ALP assisted in obtaining annual fair market valuations for 8 privately held securities in the Bank’s portfolio using one or a combination of the following methods:
Method 1: Discounted Cash Flow Valuation
01 FCF Projections
- Created high-level 5-year projections of Free Cash Flow (FCF), based on simplified growth assumptions.
- Financial Inputs Projected : Current and 5-year projections of :
- EBIT
- Non-Cash Charges
- Changes in Working Capital
- Capital Expenditure
02 Discount Rate
- Option 1: Calculated Weighted Average Cost of Capital
- Option 2: Proxied Discounting Rate with Credit Spread
03 Valuation
- Calculated Net Present Value by discounting projected cash flows.
- Calculated the total investment value using the ownership percentage.
Method 2: Net Asset Valuation
- The available financials of the investments were used to calculate the Book Value / Net Asset Value of the Business
- Net Asset Value (NAV) was calculated by subtracting liabilities from assets.
- The per-share NAV was calculated by dividing the NAV by the number of shares outstanding.
NAV = Assets – Liabilities
NAV per share =
(Assets – Liabilities) / Total number of outstanding shares
Investment Value =
NAV x Equity Stake
Or
NAV per share x Number of shares owned
Method 3: Relative Valuation
01 Comparables Identification & Analysis
Approach 1: Comparable Peer Companies
- Relevant and representative comparable peer companies were identified.
- Calculated and compared multiples and ratios of the investment and the comparables.
Approach 2: Precedent transactions
- The publicly shared data of comparable transactions were obtained.
- In the absence of such data, traded securities were used once adjusted for liquidity risk premium, as in step 2.
02 Adjusting for liquidity differences
- ALP’s Proprietary Model models illiquidity scenarios as a look-back option, and prices it to determine illiquidity costs/discounts.
- Model Characteristics:
- Average option payoffs are calculated with strike prices determined using Stochastic Modelling and Monte Carlo simulations
- Average option payoffs are incorporated as illiquidity premiums in option pricing models