Assignment Problem: You have been hired to act as a consultant to the management team of Shoes Are Us Limited, a shoe retailer based in the UK with an online sales presence, which is seeking to buy-out the current Private Equity owners of the business.
You have been asked by the company's Chief Executive to provide advice on what would be the most appropriate methods to value the business for this purpose, what further information would be required, and what further considerations might be relevant before a final valuation is determined.
The private equity investors currently own 88% of the shares and the company's three directors own the remaining 12%.
The company's latest annual accounts for the year-ended 31st December 2014 reveal Sales Revenue of £150m, Profits after Tax of £40m, Earnings Before Interest Tax Depreciation and Amortization (EBITDA) of £50m and Net Assets of £70m.
Required:
a) Discuss the four main valuation methods which could be used in this situation, specifying the relative advantages and disadvantages of each. Your answer should include specific reference and explanation to those concepts for which the Chief Executive requires clarification.
b) Identify what further information might be needed for the application of each method and how this might be obtained.
c) Identify and explain three further considerations which might be relevant before a final valuation is determined.
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