization
Debt to Equity
Market Value
Debt to Total
Capitalization
Preferred Stock to
Total
Capitalization
Equity Market
Value to Total
Capitalization
Mediaset España Comunicación, SA Spain $0.3 $0.0 $3,143.5 $3,143.8 0.0% 0.0% 0.0% 100.0%
Societe d'Edition de Canal Plus S.A. France 6.6 0.0 887.0 893.6 0.7% 0.7% 0.0% 99.3%
Sun TV Network Ltd India 0.0 0.0 3,143.7 3,143.7 0.0% 0.0% 0.0% 100.0%
Grupo Televisa, S.A.B. Mexico 4,639.6 0.0 14,387.3 19,026.9 32.2% 24.4% 0.0% 75.6%
ITV plc United Kingdom 1,118.2 0.0 7,503.3 8,621.5 14.9% 13.0% 0.0% 87.0%
Naspers Ltd. South Africa 2,908.7 0.0 25,790.5 28,699.2 11.3% 10.1% 0.0% 89.9%
ProSiebenSat.1 Media AG Germany 3,522.8 0.0 8,294.8 11,817.6 42.5% 29.8% 0.0% 70.2%
RTL Group SA Luxembourg 38.2 0.0 10,934.5 10,972.7 0.3% 0.3% 0.0% 99.7%
Viacom, Inc. United States 8,933.0 0.0 32,099.6 41,032.6 27.8% 21.8% 0.0% 78.2%
Median $1,118.2 $0.0 $7,503.3 $8,621.5 13.1% 13.0% 0.0% 87.0%
Mean $3,364.5 $0.0 $13,664.9 $17,029.5 16.0% 14.5% 0.0% 85.5%
Company
Risk Free
Rate Levered Beta
Unlevered
Beta
Equity Risk
Premium
Size
Premium
Cost of
Equity
Cost of
Debt
Mediaset España Comunicación, SA 2.4% 1.22 1.22 6.6% 1.2% 11.7% 28.1% 0.0%
Societe d'Edition de Canal Plus S.A. 2.4% 0.49 0.49 6.6% 1.8% 7.4% 22.2% 0.0%
Sun TV Network Ltd 2.4% 1.37 1.37 6.6% 1.2% 12.7% NA 0.0%
Grupo Televisa, S.A.B. 2.4% 1.05 0.86 6.6% 0.8% 10.2% 7.8% 0.0%
ITV plc 2.4% 1.06 0.95 6.6% 0.8% 10.2% 8.3% 0.0%
Naspers Ltd. 2.4% 0.48 0.44 6.6% (0.4%) 5.2% 6.6% 0.0%
ProSiebenSat.1 Media AG 2.4% 1.40 1.07 6.6% 0.8% 12.5% 6.1% 0.0%
RTL Group SA 2.4% 0.60 0.60 6.6% 0.8% 7.2% 26.8% 0.0%
Viacom, Inc. 2.4% 1.05 0.88 6.6% (0.4%) 9.0% 5.2% 0.0%
Median 2.4% 1.05 0.86 6.6% 0.9% 9.6% 7.8% 0.0%
Mean 2.4% 1.10 0.91 6.6% 0.8% 10.6% 11.2% 0.0%
WACC Inputs
Unlevered Beta (Βu) 0.91 Peer group average
Calculated Levered Beta (Βu) 1.01 Calculated Levered Beta = Industry Adjusted Average Unlevered Beta * (1+[(1-Tax Rate) * Target Total Debt / Equity Value])
Market Premium (Rm-Rf) 6.6% Based on simple differences of historical large company stock total returns and government bond income returns
Equity Size Premium (Rs) 4.3% Size premium for companies with equity values in the 10th decile from Ibbotson
Country Risk Premium 1.5% Country Risk Adjustment - based on exposure to African countries
Company Specific Premium 2.0% SPE Team Risk Adjustment
Risk-Free Rate (Rf) 2.4% Based on 20-year European Central Bank Bond as of 5/2/2013
Pre-Tax Cost of Debt (Rd) 7.8% Median based on comparable companies analysis
Assumed Marginal Corporate Tax Rate (T) 33.3% Peer group average
Equity as a Percentage of Total Capital 85.5% Target % based on comparable companies analysis
Debt as a Percentage of Total Capital 14.5% Target % based on comparable companies analysis
Target Total Debt / Equity Value 16.0% Peer group average
Calculation of WACC:
Cost of Equity (CAPM) Ke = (Levered Beta * Market Premium) + Size Premium + Risk Free Rate
Ke = (1.01 * 6.6%) + 4.3% + 2.4% + 1.5%
Ke = 17.0%
Cost of Debt Kd = Pre-tax Cost of Debt * (1-Tax Rate)
Kd = 7.8% * (1 - 33.3%)
Kd = 5.2%
WACC WACC = 15.3% % of Debt to Total Capital * Tax Effected Cost of Debt (Kd) + % Equity to Total Capital * Cost of Equity (Ke)
Selected WACC Range 14.5% --- 16.5%
13
WACC: Capital Structure
• Indicates the percentage of total capitalization attributable to debt and equity
• Choose an “industry” market capital structure based on the mean/median of the comparable companies
• Capital structures for specific industries can also be obtained from Ibbotson
• If you believe the subject company can not be leveraged at the current point (no meaningful earnings, assets, etc.), you can use 100%
equity capital structure
• You can also use the current company capital structure for minority valuations (assuming no change of control, capital structure
continues to remain as is)
Industry Name Number of Firms Average Beta Market D/E Ratio Tax Rate Unlevered Beta Cash/Firm Value Unlevered Beta corrected for cash
Advertising 32 1.68 40.84% 16.02% 1.25 13.12% 1.44
Aerospace/Defense 66 0.98 26.64% 20.08% 0.81 11.74% 0.92
Air Transport 36 1.03 59.08% 21.35% 0.7 14.13% 0.82
Apparel 54 1.36 13.77% 18.57% 1.23 5.13% 1.29
Auto Parts 54 1.76 24.37% 18.77% 1.47 11.65% 1.66
Automotive 12 1.73 103.42% 16.24% 0.93 16.84% 1.11
Bank 416 0.77 128.23% 16.39% 0.37 16.43% 0.45
Bank (Midwest) 68 0.89 49.85% 20.99% 0.64 15.03% 0.76
Beverage 35 0.95 22.29% 18.82% 0.8 4.33% 0.84
Biotechnology 214 1.23 15.92% 2.98% 1.07 18.10% 1.3
Building Materials 43 1.57 65.24% 9.48% 0.99 6.18% 1.05
Cable TV 20 1.4 66.11% 21.23% 0.92 3.61% 0.96
Chemical (Basic) 18 1.37 24.73% 21.89% 1.15 7.52% 1.24
Chemical (Diversified) 33 1.55 16.69% 19.75% 1.37 6.96% 1.47
14
WACC: Beta
• Use betas of comparable companies mean/median
• Use each public comparable company’s actual cap structure when unlevering the betas. Relever the mean or median of the comparables
using the target company’s capital structure
• Exclude outliers (too low or high betas/do not use companies that are under financial distress)
• If there are no public company comparables available to calculate beta, use an Asset beta for an industry from Damodaran’s website
- Go to: http://pages.stern.nyu.edu/~adamodar/ and click Updated Data > Levered and Unlevered Betas by Industry
15
WACC: Tax Rate
• Use the latest country marginal tax rate when calculating WACC for the target from Damodaran’s website. If revenue comes from more
than one country, weight the marginal tax rate by each country’s revenue
• Go to: http://pages.stern.nyu.edu/~adamodar/ and click Updated Data > Marginal tax rate by country
Source: KPMG
Data: As of January 5, 2013
Country 2005 2006 2007 2008 2009 2010 2011 2012
Afghanistan 0.00% 0.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%
Albania 23.00% 20.00% 20.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Angola 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00%
Argentina 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00%
Armenia 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%
Aruba 35.00% 35.00% 28.00% 28.00% 28.00% 28.00% 28.00% 28.00%
Australia 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%
Austria 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00%
16
WACC: Equity Risk Premium and Size Premium
• Use this Equity Risk Premium
Source: Ibbotson
• Market Capitalization range for
each decile
• Deciles based on high end of
range
17
WACC: Country Premium
• If the public company comparables are in the same country as the target, then you do not need to include a country premium since the
public company comparables capture the country risk premium
• If the target is located outside the U.S., and the public comparables are U.S. companies, use the target’s country premium from
Damodaran’s website. If revenue comes from more than one country, weight the country premium by each country’s revenue to come
with an estimate
• Go to: http://pages.stern.nyu.edu/~adamodar/ and click Updated Data > Risk Premiums for Other Markets
Country Region Local Currency Rating Rating-based Default Spread Total Equity Risk Premium Country Risk Premium
Albania Eastern Europe & Russia B1 4.00% 11.80% 6.00%
Angola Africa Ba3 3.25% 10.68% 4.88%
Argentina Central and South America B3 6.00% 14.80% 9.00%
Armenia Eastern Europe & Russia Ba2 2.75% 9.93% 4.13%
Australia Australia & New Zealand Aaa 0.00% 5.80% 0.00%
Austria Western Europe Aaa 0.00% 5.80% 0.00%
Azerbaijan Eastern Europe & Russia Baa3 2.00% 8.80% 3.00%
Bahamas Caribbean Baa1 1.50% 8.05% 2.25%
Bahrain Middle East Baa1 1.50% 8.05% 2.25%
Bangladesh Asia Ba3 3.25% 10.68% 4.88%
Barbados Caribbean Baa3 2.00% 8.80% 3.00%
Belarus Eastern Europe & Russia B3 6.00% 14.80% 9.00%
Belgium Western Europe Aa3 0.70% 6.85% 1.05%
Belize Central and South America Caa3 10.00% 20.80% 15.00%
WACC: Company Specific Risk Premium
18
• You can add a company-specific equity risk premium if you believe that there are factors (other than size) that may make the subject
company riskier than that of the comparables used to calculate the WACC. Factors can include:
- Key man risk
- Customer concentration
- Litigation risk
- Unproven business model (unproven sources of revenue or expense cuts)
- Projections/growth seems high in light of historical results
19
WACC: Cost of Debt
For the cost of debt, SPT Biz Dev recommends using the following approaches (in priority order):
1. If the public company comparables have debt, take the mean or median of their cost of debt. Exclude outlier/unreasonable
cost of debt. Also exclude convertible debt
2. If you believe that the target is an investment grade company, use Moody’s Baa pricing found on
http://www.federalreserve.gov/releases/h15/current/
3. If there are no public comparables, look at Damodaran's website for an industry cost of debt. Updated Data > Levered and
Unlevered Betas by Industry. Look for D/E ratios
4. Compare financial and operational ratios to rated debt securities to determine implied ratings. S&P has Leveraged
Commentary & Data or you can find these statistics on CapIQ
5. Use Ibbotson SBBI Valuation Yearbook to benchmark credit statistics to imply a credit rating
20
Venture Capital Return Studies
• Start-up investments typically are made
in enterprises that are less than a year
old. The venture funding is to be used
substantially for product development,
prototype testing, and test marketing.
• First Stage or Early Development
investments are made in enterprises that
have developed prototypes that appear
viable and for which further technical
risk is deemed minimal, although
commercial risk may be significant.
• Second Stage or Expansion enterprises
usually have shipped some product to
consumers (including beta versions).
• Bridge / IPO financing covers such
activities as pilot plant construction,
production design, and production
testing, as well as bridge financing in
anticipation of a later IPO
Stage 5-Year IRR 10-Year IRR 20-Year IRR
Seed/Early Stage 51.4% 34.9% 20.4%
Balanced 20.9% 20.9% 14.3%
Late Stage 10.6% 21.6% 15.3%
All ventures 28.3% 26.3% 16.6%
Source: AICPA - Valuation of Privately-Held-Company Equity Securities Issued as Compensation (2004).
Stage IRR
Early Stage > 45.0%
Expansion > 35.0%
Acquisition / Buyout > 35.0%
Source: Determinants of Required Return in Venture Capital Investments by Sophie Manigart and Karen De Warle.
Stage IRR
Seed Stage 70.0%
Startup 55.0%
3rd Stage 43.0%
4th Stage 37.0%
Exit Stage 35.0%
Source: A Portfolio Model for Venture Capital Performance Measurement and Investment Selection by Terry Dornay.
Stage IRR
Early Stage 50.0%
Source: Private Capital In the Pacific Northwest by William S. Hannonan.
Stage IRR
Seed 60.0%
Start-Up 50.0%
Early-Stage 40.0%
2nd Stage 30.0%
Near Exit 25.0%
Source: From the Mind of the Investor presented at the UNC Pembroke Entrepreneurial Summit, March 12, 2009.
Stage
Plummer Study
Start-up 50.0% to 70.0%
First Stage or "Early Development" 40.0% to 60.0%
Second Stage or "Expansion" 35.0% to 50.0%
Bridge / IPO Stage 25.0% to 35.0%
Source: AICPA - Valuation of Privately-Held-Company Equity Securities Issued as Compensation (2004).
Illustrative Cost of Capital Range 30.0% --
30.0% to 50.0%
20.0% to 35.0%
40.0%
IRR Range
Scherlis &Sahlman Study
50.0% to 70.0%
40.0% to 60.0%
←Select a range