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The Les Kilpatrick. Students to Start-ups. Entrepreneurial Skills Workshop Series. The Art of Valuation Alex Moen Vice President, CB Capital Partners. CB Capital Partners 860 Newport Center Drive Newport Beach, CA 92660 (949) 219-7462 alex.moen@cbcapital.com. Executive Summary.

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slide1

The Les Kilpatrick

Students to Start-ups

Entrepreneurial Skills Workshop Series

The Art of Valuation

Alex Moen

Vice President, CB Capital Partners

CB Capital Partners

860 Newport Center Drive

Newport Beach, CA 92660

(949) 219-7462

alex.moen@cbcapital.com

executive summary
Executive Summary

Valuation Methodology

Comparable Company Analysis

Precedent Transaction Analysis

Discounted Cash Flow

Putting It All Together – Determining a Valuation Range

Appendix

valuation methodology
Valuation Methodology

A potential institutional investor would typically utilize a combination of the following methods and techniques to value the Company including:

Comparable Company Analysis

Value based on trading multiples of similar publicly traded companies

Similar Transactions Analysis

Value based on completed and pending transaction multiples in related industries

Discounted Cash Flow (DCF) Analysis

Value based on discounting the Company’s projected cash flows back to today’s value

Book Value

Minimum/liquidation value of the Company

Ignores the future earning power of the Company

comparable company analysis
Comparable Company Analysis

Determines how the market would currently value the Company

Advantages

Reflects the market’s opinion of future growth, trends and risks

Includes premiums for size and maturity

Disadvantages:

Often imprecise due to non-comparable data, non-financial issues and low sample size

precedent transaction analysis
Precedent Transaction Analysis
  • Determines amounts paid for recent acquisitions of companies similar to the Company

Advantages:

    • Includes control, synergy and auction premiums
    • Provides precedent for transaction value range
    • Reflects supply and demand for similar companies

Disadvantages:

    • Often imprecise due to lack of data, non-financial issues and low sample size
discounted cash flow
Discounted Cash Flow
  • Determines the Company’s value by summing the net present value of free cash flows the ensuing projected five years and the terminal value at the end of the fifth year using a terminal value multiple
  • Advantages:
    • According to modern financial theory, this is the most "correct" form of valuation
    • The method is least influenced by stock market conditions or the M&A environment
    • Principal valuation techniques used by foreign, large corporate, and LBO buyers
  • Disadvantages:
    • Sensitive to assumptions of revenue growth, operating margins, fixed capital investment, working capital investment and weighted average cost of capital
    • Does not account for a "control" premium
    • Does not account for the value of synergies
    • Does not account for potential auction premium
takeaways from discounted cash flow
Takeaways from Discounted Cash Flow
  • Clearly define the DCF assumptions.
  • Emerging technology and life science companies will likely require more significant discounting given the increased uncertainty that the early company will meet its projections.
  • DCF analysis has been around (at least in some form) for centuries.
  • Early-stage investors will likely review a prospect’s projections and DCF with skepticism – be able to defend your assumptions.
  • Be able to reference other valuation methodologies to further support your analysis.
putting it all together developing a valuation range
Putting It All Together – Developing a Valuation Range

Note: The analysis above is a sample. Each valuation range will have unique attributes given the company and the corresponding industry.

cb capital contact information
CB Capital Contact Information
  • Alex Moen
  • CB Capital Partners
  • 860 Newport Center Drive
  • Newport Beach, CA 92660
  • (949) 219-7462 (Direct)
  • alex.moen@cbcapital.com
appendix a medical device companies in orange county
Appendix A - Medical Device Companies in Orange County

Source: Orange County Business Journal

Note: There are over 300 Medical Device companies in Orange County alone.

appendix a medical device companies in orange county cont
Appendix A - Medical Device Companies in Orange County (cont.)

Source: Orange County Business Journal

appendix a medical device companies in orange county cont17
Appendix A - Medical Device Companies in Orange County (cont.)

Source: Orange County Business Journal

appendix b vcs with an interest in medical device companies
Appendix B - VCs with an Interest in Medical Device Companies

Accuitive Medical Ventures – Invested in WaveTec Vision of Aliso Viejo in February 2009

De Novo Ventures – Invested in WaveTec Vision of Aliso Viejo in February 2009

New Leaf Venture Partners – Invested in ReShape Medical of San Clemente in February 2009

SV Life Sciences– Invested in ReShape Medical of San Clemente in February 2009

U.S. Venture Partners – Invested in ReShape Medical of San Clemente in February 2009

Versant Ventures – Invested in WaveTec Vision of Aliso Viejo in February 2009

Note: There are hundreds of prospective Medical Device investors in the United States and abroad.

appendix c prominent uci alumni
Appendix C - Prominent UCI Alumni

Adam Tomasi, Ph.D., Kauffman Fellow, Alta Partners

Adam joined Alta partners in 2006 as a Kauffman Fellow and focuses on investments in the life sciences. Originally trained as an organic and medicinal chemist, Adam spent seven years in early stage drug discovery with Gilead Sciences and Cytokinetics. In his last technical position, he founded and led the Anti-Infectives Medicinal Chemistry Program at Cytokinetics, which was the first group to validate KIP-1 as an anti-fungal target, and played a key role in the creation of Cytokinetics’ cardiovascular drug CK-1827452, which is currently in clinical trials. Prior to joining Alta, Adam was a student in the Harvard-MIT Biomedical Enterprise Program; he completed internships at MPM Capital and Lehman Brothers, where he was an Analyst covering the biotech sector, and attended the Harvard Medical School. Adam completed his Ph.D. at the University of California, Irvine, where he was a Fellow of the American Chemical Society and the University of California Regents, and was a post doctoral student with Peter Schultz at The Scripps Research Institute/The Genomics Institute of the Novartis Foundation. Adam holds a Bachelor of Science in Chemistry from the University of California, Berkeley, a Ph.D. in Chemistry from the University of California, Irvine, and a Masters of Business Administration from the MIT Sloan School of Management.

appendix c prominent uci alumni20
Appendix C - Prominent UCI Alumni

Brian Atwood, Co-Founder & Managing Director, Versant Ventures

Brian Atwood specializes in biotechnology investing at Versant. Brian co-founded Versant Ventures after spending four years at Brentwood Venture Capital where as a general partner he led investments in biotechnology, pharmaceuticals, and bioinformatics. He also has more than 15 years of operating experience in the biotechnology industry, with emphasis on therapeutic products, devices, diagnostics, and research instrumentation. Prior to launching his career in venture capital, Brian was founder, president, and CEO of Glycomed, a publicly traded biotechnology company. At Glycomed, Brian concentrated on business development and strategic alliances, closing deals with Eli Lilly & Company, Millipore, Genentech, and Sankyo, before leading the sale of Glycomed to Ligand Pharmaceuticals. Prior to this, he co-founded and served as director of Perkin Elmer/Cetus Instruments, a joint venture for robotics automation and genomics research instruments and products later acquired by Perkin Elmer. Under Brian's management, the venture developed and launched the GeneAmp® Polymerase Chain Reaction (PCR) system, the fundamental DNA amplification innovation responsible for fueling the explosive growth of genomics research. Brian served on the Board of Directors at Pharmion Corporation (sold to Celgene in 2008). Brian currently serves as a Board member at the private companies ForteBio Inc., FivePrime Therapeutics, Inc., Veracyte, Inc., Trius Therapeutics, Inc., Synosia Therapeutics, OpGen, Inc., PhaseRx, Inc., and Immune Design Corp., as well as public companies, Cadence Pharmaceuticals (CADX), and Helicos Biosciences (HLCS). Brian received a Bachelor's degree in Biological Sciences from the University of California, Irvine; a Master's degree from the University of California, Davis, and an MBA from Harvard Business School.

*Disclaimer: Brian Atwood is focused on biotechnology, pharmaceuticals and bioinformatics.

who is svb financial group
Who is SVB Financial Group?

Comprised of three segments:

Silicon Valley Bank

SVB Capital

Other Business Services

31% Loan Growth (2007 to 2008)

$5.5 Billion of loans

$10 Billion of on balance sheet assets

Over 11,000 clients / 1100 employees

Global Presence (27 US offices plus India, China, UK, Israel)

svb target market
SVB Target Market

Technology, Life Sciences, Private Equity and Venture Capital

Loans $1-20 Million

Senior blanket lien on all assets

Quad I, II, III, IV

svb med device clients orange county
SVB Med Device ClientsOrange County

8 public

30 private

6 private equity raises in prior 12 months

medical device themes
Medical Device Themes

Aging population

Resiliency compared to broader market

High ticket and elective procedures suffering

Market consolidation

Unemployment affecting volume of doctor and dentist visits

success factors strong valuations
Success Factors/Strong Valuations

Minimally invasive / Compelling ROI

Non-elective

New frontiers (Obesity, Diabetes)

International

General increase in standards of living

Increased healthcare spending

Nationalized healthcare

Avoidance of DOJ investigations / IP litigation

slide30

The Les Kilpatrick

Students to Start-ups

Entrepreneurial Skills Workshop Series

Private Equity Trends

Jeremy Holland

Principal, Vintage Fund Management

executive summary31
Executive Summary

US EV/EBITDA Multiples

Average Purchase Price by Transaction Type

Median Acquisition P/E Multiple by Transaction Size

Equity P/E Ratio vs. Number of Deal Announcements

2008 Private Equity

US Middle Market M&A Activity by Buyer Type

Private Equity – History

Prototypical Deal Capital Structure

Average Equity Contribution

Credit Markets Commentary

Valuation Issues and Problems

vintage fund management contact information
Vintage Fund Management Contact Information
  • Jeremy R. Holland
  • Principal
  • Vintage Fund Management, LLC
  • 11611 San Vicente Blvd, 10th Floor
  • Los Angeles, CA 90049
  • 310-979-9090
  • jholland@vintagecapitalgroup.com
packard business rules
PACKARD BUSINESS RULES

Success Rules for

Successful Businesses

slide46
Successful businesses must be adequately capitalized:

Human Capital

Financial Capital

Network Capital

Vendor/Supplier Capital

slide47
Experienced, Active Board of Directors

Recruit a Strategic Advisory Board

Operate at a Profit

slide48
Manage Cash Daily / Collect Accounts Receivable

Develop business-specific Performance Metrics

Business Capital / Business Experience

slide49
Develop the mindset of a successful business

Must be able to Survive Death Valley – Staying Power