Valuating a German business - Case adidas E-Book

Anne-Kristin Rademacher

• Herausgeber: GRIN Verlag
• Sprache: Englisch
• Veröffentlichungsjahr: 2012

Beschreibung

Research Paper (undergraduate) from the year 2012 in the subject Business economics - Investment and Finance, grade: 1,3, University of Applied Sciences Essen, course: Financial Management, language: English, abstract: Valuation of companies is done for many reasons. The evaluation of alternative strategies for decisions to sell or buy a company is the widest known purpose among literature. The alternatives can be categorized into three parts: mergers and acquisitions, succession and continuation. The former reflects the selling or buying decision of companies, and the acquisition of shares and mergers. Succession means management buyouts, whereas continuation refers to reorganization, monitoring of financial standing and liquidity flotation, investments but also divestments and spin offs (cf. Hansa & Dvorak 2007). Adidas has gone through several valuations already. In 1994 Adidas was sold for 1,350 million German Mark whereas in mid-1995 the company was already valued at 3,300 million German Mark when it was initially offered to public (cf. Die Welt 1995). As of December 31st 2010 the price for an Adidas share was 48.89 Euro (€), reflecting a 29.4% growth compared to 2009 (cf. Adidas 2011 a, p. 2). The following paper on hand values the German company Adidas as of December 2010 with help of the valuation methods Discounted Cash Flow in terms of equity and entity approach as well as the market oriented multiples. Both valuation methods are theoretical defined and later applied to Adidas.

Leseprobe

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Executive Summary

Valuation of companies is done for many reasons. The evaluation of alternative strategies for decisions to sell or buy a company is the widest known purpose among literature. The alternatives can be categorized into three parts: mergers and acquisitions, succession and continuation. The former reflects the selling or buying decision of companies, and the acquisition of shares and mergers. Succession means management buyouts, whereas continuation refers to reorganization, monitoring of financial standing and liquidity flotation, investments but also divestments and spin offs (cf. Hansa & Dvorak 2007).

Adidas has gone through several valuations already. In 1994 Adidas was sold for 1,350 million German Mark whereas in mid-1995 the company was already valued at 3,300 million German Mark when it was initially offered to public (cf. Die Welt 1995). As of December 31st 2010 the price for an Adidas share was 48.89 Euro (€), reflecting a 29.4% growth compared to 2009 (cf. Adidas 2011 a, p. 2).

The following paper on hand values the German company Adidas as of December 2010 with help of the valuation methods Discounted Cash Flow in terms of equity and entity approach as well as the market oriented multiples. Both valuation methods are theoretical defined and later applied to Adidas.

Major finding of the paper is the realistic shareholder value of Adidas amounting to about 11,000 million €. The discounted cash flow method revealed a shareholder value of 64.83 Euro per share, which is derived from an extreme optimistic forecast. Using the multiples of a peer group consisting of Nike, Puma, Deckers Outdoor and Amer Sports the result is a range between 10,431 and 14,475 million Euros. Therefore the company has sextupled its shareholder value within the past fifteen years.

List of Contents

Executive Summary

List of Figures

List of Tables

List of Abbreviations

1 Introduction

2 Theoretical foundation of valuation models

2.1 Discounted cash flow

2.1.1 Discounting

2.1.2 Free Cash flows

2.1.2 Discounting rates - The costs of capital

2.2 Valuation using Multiples

3 Assessment of Adidas

3.1 Adidas in figures

3.2 Strategy and planning

3.3 Market analysis and competition

4 Applying valuation methods

4.1 Valuation of Adidas with the DCF approach

4.1.1 Forecasts of the free cash flows

4.1.2 Determination of the CAPM and WACC

4.1.3 Calculation of the shareholder value

4.2 Multiples factors

4.2.1 Definition of qualified multiples and peer group

4.2.2 Formation of the multiples

5 Comparison and assessment of the results

List of Literature

Appendix

List of Figures

Figure 1: Entity and equity methods

Figure 2: Relation of risk to expected return

List of Tables

Table 1: Finding the Free Cash Flow

Table 2: Examples of Entity and Equity approaches in multiples

Table 3: Forecast Income Statement in million €

Table 4: Calculation of the CAPM

Table 5: Calculation of the WACC

Table 6: Calculation of the enterprise value in million €

Table 7: Calculation of the market value of debt in million €

Table 8: Calculation of the shareholder value through FTE in million €

Table 9: Peer Group with trailing figures in million € (includes Adidas)

Table 10: Multiples of the peer group

Table 11: Application of the multiples to Adidas

List of Abbreviations

1 Introduction

It is in the nature of humans to want to increase their own welfare. This means to search for the strategy that maximizes output with a minimal input. In order to make a decision, comparison has to be possible. In business there are many numerical criteria that can be compared: profits, sales volumes, size of the enterprise or number of customers; but also intangible criteria may apply, such as brand awareness or human capital, for example.

As of today, the traditional German company Adidas has existed for more than sixty years. Within the last twenty years the company has gone through several valuation processes. Starting in 1990 initiated by a management buyout, 80% of the former family enterprise was bought by Bernard Tapie who later sold to the French bank Crédit Lyonnais for debt redemption reasons (cf. Der Spiegel 1991). A few months later the bank sold the shares for almost double the price (cf. Libération 2008).

Eventually in 1995 the new management style lead to success and Adidas was initially offered to public. Two years later Adidas was able to acquire the ski producer Salomon with its brands (cf. Adidas 2011c). After a period of strong success some Salomon brands were not able to reach the targeted level of profitability and could not be aligned with the core competencies, therefore were sold (cf. Hainer 2005). In 2006 Adidas acquired Reebok for 2.3 billion € in order to strengthen its position in the North American market. Additional revenues were estimated at 500 million € per year coming from Reebok and synergies of the group (cf. Hainer 2006).

The paper on hand shall analyze the German company Adidas and result in a shareholder value as of 2010. The valuation methods used are defined to be Discounted Cash Flow and the market oriented approach Multiplies. These will be theoretically defined. In a second step the company Adidas will be analyzed in terms of figures, future planning and competition. Based on these data the valuations will be made in the fourth chapter. The results will be compared and a conclusion will be drawn.

Information and literature has been extracted from the internet as well as classical book literature. The latter is mainly used for theoretical definitions of the valuation methods and practical examples on the valuation process itself. Internet sources mainly contribute needed information from Adidas and their competition. Also specialized platforms for stock market information are used.