This case covers the initial public offering (IPO) of the Siemens AG subsidiary Healthineers. The case offers the opportunity to discuss IPOs and to value the company. In contrast to "Healthineers: A Strategic IPO" (UV7866), which provides some base case valuation analysis, this version of the case is designed to be used when a primary teaching objective is to have students perform more of the analysis. The material is set in 2018, when CEO Joe Kaeser and the management board of Siemens planned an IPO of its Healthineers subsidiary to support the company's continued success and spur entrepreneurial independence. The IPO would position Healthineers to compete successfully in the global health care market, which was quite different from other sectors in which Siemens, a global technology conglomerate, operated. While Siemens would maintain a substantial equity interest, Healthineers would become a separate public company with increased flexibility and autonomy. In the immediate term, the management team was especially interested in what value financial markets would place on Healthineers once it was a public company.
This case covers the initial public offering (IPO) of the Siemens subsidiary Healthineers. The March 2018 offering of the health care technology firm was heavily anticipated on the Frankfurt Stock Exchange, and was Germany's largest IPO in more than 20 years. Healthineers was one of Siemens' most successful businesses, and its management board had a keen interest in its long-term success and in the valuation that financial markets would place on the company. The case allows students to learn about the IPO process, understand Siemens' strategic rationale, and estimate the value of Healthineers.
This case, intended for MBA and executive education audiences, investigates whether an LLC should invest in a real estate deal. The materials provide a straightforward opportunity for applying discounted-cash-flow methods from the perspective of equity investors in the LLC. The investors know the terms of interest and principal payments on planned debt financing and have made forecasts of rental rates, occupancy, depreciation, future sale price, various expenses, and other items related to the property. The case can be used as an introduction to estimation and analysis of cash flows to the suppliers of equity. The setting provides opportunities for discussion of tax issues and risks.
This note provides an example of the equity residual valuation method to a company. The note can be used to accompany cases on private equity acquisitions or other levered transactions. It provides a simple fact set to focus on the essentials of the method.
Lonestar Graphite is a potential purchase for a middle-market private equity firm. The private equity firm must decide what to offer for an equity position in Lonestar, based on both the underlying operations of the firm and the availability of other sources of funds (largely debt) to finance a transaction. Opportunities for analysis include application of a number of valuation techniques including variations of discounted cash flow models and multiples.
Lonestar Graphite is a potential purchase for a middle-market private equity firm. The private equity firm must decide what to offer for an equity position in Lonestar, based on both the underlying operations of the firm and the availability of other sources of funds (largely debt) to finance a transaction. Opportunities for analysis include application of a number of valuation techniques including variations of discounted cash flow models and multiples.
Alice Handy, an investment professional with 30 years' experience as head of the University of Virginia Investment Management Company, has opened a new asset management firm targeted at midsize endowments and nonprofit institutions in January 2004. Her business, Investure, LLC, offered outsourced investment services to institutions with $150 million to $1 billion in assets and access to top-performing managers at lower cost than a fund of funds (FoF). Smith College, a prestigious liberal arts college with a nearly $1 billion endowment, is interested in increasing its current allocation to private equity. Handy and her partner are preparing to meet with Smith's trustees in an attempt to win Smith College as Investure's first client. The case presents three different approaches to private equity investing: direct investment through a traditional limited partnership, investment through an FoF, or investment through Investure's outsourced model. The class discussion presents an opportunity to evaluate advantages and shortcomings of each approach, introduce key terminology, and discuss the current trends in the private equity market. Students are given the cash inflows and outflows for a representative investment in a venture capital fund of the type Handy hopes to invest in on behalf of Smith College. The main analytical task requires students to evaluate the expected gross and net returns generated by the representative investment under each of the different approaches and fee structures.
Alice Handy, an investment professional with 30 years' experience as head of the University of Virginia Investment Management Company, has opened a new asset management firm targeted at midsize endowments and nonprofit institutions in January 2004. Her business, Investure, LLC, offered outsourced investment services to institutions with $150 million to $1 billion in assets and access to top-performing managers at lower cost than a fund of funds (FoF). Smith College, a prestigious liberal arts college with a nearly $1 billion endowment, is interested in increasing its current allocation to private equity. Handy and her partner are preparing to meet with Smith's trustees in an attempt to win Smith College as Investure's first client. The case presents three different approaches to private equity investing: direct investment through a traditional limited partnership, investment through an FoF, or investment through Investure's outsourced model. The class discussion presents an opportunity to evaluate advantages and shortcomings of each approach, introduce key terminology, and discuss the current trends in the private equity market. Students are given the cash inflows and outflows for a representative investment in a venture capital fund of the type Handy hopes to invest in on behalf of Smith College. The main analytical task requires students to evaluate the expected gross and net returns generated by the representative investment under each of the different approaches and fee structures. This case was written for an early class in courses on entrepreneurial finance, venture capital, or private equity. It can also be used in specialized courses for fund trustees interested in alternative assets.
This technical note provides an overview of a valuation network: multiples, options pricing, specific-asset valuation, and present value. The strengths and philosophies of each approach are discussed in the context of valuing companies. Variations of present-value approaches are also discussed. The purpose of the note is to furnish a conceptual overview rather than to go through the mechanics.
Using examples from financial markets, this note examines links among market prices, stated interest rates, and compounding assumptions. The note emphasizes how interest rates are expressions of market prices, and pays particular attention to the role of compounding assumptions. Market prices are converted into stated interest rates for different compounding assumptions. Guidance is offered on how to make intelligent comparisons across markets that use different compounding conventions. The note is useful as background for the study of a wide array of pricing issues in fixed-income and options markets.
This note introduces options (both calls and puts) and their valuation. After covering the history of options and the basic nature of their payoffs, the note provides an intuitive discussion of the determinants of an option's value. The note then introduces and applies the Black-Scholes option-pricing model to real data, using an Excel-based version of the model. Throughout, the emphasis is on the basics of options and their valuation.
This note shows how dividend payments affect option values owing to the effects of dividend payments on share price and resulting investor behavior. In addition to discussing the underlying logic, the note shows how to value options for dividend-paying stocks by adapting the Black-Scholes option-pricing model. The note addresses issues of early exercise and the underlying incentives of investors who own call or put options.
This note examines how spot and forward interest rates relate to bond prices and to each other. After defining spot and forward rates, the note shows how to estimate spot rates from data on either zero-coupon bonds or coupon bonds. It also shows how to express these stated rates for different compounding assumptions. The note pays particular attention to understanding how arbitrage forces in markets establish the links between forward and spot rates and how to infer one set of rates from the other. The note deepens understanding of bond pricing, assuming that the reader is already familiar with the basics of present-value techniques. It is a useful springboard for topics (e.g., swaps) that require familiarity with spot and forward rates.
This note is a brief introduction to the logic and practice of using stock options to compensate executives. The Black-Scholes option-pricing model is used to estimate the value of option grants for a company. The note affords the opportunity to apply options valuation in the context of executive compensation, and serves as a companion to introductions to options that expose the reader to the Black-Scholes option-pricing model.
This note discusses the Black-Scholes option-pricing model and then applies the model to call options. The underlying logic of the model is emphasized and illustrated through the use of simple examples. The model is then applied using real data. The note pays particular attention to procedures for estimating the potential for stock-price changes (volatility). It also provides the reader with an appreciation of the economic underpinnings of the model as well as the ability to apply the model to real data.
This note provides an overview of techniques used to value assets, including multiples, arbitrage pricing, and discounted cash flow. The note emphasizes the basic nature of valuation approaches and their logical underpinning, focusing on how techniques are applied to assets that are or might be traded in financial markets. The note sets the stage for specific (and often complicated) applications of the pricing techniques.
This note discusses how some of the most financially sophisticated companies and financial advisors estimate the cost of equity capital. It focuses on areas where finance theory is silent or ambiguous and practitioners are left to their own devices. Survey evidence shows that the Capital Asset Pricing Model (CAPM) is the most widely used model. The note discusses methods companies use to estimate the three key elements needed to apply the CAPM: a proxy for the risk-free rate, an estimate of beta, and an equity-market risk premium. The note is useful for students attempting to apply the Capital Asset Pricing Model.