Daphne’s Treats and Toys is a retail pet supply chain that is trying to value

Question

Daphne’s Treats and Toys is a retail pet supply chain that is trying to value itself for a potential sale. They currently earn $1 million in EBITDA, they have $5 M in outstanding par value debt, and their stock is currently trading at $55 per share with 100,000 shares outstanding.

One of Daphne’s competitors, Rover’s Rawhides was recently acquired for $49.1 per share. Prior to the acquisition attempt, they were trading at $26.74 per share. Analysts noted that the value of the consideration offered for the firm’s assets in the takeover offer was 10 times EBITDA (i.e. EV/EBITDA = 10).

Using the comparable transactions approach, what should Daphne’s Toys and Treats value their firm's stock at per share? Use the average of the two available methods.

Explanation / Answer

premium of rovers rawhides = 49.1/26.84 = 1.829

value ofdaphine'stoys = 55 * 1.829= 100.595per share

equity = 100.59 * 100000 = 10059000

totalvalue of firm = 10.059million +5million = 15.059million

EBITDA method

valueoffirm = 10 * 1 = 10million

average = 15.059+10/2= 12.53 million

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