CHN Incorporated is evaluating the purchase of Hope Enterprises. The company could enhance its position in the mid-market gaming casino hotel business with the acquisition of Hope Enterprises. Hope Enterprises is considered a prime acquisition because of its strategic location, customer segment, booming market .The overall gaming casino business is predicted to boom in the coming year, with revenues increasing by 15%. However, CHN has to evaluate the synergies with Hope enterprises and decide on whether to make the acquisition. The management believed that the acquisition of Hope Enterprises by CHN could improve CHN’s margins through economies of scale, reduce cost and promote a sales growth accelerated to 12% over the …show more content…
It means that Hope is a value company. 4. How does the presence of synergies affect your valuation estimate?
With the presence of synergies, CHN does not want to be stuck with the burden of paying for portions of synergy that come from its strengths. It is important to value synergy and how sensitive the value is under different assumptions. You want the strategic investment to create synergy. There is operating and financial synergy. Synergy is often incorrectly valued and inadequately planned for. It can be higher growth rate in revenues, higher margins, lower taxes, lower cost of debt, more effective operations, economy of scale effects. CHN should be very careful implementing its policy to Hope, because Hope is already highly efficient. We do not expect high synergies in operations and think that most of them will be in finance and lower cash flow volatility.
Based on our calculations in the question 3 we can estimate maximum amount of synergies as a difference between Enterprise value and equity value: 3,271,743 kUSD - 985,850 kUSD = 2,285,793 kUSD. Also our version of the consolidation you can find in Exhibit 1. 5. What does a multiples analysis tell you about the value of