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Copyright © 2017 Deloitte Development LLC. All rights reserved.

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The Lawyer's MBA

November 15, 2017


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• Understanding key financial concepts is critical to the ability of in-house attorneys to advise their business clients

• Being an effective counselor requires an understanding of the financialaspects of many different transactions, such as capital-raising transactions and M&A deals

• In-house counsel may be called upon to structure and negotiate key deal terms, including financial terms, and monitor ongoingcompliance

Why are we here today?


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Financial accounting• Financial statements and accounting terminology• Relevance of financial statements and accounting to corporate legal matters, including

negotiating equity and debt financing, securities law compliance and M&A

Financial statements workshop activity – monthly management review

Valuation theory• What is valuation and value? • How is value measured? • Defining the intrinsic value of a company - market and income approaches used to

estimate the value of an operating business

Valuation workshop activity – review of potential acquisition

What we will cover


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• 8:00-8:30AM Registration/check-in

• 8:30-8:45AM Opening remarks

• 8:45-10:00AM Introduction to financial statements and accounting

• 10:00-10:15AM Break

• 10:15-11:30AM Financial statements workshop

• 11:30-12:00PM Lunch

• 12:00-1:00PM Valuation theory

• 1:00-1:15PM Break

• 1:15-2:30PM Valuation workshop

• 2:30-2:45PM Conclusion

Agenda


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Financial ReportingBuilding Blocks andConcepts

Module 1 - Introduction toAccounting & Financial Statements

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Copyright © 2017 Deloitte Development LLC. All rights reserved. Module 1 – Introduction to Accounting & Financial Statements

Course Map

Financial Reporting,

Building BlocksAnd Concepts

US GAAP Financial Statements and Analysis Points

Common Accounting

Terminology

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8


9


Course Map




Common Accounting

Terminology

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Financial reporting building blocks and concepts

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Financial statement reporting: A full set of financial statements

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Sources of financial statements/reporting—Form 10-K

� Annual

� Required by SEC

� Audited financial statements

� MD&A

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Sources of financial statements/reporting—Form 10-Q

� Quarterly

� Reviewed financial statements

� MD&A

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Sources of financial statements/reporting—Form 8-K

� Filed for significant events

� Securities act of 1933

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Sources of financial statements/reporting—Registration Statements

� Form S-1 - Initial registration proceedings for a Company going public

� Form S-3 – Debt and Equity Offerings

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Sources of financial statements/reporting—Foreign private issuer� Form 20-F

� Form 6-K

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Sources of financial statements/reporting—Private

� Company’s website

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The Financial statement audit

“The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the

financial statements under audit”Source: AU section 326, Audit Evidence, Statement on Auditing Standards, AICPA

Evaluate

Test Balances Comply with GAAP

Gain an Understanding

The auditor will:

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Accounting information used for financial reporting requires:Financial reporting concepts

Source: CON 2, Qualitative Characteristics of Accounting Information

Relevance

Capacity to make a difference in a decision

Predictive value

Feedback value (timely)

Reliability

Information is reasonably free from error and bias

Representatively faithful (validity)

Verifiable and Neutral

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Accounting information used for financial reporting requires:Financial reporting concepts (cont.)


Comparability

The quality of information that enables users to identify similarities in and differences between two sets of economic phenomena

Consistency

Conformity from period to period with unchanging policies and procedures

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GAAP vs. IFRS

GAAP• Rules or conventions that govern what, when,

and how to record transactions

• Prescribes what information should be disclosed and how it should be disclosed

• Promulgated primarily by the Financial Accounting Standards Board (“FASB”)

IFRS• Established accounting standards promulgated by the

London-based International Accounting Standards Board (IASB)

• IFRS is a broad, globally accepted set of accounting standards

• IFRS will require more exercise of judgment, supported by contemporaneous analysis and documentation

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Course Map



Common Accounting

Terminology


23


US GAAP financial statements and analysis points

Balance sheet

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Classification of assets

Assets

Tangible Assets (Physical)

Intangible Assets (Not Physical)

Current Assets (<1 year)

Non-currentassets

(>1 year)

Current Assets (<1 year)

Non-currentassets

(>1 year)

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Classification of liabilities

Liabilities

Known Amounts Estimated Amounts

Current Liabilities (<1 year)

Non-currentLiabilities(>1 year)

Current Liabilities (<1 year)

Non-currentLiabilities(>1 year)

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As of December 25, 2015 (in thousands)Example: Dynamites, Inc. balance sheet

AssetsCurrent assets:

Liabilities and stockholders' equityCurrent liabilities:

Cash and equivalents Unearned franchise fees

Marketable securities Accounts payable

Accounts receivable, net of allowance of $25 Accrued compensation and benefits

Inventory Accrued Expenses

Prepaid expenses Current portion of deferred lease credits

Taxes System-wide payables

Restricted as Current portion of long-term debt

Total current assets Total current liabilities

Property and equipment, net Long-term liabilities:

Other Intangibles Other liabilities

Goodwill* Deferred income taxes

Total assets Deferred lease credits, net of current portion

Long-term debt

Total liabilities

Commitments and contingencies (notes 4 & 8) Stockholders' equity:

Common stock

Retained earnings

Accumulated other compensation loss

Total stockholders' equity

Total liabilities and stockholders' equity

Data is for illustrative purposes only.

$ 13,150

25,594

7,792

4,043

2,375

8,893

27,346

89,193

198,679

21,891

11,383

$ 321,146

$ 1,186

19,274

19,536

4,855

-

28,344

641

73,836

989

24,669

14,763

3,203

117,460

72,708

131,167

(189)

203,686

$ 321,146

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What to look for in the Balance Sheet

0302

01

The balance sheet is an indicator of the overall health of a company

Generally, asset values are recorded at cost and not FMV

Certain items which can significantly impact a company may not be included in the balance sheet, or may be underestimated

Income statement

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Revenue and GainsIncome statement elements


Revenue

Inflows

Enhancements

Settlements

Gains

Increases in equity

Peripheral or incidental transactions

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Expenses and LossesIncome statement elements (cont.)


Expenses

Outflows

“Using up” assets

Incurrence of liabilities

Losses

Decreases in equity

Peripheral or incidental transactions

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For the years ended December 25, 2015 and December 26, 2014 (in thousands)

Example: Dynamites, Inc. income statement


Dec. 25, 2015 'Dec. 26, 2014

Revenue:

Restaurant sales

Franchise royalties and fees

Total revenue

Costs and Expenses:

Restaurant operating costs

Depreciation and amortization

General and administrative

Preopening

Loss on asset disposals and store closures

Total costs and expenses

Income from operations

Investment income

Earnings before income taxes

Income tax expense

Net earnings

$ 459,527 $ 355,623

42,970 37,198

502,497 392,821

366,778 290,339

31,972 25,112

46,561 34,587

9,329 5,379

1,236 1,314

455,876 356,731

46,621 36,090

76 438

46,697 36,528

14,397 11,931

$ 32,300 $ 24,597

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What to look for in the Income Statement

0302

01

Statement of owners’ or stockholders’ equity

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Statement of changes in owners’ equity

Presents changes over a certain time period

Reconciles the balance from beginning to end of time period

Shows connection between income statement and balance sheet

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For the year ended December 25, 2015 (in thousands)

Example: Dynamites, Inc. statement of stockholders’ equity


Common StockRetained Earnings

Other Comprehensive(Loss) Income

TotalShares Amounts

Balance at December 26, 2014

Net earnings

Other comprehensive loss

Comprehensive income

Purchase and cancelation of common stock

Shares issued under employeestock purchase plan

Shares issued from restricted stock units

Units effectively repurchased for required employee withholding taxes

Exercise stock options

Tax benefit from stock issued

Stock-based compensation

Balance at December 25, 2015

$ 18,214,065

-

-

-

-

30,127

142,797

(45,539)

36,470

-

-

18,377,920

$ 65,647

-

-

-

-

879

-

(4,183)

216

2,858

7,291

72,708

$ 98,866

32,300

-

-

1

-

-

-

-

-

-

131,167

$ (6)

-

(183)

-

-

-

-

-

-

-

-

(189)

$ 164,507

32,300

(183)

32,117

1

879

-

(4,183)

216

2,858

7,291

203,686

Statement of cash flows

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Statement of Cash Flow: What it MeasuresIt measures the firm’s performance in terms of generating and using cash in three areas of activity:

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For the year ended December 25, 2015 (in thousands)

Example: Dynamites, Inc. statement of cash flows (indirect method)

Cash flows from operating activities:

Net Earnings

Adjustments to reconcile net earnings to cash provided by operations:

Depreciation

Amortization

Loss on asset disposals and store closures

Deferred lease credits

Deferred income taxes

Stock-based compensation

Excess tax benefit from stock issuance

Changes in operating assets and liabilities, net effect of acquisition:

Trading securities

Accounts receivable

Inventory

Prepaid expenses

Other assets

Unearned franchise fees

Accounts payable

Income taxes

Accrued expenses

Net cash provided by operating activities

$ 32,300

31,389

583

1,076

2,326

8,209

7,291

(2,857)

(203)

(783)

(1,179)

(13)

(1,633)

(165)

11,322

2,093

5,185

$ 94, 967

Cash flows from investing activities:

Purchase of property and equipment

Purchase of marketable securities

Proceeds of marketable securities

Acquisition of franchised restaurants

Net cash used by investing activities

$ (83,353)

(62,228)

73,239

(21,615)

(93,957)

Cash flows from financing activities:

Issuance of Common Stock

Excess tax benefit from stock issuance

Tax payments for restricted stock units

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

1,095

2,858

(1,589)

2,364

(30)

3,344

9,806

$13,150

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What to look for in the Statement of Cash Flows

0302

01

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Relationships among financial statement line items


Income Statement

Revenue

Cost of Sales

Depreciation and Amortization

Other Operating Expenses

Other Non-Operating Expenses

Net Income

Cash Flow Statement

Net Income

Depreciation and Amortization

Other Cash Flow From Operating

Cash Flow From Operations

Cash Flow From Investing

Cash Flow From Financing

Effect of exchange rate changes on cash and cash equivalents

Increase in cash

Beginning Period Cash and Cash Eq

Ending Period Cash and Cash Eq

Balance Sheet

Assets

Cash

Other Current Assets

Property & Equipment

Accumulated Depreciation

Other Non-Current Assets

Total Assets

Liabilities

Current Liabilities

Long-Term Liabilities

Total Liabilities

Shareholders' Equity

Total Liabilities + Equity

Statement of Stockholder's Equity

Beginning Balance

Net Income

Other Comprehensive Loss

Stock & Option Repurchase

Other Equity Transactions

Total Stockholder's Equity

$ 502,497

366,778

31,972

57,126

14,321

$ 32,300

$ 32,300

31,972

30,695

94,967

(92,957)

2,364

(30)

3,344

9,806

$ 13,150

$ 13,150

76,043

306,988

(108,309)

33,274

$ 321,146

$ 73,836

43,624

117,460

203,686

$ 321,146

$ 164,507

32,300

(183)

(3,087)

10,149

$ 203,686

A

B

C

D

E

Notes to the financial statements

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Provides further explanations and may provide the only explanations for significanttransactions and contains required disclosures

Financial statement reporting: Notes to the financial statements

Overview of the business

Significant accounting

policies

Discontinued operations

Related party transactions

Subsequent events

Commitments and

contingencies

Business combinations

Debt offerings and credit risk Income taxes Notes to the

Financial Statement

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Financial statement reporting: limitations on financial statements• Information often results from approximate, rather than exact measures

• Information is based upon historical data and does not measure or discuss management’s plans for the future

• Information is generally recorded at cost and may not reflect the current market value

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Course Map




Common Accounting

Terminology

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Common accounting terminology

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Materiality

A measure of the significance of a transaction or event. A transaction is considered material if its omission or misstatement would affect the judgement

of a reasonable person relying on the financial statements.

Source: AU section 326, Audit Evidence, Statement on Auditing Standards, AICPA

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Conservatism

A prudent reaction to uncertainty to try to confirm that uncertainty and risks inherent in the business situations are adequately considered


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Contingencies

A contingency is defined as an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur of fail to occur. Resolution of the uncertainty may confirm the acquisition of an asset or

the reduction of a liability or the loss or impairment of an asset or the incurrence of a liability.


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Loss contingency

Determination and consideration of facts bycompany management and auditors

Common Accounting Terminology

Reasonably possible(medium) Remote (low)

Can amount be reasonably estimated?

Is loss guarantee of indebtedness?

Probability that future event(s) will confirm loss

Accrual, with disclosure required Disclosure required Neither accrual nor

disclosure required

*Includes estimation of range of loss, in which case the minimum amount is accrued and the amount of the range is disclosed

YesNo

NoYes*

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Pro forma vs. historical financial statements

Historical Financial StatementsMeasures income or presents afinancial position for past events. The information as reported inhistorical financial statements is a summarized presentation ofthe operations of the businessduring a specific period of time

Pro FormaProvides information about thecontinuing impact of a particular transaction by showing how itmight have affected historicalfinancial statements if atransaction (acquisition or disposition) had beenconsummated at an earlier time

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GAAP vs. non-GAAP measures

Non-GAAP• Not defined in the GAAP

accounting literature• EBITDA (Earnings Before

Interest, Taxes, Depreciation & Amortization)

GAAP• What, when, and how to record

transactions• What information should be

disclosed and how it should be disclosed


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Module 2 – Valuation Theory


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Agenda

• Valuation definitions & considerations

• Who needs valuations?

• Introduction to valuation methodologies- Income approach- Market approach- Cost approach- Relative considerations

• Little English Pub valuation- Income approach valuation- Market approach valuation- Value reconciliation & conclusion

• Public company valuation

• Common litigation issues in valuation


Valuation Overview


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Value definitions & considerations

Fair value

Specific to financial reporting

• Defined by FASB (ASC 805)• Assumes willing buyer and seller• Used for stockholder dissent and

value estimates on financials

Investment value

Specific to investment decisions

• No formal definition / guidance• Reflects value to a specific

investor (but not price paid)• Includes expected synergies

Unit of measure

What is being valued?

• Enterprise• Equity• A single share• Intangible asset (e.g

technology)

Fair market value

Specific to tax reporting

• Defined by US Treasury Reg• Assumes hypothetical

transaction• Used for US tax analyses

Book value

Specific to accounting records

• Equals recorded value of asset / liability on financials

• Book value equals assets less liabilities

Basis of value

Considerations that impact value

• Going concern vs. liquidation• Marketability / Liquidity• Control vs. minority share• Valuation date

Definitions Considerations



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Who needs valuations?

• Increased consensus and consistency in the resolution of valuation issues both in the courts and business world has led to the demandfor business valuation for many purposes and professions– Strategic / Economic– Legal– Financial– Regulatory

• Most business valuations that are performed have the potential forlegal challenge– Courts rely on professional standards and guidance in deciding

disputed issues



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Introduction to valuation methodologyHow do you measure the value of….

Income approach

Equivalent to the sum of expected rental income (less costs of marketing and maintenance) over life of property ownership

Market approach

Estimated based on the value of comparable homes at a point in time (e.g.,location, size, features, etc.)

Cost approach

Estimated based on the hypothetical costs to re-build the exact same house in the exact same location with the exact same furnishings

Income approach

Equivalent to the cash inflows and outflows expected to be generated by the business over time

Market approach

Estimated based on the value of comparable companies based on publicly available information (including share price, recent transactions)

Cost approach

Estimated based on the hypothetical costs to recreate/build the exact same business with the same performance and outlook

House

Business



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$ millions 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Revenue 120 130 135 150 145 145 145 145 145 145

COGS 36 39 40 45 43 43 43 43 43 43

SG&A 18 20 20 23 22 22 22 22 22 22

Taxes 20 21 22 25 24 24 24 24 24 24

NOPAT 46 50 52 58 56 56 56 56 56 56

CF Adjustments (5) 5 15 (10) 2 2 2 2 2 2

Free cash flows 41 55 67 48 58 58 58 58 58 58

Present value of FCFs 35 41 45 29 31 28 25 22 20 18

Income approach

The income approach estimates the value of a business as the sum of the present value of cash flows generated over time by the business

Cash inflows• Sales from

goods/services• Rental income• Licensing income• Subscription income Cash outflows

• Salaries/wages• Raw materials• Rental expense• Machinery/equipment• Sales & marketing• Utilities & insurance

Cash in

Cash out

Business



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Summary metrics

Subject Comp 1 Comp 2 Comp 3 Comp 4 Low Average High

Value $437,500 $550k $425k $600k $460k $425k $508.5k $600k

Transaction date May ’16 June ’16 Aug ’16 Aug ’16 May ’16 N/A Aug ’16

Sq. Ft. 3,500 4,000 2,500 6,000 3,500 2,500 4,000 6,000

Yr. built 1992 2001 2010 1948 1995 1948 N/A 2010

Pool No Yes Yes Yes Yes N/A N/A N/A

Price / Sq. Ft. $125 $137.5 $170 $100 $131 $100 $134 $170

Market approach

The market approach estimates the value by looking at publicly available information regarding the value of similar assets. Data points may include publicly traded stock prices and value of recent mergers & acquisitions

?$600k$460k

$550k$425k



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Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Total

Labor 70,000 33,000 34,000 34,000 $171,000

Materials 45,000 33,000 34,000 34,000 $146,000

Furniture 40,000 5,000 $45,000

Fixtures 28,000 5,000 $33,000

Landscaping 15,000 15,000

Total 115,000 66,000 68,000 68,000 68,000 25,000 $410,000

Cost approach

The cost approach estimates the value by estimating the cost that would be incurred to independently recreate the same asset



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Which approach should be used?Relative considerations

Approach Strength Weakness

Income (DCF)

x Common and generally acceptedx Applicable for nearly all businesses x Flexible, easily adaptable x Incorporates future expectations regarding

prices, costs, investment, etc. x Only market data is discount rate x Provides a measure of economic

obsolescence

x Highly subjective x Dependency on financial projections x Sensitive to inputs such as the discount rate

and projections x Easily manipulated x Projections not directly linked to market x Inability to incorporate key assumptions of

market participants

Market

x Common and generally acceptedx Based primarily on market data x Use of market participant inputs x Reflects buyers' and sellers' current actions x Applicable for nearly all business interests

x Sensitive to small changes x May lack adequate guideline companies or

data on guideline transactions x Comparability is subjective x May need many adjustments

Cost

x Easily understandable conceptx Relatively easy to estimate costs of tangible

assets (e.g., buildings, machinery)

x Difficult to forecast less tangible costs (e.g.,training employees, acquiring customer base)

x Can be skewed by estimated depreciation of tangible assets

x Value does not consider value of intangibles (e.g., going concern value)


Case Study


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Little English Pub Income Statement as of December 25, 2015

Sales• Food sales• Beverage sales• Possible licensing income or merchandising income

Costs of good sold• Cost of food and beverage ingredients• Cost of tables, chairs, cutlery, flatware, glasses, etc.• Cost of entertainment (e.g., A/V)

= Gross profit • Money earned on sales after accounting for direct costs

Salary & wages • Wages of staff at pubs• Salaries of managers and executives

Sales, general & administrative

• Rent for pubs & corporate offices, utilities, insurance• Expenses for advertising

Depreciation • Non-cash expense related to usage of owned buildings, restaurant equipment, etc.

Taxes • Income taxes payable on profits generated by pubs

= Net operating profit after tax

• Money earned on sales after accounting for operating expenses and taxes

- Capital expenditures • Cash payments for purchasing / building / repairingrestaurants, offices, kitchen equipment, etc.

+ Depreciation • Non-cash expense related to usage of buildings, restaurant equipment, etc. (see above)

+

/-

Changes in net working capital

• Changes in required level of cash for daily operatinos (i.e.,delay in making payments to suppliers and collecting cash from customers)

= Free cash flow • Cash flow available to investors (debt and equity holders)

Income Statement

Cash Flow Adjustments

Little English Pub – income approach



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2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026Terminal

Year

Food Sales 113 122 129 135 141 148 154 159 164 168 173 177 Drink Sales 113 122 129 135 141 148 154 159 164 168 173 177 Total Revenue 225 244 259 270 282 295 308 318 327 337 347 354

% growth 8.4% 5.9% 4.5% 4.5% 4.5% 4.5% 3.0% 3.0% 3.0% 3.0% 2.0%

Food & Beverage Costs 73 80 84 87 91 95 100 103 106 109 112 114 Salary & Wages 84 92 97 101 106 111 116 119 123 126 130 133 Sales, General & Administrative 17 19 20 21 21 22 23 24 25 26 26 27 Depreciation 11 12 13 14 15 15 16 16 17 17 18 25 Operating Profit 39 42 45 47 49 51 54 55 57 59 60 55

Margin % 17.4% 17.4% 17.4% 17.4% 17.4% 17.4% 17.4% 17.4% 17.4% 17.4% 17.4% 15.5%

Income Taxes 35% 14 15 16 16 17 18 19 19 20 21 21 19 NOPAT 25 28 29 31 32 33 35 36 37 38 39 36

Cash Flow AdjustmentsCapital Expenditures (25) (25) (25) (25) (25) (25) (25) (25) (25) (25) (25) (25) Depreciation 11 12 13 14 15 15 16 16 17 17 18 25 Incremental Working Capital (5) (4) (3) (2) (2) (3) (3) (2) (2) (2) (2) (1) Free Cash Flows 6 11 14 17 19 21 23 26 27 29 30 34

Terminal Value 381

Partial Period 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%Periods Discounting 0.25 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 10.00 Discount Factor 11% 0.974 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352 0.352 Present value of FCFs 6 10 12 13 13 13 12 12 12 11 11 134

Business Enterprise Value (rounded) 260

Little English Pub – income approachDiscounted cash flow analysis

1 Estimate cash flow until steady growth 2

Estimate long-term

growth

3

Discount back to present

In millions $



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Income approach – discount ratesHigher the risk, higher the expected rate of return

Investment Profile Discount rate

Venture/early stage equity 20%-40%

Growth stage equity 15%

Mature/Blue chip equity 9%

Corporate bond 5%

Risk-free rate 2%

High risk

Low risk

Low rate

High rate



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Business EnterpriseCompany Value (BEV) Revenue EBITDA BEV / Revenue BEV / EBITDA

Cheesy Delights Restaurants 224.0$ 237.0 30.0 0.9x 7.5xYum Burgers Inc. 1,255.0$ 1,010.0 150.0 1.2x 8.4xOlives & Bread Restaurant Co. 355.0$ 355.0 47.0 1.0x 7.6xPublic Houses Incorporated 100.0$ 100.0 9.0 1.0x 11.1x

Little English Pub 255 34

Average 425.5 59.0 1.0x 8.6xMedian 296.0 38.5 1.0x 8.0xMaximum 1,010.0 150.0 1.2x 11.1xMinimum 100.0 9.0 0.9x 7.5x

LTM 2016 Multiples

1Identify publicly traded comparable companies 2 Select metrics

3 Select / adjust multiple to fit subject company

4Apply multiples to subject company metrics to estimate value

Market approachGuideline public company method

In millions $

Selected 1.0x 8.0x

Little English Pub 255 34

Implied value 255.0 270.6 Weighting 50% 50%

Estimated Value (rounded) 260.0



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Close Date Target Buyer BEVRevenue EBITDA

12/16/2011 Foodscape Kitchen, Inc. Zonia Restaurant Group, Inc. 184.3 0.6x 7.6x7/25/2011 Hazel's Wood Fired Pizzeria Accel Wear Capital Corp. 360.8 1.1x 6.9x6/13/2011 Hogan Steakhouse Saturn Road LLC 1,558.0 0.6x 6.6x5/25/2011 Yen's Texas Bagels, LLC Interix International 451.5 0.7x 7.9x11/8/2010 Satay Curry Shop House Zonia Restaurant Group, Inc. 112.5 0.6x 6.5x

10/29/2010 Corinth Café, Inc. Zonia Restaurant Group, Inc. 76.6 0.3x n/a5/10/2010 West Chester's Prime Ribs Lake District Capital 80.9 0.4x 6.7x

Average 0.6x 7.0xMedian 0.6x 6.8x

Maximum 1.1x 7.9xMinimum 0.3x 6.5x

1 Identify transactions with targets that are similar to the subject company 2 Select metrics

3 Apply multiples to subject company metrics to estimate value

Source: Capital IQ

Market approachGuideline transactions method

In millions $BEV / LTM BEV / LTM

Implied Multiples



69

Income approach

• Considers company-specific growth and profits

• Inherent risks of forecasting 10+ years• Discount rate may be subjective

Market approach

• Little English Pub has comparable companies• Availability of recent market data• May not represent pure comparability to LEP

Concluded value

• Given the strength of the market data related to companies similar to Little English Pub, it may be more appropriate to weight the market approach heavier than the income approach

$260

$260

$260

50%

50%

100%

Based on the relative value indications from each approach, as well as the selected weighting based on analysis of the relatives strengths and weaknesses of each, it was decided to offer $260 million for Little English Pub

Value reconciliationHow much should be paid?



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Market trading value + control premium

Calculation Known?

Share price Market data

x Shares outstanding Market data

= Market cap (i.e., equityvalue) on a minority basis

Calculation

+ Control premium Transactiondata

= Equity value (control) Calculation

+ Debt Balance sheet

- Excess cash Balance sheet

= Business enterprise value Calculation

Control premium estimate

Data is for Illustrative Purposes Only

Acquiring public companies

XYZ Co. (Nasdaq:XYZ)



71

Common litigation issues in valuationSome challenges in valuation that may result in litigation include someof the following:

• General– Industry/market movements not taken into account– Lack of support for discounts for marketability/control– Failure to reconcile approaches

• Income approach– Minimal insight into projections– Discount rates not supported– Terminal growth rate/ exit multiple not supported

• Market approach– Comparable companies are not representative– Multiple selection is not adequately supported (adjustments, or

lack thereof, to market evidence)– Transaction price is not representative



72

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Deloitte shall not be responsible for any loss sustained by any personwho relies on this presentation.

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