Appendix

Valuation Model Schedules

Valuation Conclusions
($ in millions)

1.

The valuation summary should be formatted as a:

a.

Football Field (shows valuation ranges of all indications and SPT conclusion)

METHODOLOGY

IMPLIED VALUATION

COMMENTS

Accepted SPT Offer: $16,000

DCF (Exit Multiple)

$17,500

DCF (Perpetuity Growth)

$18,900

$13,700

FY13 EBITDA Trading

Multiples

$13,600

WACC Range: 13.5% - 14.5%

Terminal Multiple: 9.0x - 10.0x

$19,500

WACC Range: 13.5% - 14.5%

Perpetuity Growth: 3.0% - 5.0%

$24,600

$15,900

$10,000

FY13 EBITDA Multiple Range: 12.5x - 14.5x and 12.5%

partial control premium for 50% acquisition

FY14 EBITDA Multiple Range: 10.5x - 11.5x and 12.5%

partial control premium for 50% acquisition

$14,900

FY14 EBITDA Trading

Multiples

$0

$20,000

$30,000

$40,000

Enterprise Value

b.

Table (summarizes all methods and weightings, has a concluded range)

Weighted Valuation Approach
Methodology

Note:

Low

High

Weight

DCF (Exit Multiple)

$17,500

$19,500

25%

DCF (Perpetuity Growth)

$18,900

$24,600

25%

FY13 EBITDA Trading Multiples

$13,700

$15,900

25%

FY14 EBITDA Trading Multiples

$13,600

$14,900

25%

Weighted Value

$15,925

$18,725

100%

Transaction Comparables and Analyst Averages valuation methods can be shown in the football field when relevant

Valuation Summary- Comparable Public Companies Method

($ in millions)

Example 1 (large cable network, minority value):

Example 2 (high growth digital company, control value):

Selected Multiples
LTM Run Rate
EBITDA

GSN Digital

Low

Selected Multiples Analysis

High

Comps
Median

Implied

Selected as % of Median

Enterprise Value Range

$22.2

7.0 x

--

8.0 x

6.4 x

109.2%

--

124.8%

$155.2

--

$177.3

$44.2

3.5 x

--

4.5 x

3.8 x

92.1%

--

118.5%

$154.8

--

$199.0

100.7%

--

121.6%

CY 13
EBITDA

Mean / Median
Concluded Enterprise Value Range (Minority Basis)
Control Premium

25.0%

Concluded Enterprise Value Range (Control)

$155.0

--

$188.2

$155.0

--

$188.2

$38.8
$193.8

$47.1
--

$235.3

Multiples of Comparable Public Companies

($ in millions)

LTM

Comparable Public Companies

Valuation
Enterprise Value /
Revenue
EBITDA
CY'12
CY'13
LTM
CY'12

CY'13

Size
12/4/2012
Enterprise
Market
Value
Capitalization

LTM
Revenue

Pure Play Networks

AMC Networks Inc.
Crown Media Holdings Inc.
Discovery Communications, Inc.
Outdoor Channel Holdings, Inc.
Scripps Networks Interactive, Inc.
Median
Mean

4.3x
3.1x
5.4x
1.7x
4.6x
4.3x
3.8x

4.4x
NA
5.3x
1.7x
4.5x
4.4x
3.9x

4.0x
NA
4.9x
NA
4.1x
4.1x
4.4x

12.0x
7.5x
12.2x
12.5x
10.0x
12.0x
10.8x

11.2x
NA
11.4x
9.4x
9.8x
10.5x
10.4x

10.5x
NA
10.3x
NA
8.9x
10.3x
9.9x

$5,705
$1,062
$23,946
$125
$10,346
$5,705
$8,237

$3,733
$608
$20,360
$184
$9,002
$3,733
$6,777

$1,325
$347
$4,460
$76
$2,256
$1,325
$1,693

Diversified Media
CBS Corporation
Walt Disney Co.
News Corp.
Time Warner Inc.
Viacom, Inc.
Median
Mean

1.9x
2.3x
1.9x
2.1x
2.2x
2.1x
2.1x

1.8x
2.3x
1.8x
2.0x
NA
1.9x
2.0x

1.7x
2.1x
1.8x
2.0x
NA
1.9x
1.9x

8.0x
9.0x
9.3x
8.5x
7.8x
8.5x
8.5x

7.6x
8.5x
9.1x
8.6x
7.9x
8.5x
8.3x

7.1x
7.7x
8.2x
8.0x
7.4x
7.7x
7.7x

$27,139
$97,562
$63,084
$58,984
$32,308
$58,984
$55,816

$22,159
$84,439
$57,473
$42,296
$24,778
$42,296
$46,229

$14,602
$42,278
$33,883
$28,758
$14,577
$28,758
$26,820

Global Median
Global Mean

2.3x
2.9x

2.2x
3.0x

2.1x
3.0x

9.2x
9.7x

9.1x
9.3x

8.1x
8.5x

$25,543
$32,026

$21,260
$26,503

$9,519
$14,256

Comparative Analysis
($ in millions)
Comparative Analysis
Size
LTM Revenue
Walt Disney Co.
News Corp.
Time Warner Inc.
CBS Corporation
Viacom, Inc.
Discovery Communications, Inc.
Scripps Networks Interactive, Inc.
Starz
AMC Networks Inc.
Crown Media Holdings Inc.
Outdoor Channel Holdings, Inc.
Historical Growth
2 Year CY EBITDA
CBS Corporation
Scripps Networks Interactive, Inc.
Starz
Outdoor Channel Holdings, Inc.
Discovery Communications, Inc.
Crown Media Holdings Inc.
Walt Disney Co.
News Corp.
AMC Networks Inc.
Time Warner Inc.
Viacom, Inc.
Profitability
LTM EBIT / LTM Revenue
Discovery Communications, Inc.
Scripps Networks Interactive, Inc.
Crown Media Holdings Inc.
AMC Networks Inc.
Viacom, Inc.
Starz
Time Warner Inc.
Walt Disney Co.
CBS Corporation
News Corp.
Outdoor Channel Holdings, Inc.

$42,278
$33,883
$28,758
$14,602
$14,577
$4,460
$2,256
$1,640
$1,325
$347
$76

Size
Enterprise Value
Walt Disney Co.
News Corp.
Time Warner Inc.
Viacom, Inc.
CBS Corporation
Discovery Communications, Inc.
Scripps Networks Interactive, Inc.
AMC Networks Inc.
Starz
Crown Media Holdings Inc.
Outdoor Channel Holdings, Inc.

$97,562
$63,084
$58,984
$32,308
$27,139
$23,946
$10,346
$5,705
$2,900
$1,062
$125

Historical Growth
2 Year CY Revenue
Scripps Networks Interactive, Inc.
Discovery Communications, Inc.
AMC Networks Inc.
Crown Media Holdings Inc.
Time Warner Inc.
Walt Disney Co.
News Corp.
CBS Corporation
Starz
Viacom, Inc.
Outdoor Channel Holdings, Inc.

23%
11%
10%
8%
7%
6%
5%
5%
2%
0%
NMF

Viacom, Inc.
Crown Media Holdings Inc.
Discovery Communications, Inc.
AMC Networks Inc.
Scripps Networks Interactive, Inc.
Time Warner Inc.
Walt Disney Co.
News Corp.
CBS Corporation
Starz
Outdoor Channel Holdings, Inc.

23%
13%
12%
10%
10%
8%
5%
3%
1%
1%
NMF

34%
33%
27%
24%
21%
20%
15%
15%
14%
8%
8%

Projected Growth
1 Year CY EBITDA
AMC Networks Inc.
CBS Corporation
Discovery Communications, Inc.
Scripps Networks Interactive, Inc.
Walt Disney Co.
News Corp.
Starz
Time Warner Inc.
Viacom, Inc.
Crown Media Holdings Inc.
Outdoor Channel Holdings, Inc.

19%
14%
10%
9%
8%
7%
5%
2%
1%
0%
0%

Projected Growth
1 Year CY Revenue
Scripps Networks Interactive, Inc.
AMC Networks Inc.
Discovery Communications, Inc.
Walt Disney Co.
Outdoor Channel Holdings, Inc.
CBS Corporation
News Corp.
Starz
Time Warner Inc.
Crown Media Holdings Inc.
Viacom, Inc.

12%
10%
7%
6%
5%
5%
4%
3%
0%
0%
NMF

46%
44%
41%
36%
29%
27%
26%
24%
23%
20%
13%

Leverage
Total Debt / Enterprise Value
Crown Media Holdings Inc.
AMC Networks Inc.
Starz
Time Warner Inc.
News Corp.
Viacom, Inc.
Discovery Communications, Inc.
CBS Corporation
Walt Disney Co.
Scripps Networks Interactive, Inc.
Outdoor Channel Holdings, Inc.

46%
40%
40%
34%
26%
25%
22%
22%
15%
13%
0%

Historical Growth
1 Year CY EBITDA
31%
28%
27%
24%
21%
20%
15%
13%
12%
8%
0%

Starz
Viacom, Inc.
CBS Corporation
Crown Media Holdings Inc.
Outdoor Channel Holdings, Inc.
Discovery Communications, Inc.
AMC Networks Inc.
News Corp.
Scripps Networks Interactive, Inc.
Time Warner Inc.
Walt Disney Co.

42%
41%
39%
29%
27%
25%
21%
21%
20%
17%
9%

Profitability
LTM EBITDA to LTM Revenue
Scripps Networks Interactive, Inc.
Discovery Communications, Inc.
Crown Media Holdings Inc.
AMC Networks Inc.
Viacom, Inc.
Starz
Walt Disney Co.
Time Warner Inc.
CBS Corporation
News Corp.
Outdoor Channel Holdings, Inc.

Historical Growth
1 Year CY Revenue

CapIQ: Public Comparables Screen

To screen for public comparables on CapIQ, go to Screening > Companies

Key parameters to set for your search are geographic location, industry classifications, and company type

Then click, view results

Valuation Summary- Comparable Transaction Method

($ in millions)

Selected Multiples
LTM Run Rate

Starz

Low

EBITDA

$436

7.5 x

Mean / Median
Concluded Enterprise Value Range (Control)

--

Selected Multiples Analysis

High

Comps
Median

8.5 x

8.0 x

Implied

Selected as % of Median

Enterprise Value Range

94.3%

--

106.8%

$3,270

--

$3,706

94.3%

--

106.8%

$3,270

--

$3,706

$3,300

$3,700

Comparable Transactions
($ in millions)
Financial Metrics
Announced

Network

Summary Description

EV

Revenue

EBITDA

EV/

EV/

Subscribers

Revenue

EBITDA

(mil.)

Subscriber Metrics
EV/
Revenue/
Subscriber

Subscriber

EBITDA/
Subscriber

RECENT TRANSACTIONS (2009-2012)

03/27/13
03/04/13
01/02/13
11/05/09
04/09/09
01/27/09
01/05/09

TV Guide Network1
Outdoor Channel
Current TV
Travel Channel2
GSN
TV Games ("TVG") Networks
TV Guide Network3

Offers entertainment and television guidance-related programming.

Cable television network offering traditional outdoor related lifestyle programming.
Television and online network of news and political programming.
Cable television network offering shows related to travel and leisure.
Television network for games including casino and game show series.
Sports television TV network dedicated to horse racing.
Offers entertainment and television guidance-related programming.

$210.0
$168.2
$500.0
$975.0
$600.0
$50.7
$250.0

$82.0
$77.3
$108.4
$193.3
$139.7
$38.2
$103.0

$11.0
$12.6
$24.0
$77.8
$47.9
NA
$24.8

2.56x
2.18x
4.61x *
5.04x
4.30x
1.33x *
2.43x

19.1x *
13.3x
20.8x *
12.5x
12.5x
NA
10.1x

80.0
38.1
58.2
95.0
67.2
29.3
72.4

$2.63
$4.42
$8.59
$10.26
$8.93
$1.73
$3.45

$1.03
$2.03
$1.86
$2.03
$2.08
$1.30
$1.42

$0.14
$0.33
$0.41
$0.82
$0.71
NA
$0.34

Network offering films, documentaries, and original programs.

Operates a television channel and provides hunting and fishing programs.
Digital sports media company in the United States.
Cable television news channel that broadcasts in the U.S.
Cable channel that broadcasts outdoor related lifestyle programming.
Educational network for preschoolers.
Cable channel offering fresh perspectives on history and current events
The Health Network is a 24-hour health related cable channel.
Features a broad variety of jazz productions, films, and docs.
Provides live participation shows, game shows, reality series etc.

$496.0
$31.1
$324.9
$70.0
$303.0
$203.0
$200.0
$255.0
$63.0
$552.0

$90.5
NA
$39.4
$19.0
$31.7
$25.6
NA
$9.1
$6.8
$72.9

$34.1
NA
NA
NA
$8.5
NA
NA
NA
NA
NA

5.48x
NA
8.25x
3.68x *
9.56x
7.93x
NA
28.02x *
9.26x
7.57x

14.5x
NA
NA
NA
35.6x *
NA
NA
NA
NA
NA

30.0
6.7
14.7
17.0
26.0
28.0
14.0
24.5
8.6
33.0

$16.53
$4.64
$22.10
$4.12
$11.65
$7.25
$14.29
$10.41
$7.33
$16.73

$3.02
NA
$2.68
$1.12
$1.22
$0.91
NA
$0.37
$0.79
$2.21

$1.14
NA
NA
NA
$0.33
NA
NA
NA
NA
NA

Owns and operates a country music video network.

Cable channel covering technology information, news and ent.
Provides golf entertainment, information and services.
Owns and operates television network for games in the United States.
Cable television network with a focus on food and lifestyle.
Offers programming in outdoor adventure, action sports etc.
Cable network devoted to cars, boats, airplanes and motorcycles enthusiasts.
Provides golf entertainment, information and services.
Cable network devoted to cars, boats, airplanes and motorcycles enthusiasts.
Offers programming in outdoor adventure, action sports etc.

$140.0
$288.0
$1,162.8
$932.8
$1,250.0
$650.0
$751.0
$1,181.2
$750.4
$615.4

$12.0
NA
NA
$72.9
$152.0
$64.0
NA
$109.4
$103.6
NA

NA
NA
$80.3
NA
$56.8
NA
NA
NA
NA
NA

11.67x
NA
NA
12.80x
8.22x
10.16x
NA
10.80x
7.24x
NA

NA
NA
14.5x
NA
22.0x
NA
NA
NA
NA
NA

36.7
44.0
58.4
42.4
56.0
39.0
45.6
34.5
40.3
36.0

$3.81
$6.55
$19.91
$22.00
$22.32
$16.67
$16.47
$34.24
$18.62
$17.09

$0.33
NA
NA
$1.72
$2.71
$1.64
NA
$3.17
$2.57
NA

NA
NA
$1.38
NA
$1.01
NA
NA
NA
NA
NA

Produces national, regional, and local weather-related video programs.

Cable television network targeting younger women.
Cable television network offering shows related to travel and leisure.
Cable channel offering info on the American system of justice.
Programming dedicated to fashion, design, interior decoration, and trends.
Operates television networks in the United States.
Operates as an e-retailer of jewelry, home style, beauty products in the U.S.
National cable television networks. Film, independent and women.
Provides cable television and Internet programming services.
Consists of Fox Family Channel and the Fox Kids Network.
National cable television networks.
Television network in the U.S. primarily serving African American viewers.
Operates a cable network designed to cater to a young adult demographic.
Serves as a global media company focusing on consumer entertainment.

$3,500.0
$925.0
$684.0
$1,394.0
$3,113.9
$7,275.0
$14,000.0
$2,500.0
$2,450.0
$3,714.0
$3,976.0
$2,627.0
$3,118.0
$1,540.0

$550.0
NA
NA
NA
$437.0
$1,305.8
$4,381.0
$397.0
$340.0
$724.2
$360.0
$218.0
$413.0
$74.9

$294.0
$61.2
$71.4
$83.4
NA
NA
$858.0
$160.0
$87.0
$197.9
$123.0
$128.0
NA
NA

6.36x
NA
NA
NA
7.13x
5.57x
3.20x *
6.30x
7.21x
5.13x
11.04x
12.05x
7.55x
20.56x *

11.9x
15.1x
9.6x
16.7x
NA
NA
16.3x
15.6x
28.2x *
18.8x
32.3x *
20.5x
NA
NA

$5.73
NA
NA
NA
$3.28
$6.83
$33.62 *
$2.44
$4.16
$6.63
$2.38
$3.49
$3.60
$0.85

$3.06
$0.83
$0.81
$0.98
NA
NA
$6.58
$0.98
$1.06
$1.81
$0.81
$2.05
NA
NA

OLDER TRANSACTIONS (2000-2008)

0 - 30 Million Subscribers
05/04/08
06/01/07
11/01/05
05/01/04
04/20/04
08/20/02
04/01/02
09/05/01
07/01/01
02/01/01

Sundance Channel
The Sportsman Channel
CSTV
News World International
Outdoor Channel
Noggin
Discovery Civilization
Health Network
BET on Jazz
GSN: The Game Show Network

30 - 60 Million Subscribers
10/12/04
03/25/04
12/01/03
03/01/02
11/04/02
10/01/01
10/01/01
05/22/01
05/01/01
05/01/01

Great American Country

TechTV
Golf Channel
Game Show Network
Bravo
Outdoor Life
Speedvision
The Golf Channel
Speedvision
Outdoor Life

60+ Million Subscribers

07/06/08
10/01/07
05/01/07
05/01/06
07/04/04
10/08/03
07/03/03
06/30/03
04/22/03
07/23/01
02/01/01
11/03/00
05/01/00
01/18/00

Weather Channel
Oxygen
Travel Channel
CourtTV
E!, Style, International Channel
USA, SCI FI, Trio
QVC
AMC, IFC, WE
Comedy Central
Fox Family Worldwide
AMC, Bravo, IFC, & WE
BET
TNN and CMT
TV Guide and Sneak Preview

Note:
(1)
(2)
(3)

* Indicates that transaction is excluded from range.

CBS paid "a little over $100 million" for 50% stake. Estimated $105 million for 50% stake.
Valuation based on $3.0bn purchase price for Comcasts 15.8% stake in A&E/Lifetime.
With Scripps synergies, the estimated 2010 EV/EBITDA multiple is 9.75x per Deutsche Bank research report dated 11/8/2009 covering Scripps.

96.0
74.0
88.0
85.4
133.3
191.2
130.3
162.6
81.8
109.2
151.0
62.4
114.6
88.2

$36.46
$12.50
$7.77
$16.32
$23.36
$38.05
$107.44 *
$15.38
$29.95
$34.01
$26.33
$42.10
$27.21
$17.46

Comparable Transactions (cont.)

($ in millions)

Financial Metrics

EV

Revenue

EBITDA

Subscriber Metrics
EV/

EV/

Subscribers

EV/

Revenue/

EBITDA/

Revenue

EBITDA

(mil.)

Subscriber

Subscriber

Subscriber

RECENT TRANSACTIONS (2009-2012)

Low

$50.7

$38.2

$11.0

2.18x

10.1x

29.3

$1.73

$1.30

$0.33

High

$975.0

$193.3

$77.8

5.04x

13.3x

95.0

$10.26

$2.08

$0.82

Median

$250.0

$103.0

$24.4

2.56x

12.5x

67.2

$4.42

$1.86

$0.34

Mean

$393.4

$106.0

$33.0

3.30x

12.1x

62.9

$5.72

$1.68

$0.47

$31.1
$14,000.0

$6.8
$4,381.0

$8.5
$858.0

5.13x
12.80x

9.6x
22.0x

6.7
191.2

$3.81
$42.10

$0.33
$6.83

$0.33
$6.58

$838.0
$1,795.2

$103.6
$400.4

$85.2
$160.3

7.93x
8.44x

15.6x
16.0x

44.8
64.8

$16.73
$18.78

$2.51
$2.66

$1.04
$1.63

OLDER TRANSACTIONS (2000-2008)

Low
High
Median
Mean

Sources: Kagan, UBS estimates, Bear Stearns estimates, A.G. Edwards estimates, JP Morgan estimates, Capital IQ and various news articles.

CapIQ: Transactions Comparables Screen

To Screen for transaction on CapIQ, go to Screening > Transactions

Key parameters to set for your search are geographic location, industry classifications, transaction type, M&A announced date, target
revenue, and total transaction value

Then click, view results

Key data columns include Announced Date, Buyer, Seller, Transaction Value, EV/Revenue, EV/EBITDA, etc.

Discounted Cash Flow Method

($ in millions)

Discounted Cash Flow

Year 1
2012E
Free Cash Flow:
EBIT
Less: Taxes
Unlevered Cash Flows
Less: Change in Working Capital
Less: Capital Expenditures
Plus: Depreciation and Amortization
Net Unlevered Cash Flows
Discount Period
Discount Factor @ 12.2%
Present Value of Net Unlevered Cash Flows

$482
($193)
$289
(91)
(27)
27
$198
0.5
94%
$187

Year 2
2013E
$450
($180)
$270
(96)
(29)
29
$174
1.5
84%
$146

Year 3
2014E

Year 4
2015E

$474
($190)
$284
(101)
(30)
30
$184
2.5
75%
$138

Year 5
2016E

Year 6
2017E

$498
($199)
$299
(106)
(32)
32
$193
3.5
67%
$129

$506
($202)
$304
(108)
(32)
32
$196
4.5
60%
$117

$479
($192)
$288
(102)
(31)
31
$186
5.5
53%
$99

NPV
Terminal Exit Multiple
5.0x
6.0x
$2,183
$2,453
2,138
2,400
2,093
2,349
2,050
2,299
2,008
2,250

7.0x
$2,723
2,662
2,604
2,547
2,492

8.0x
$2,992
2,925
2,860
2,796
2,735

NPV of Cash Flows

Terminal Year EBITDA (FY2017E)
Terminal Multiple
Terminal Value
Present Value of Terminal Value
% of Enterprise Value
Enterprise Value
Implied EV as a Multiple of 2012E EBITDA
Implied EV as a Multiple of 2013E EBITDA
Implied Perpetuity Growth Rate

$815
$510
6.0x
$3,059
$1,533
65.3%
$2,349
5.2x
4.9x
5.8%

Discount Rate

Terminal Value Method

$2,349
11.2%
11.7%
12.2%
12.7%
13.2%

4.0x
$1,914
1,875
1,837
1,801
1,765

EV Range

$2,000

--

$2,700

NPV of Cash Flows

FCF (FY 2016E)
Perpetuity Growth Rate
Terminal Value
Present Value of Terminal Value
% of Enterprise Value
Enterprise Value
Implied EV as a Multiple of 2012E EBITDA
Implied EV as a Multiple of 2013E EBITDA
Implied Terminal EBIT Multiple

10

$815
$186
3.0%
$2,077
$1,103
57.5%
$1,918
4.0x
3.8x
4.1x

Discount Rate

Perpetuity Growth Method

EV Range

$1,918
11.2%
11.7%
12.2%
12.7%
13.2%

2.0%
$1,982
1,887
1,800
1,722
1,651

NPV
Perpetuity Growth Rate
2.5%
3.0%
$2,054
$2,135
1,950
2,020
1,856
1,918
1,772
1,827
1,695
1,744
$1,800

--

3.5%
$2,226
2,099
1,987
1,887
1,797
$2,100

4.0%
$2,330
2,189
2,065
1,955
1,857

Comparable Company WACC Analysis Domestic

($ in millions)

Comparable Company WACC Analysis

Company
Scripps Networks Interactive, Inc.
CBS Corporation
The Walt Disney Company
News Corp.
Time Warner Inc.
Viacom, Inc.
Median
Mean

Company
Scripps Networks Interactive, Inc.
CBS Corporation
The Walt Disney Company
News Corp.
Time Warner Inc.
Viacom, Inc.
Median
Mean

Headquarter
Country
United States
United States
United States
United States
United States
United States

Risk Free
Rate
2.4%
2.4%
2.4%
2.4%
2.4%
2.4%
2.4%
2.4%

Debt
1,384.3
6,467.0
17,457.0
16,457.0
19,441.0
8,933.0
$12,695.0
$11,689.9

Levered Beta
1.11
2.26
1.21
1.53
1.17
1.28
1.25
1.43

Preferred
Stock
0.0
0.0
0.0
0.0
0.0
0.0
$0.0
$0.0
Unlevered
Beta
1.04
2.05
1.12
1.38
1.01
1.13
1.13
1.29

Equity Market
Value
10,129.1
30,085.6
115,331.3
74,058.5
55,746.8
32,893.2
$44,320.0
$53,040.7

Total
Capitalization
11,513.4
36,552.6
132,788.3
90,515.5
75,187.8
41,826.2
$58,507.0
$64,730.6

Equity Risk
Premium
6.6%
6.6%
6.6%
6.6%
6.6%
6.6%
6.6%
6.6%

Size
Premium
0.8%
(0.4%)
(0.4%)
(0.4%)
(0.4%)
(0.4%)
(0.4%)
(0.2%)

Debt to Equity
Market Value
12.0%
17.7%
13.1%
18.2%
25.9%
21.4%
17.9%
18.0%
Cost of
Equity

Debt to Total
Capitalization
12.0%
17.7%
13.1%
18.2%
25.9%
21.4%
17.9%
18.0%
Cost of
Debt

10.6%
17.0%
10.1%
12.2%
9.8%
10.5%
10.5%
11.7%

Preferred Stock to
Total
Capitalization
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

WACC
3.7%
6.2%
2.8%
6.6%
6.8%
5.2%
5.7%
5.2%

9.6%
14.7%
9.0%
10.7%
8.3%
8.9%
9.3%
10.2%

WACC Inputs
Unlevered Beta (u )
Calculated Levered Beta (u )
Market Premium (Rm-Rf)
Equity Size Premium (Rs)
Country Risk Premium
Company Specific Premium
Risk-Free Rate (Rf)
Pre-Tax Cost of Debt (Rd )
Assumed Marginal Corporate Tax Rate (T)
Equity as a Percentage of Total Capital
Debt as a Percentage of Total Capital
Target Total Debt / Equity Value

1.29
1.43
6.6%
1.7%
0.0%
0.0%
2.4%
5.7%
40.0%
80.0%
20.0%
18.0%

Peer group average

Calculated Levered Beta = Industry Adjusted Average Unlevered Beta * (1+[(1-Tax Rate) * Target Total Debt / Equity Value])
Based on simple differences of historical large company stock total returns and government bond income returns
Size premium for companies with equity values in the 5th decile from Ibbotson
Company's primary revenue is derived from the US
SPE Team Risk Adjustment
Based on 20-year Treasury Bond as of 5/2/2013
Median based on comparable companies analysis
Damodaran
Target % based on comparable companies analysis
Target % based on comparable companies analysis
Peer group average

Calculation of WACC:
Cost of Equity (CAPM)

Cost of Debt

Calculated WACC
Selected WACC Range

11

Ke =
Ke =
Ke =
Kd =
Kd =
Kd =
WACC =
11.0%

(Levered Beta * Market Premium) + Size Premium + Risk Free Rate

(1.43 * 6.6%) + 1.7% + 2.4% + 0.0%
13.6%
Pre-tax Cost of Debt * (1-Tax Rate)
5.7% * (1 - 40.0%)
3.4%
11.6%
% of Debt to Total Capital * Tax Effected Cost of Debt (Kd) + % Equity to Total Capital * Cost of Equity (Ke)
--12.0%

Equity Market
Value to Total
Capitalization
88.0%
82.3%
86.9%
81.8%
74.1%
78.6%
82.1%
82.0%

Comparable Company WACC Analysis International

($ in millions)
Comparable Company WACC Analysis

Company
Mediaset Espaa Comunicacin, SA
Societe d'Edition de Canal Plus S.A.
Sun TV Network Ltd
Grupo Televisa, S.A.B.
ITV plc
Naspers Ltd.
ProSiebenSat.1 Media AG
RTL Group SA
Viacom, Inc.
Median
Mean
Company
Mediaset Espaa Comunicacin, SA
Societe d'Edition de Canal Plus S.A.
Sun TV Network Ltd
Grupo Televisa, S.A.B.
ITV plc
Naspers Ltd.
ProSiebenSat.1 Media AG
RTL Group SA
Viacom, Inc.
Median
Mean

Headquarter
Country
Spain
France
India
Mexico
United Kingdom
South Africa
Germany
Luxembourg
United States

Risk Free
Rate
2.4%
2.4%
2.4%
2.4%
2.4%
2.4%
2.4%
2.4%
2.4%
2.4%
2.4%

Preferred
Stock

$0.3
6.6
0.0
4,639.6
1,118.2
2,908.7
3,522.8
38.2
8,933.0
$1,118.2
$3,364.5

$0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
$0.0
$0.0

Equity Market
Value
$3,143.5
887.0
3,143.7
14,387.3
7,503.3
25,790.5
8,294.8
10,934.5
32,099.6
$7,503.3
$13,664.9

Levered Beta
1.22
0.49
1.37
1.05
1.06
0.48
1.40
0.60
1.05
1.05
1.10

Unlevered
Beta
1.22
0.49
1.37
0.86
0.95
0.44
1.07
0.60
0.88
0.86
0.91

Equity Risk
Premium
6.6%
6.6%
6.6%
6.6%
6.6%
6.6%
6.6%
6.6%
6.6%
6.6%
6.6%

Debt

Total
Capitalization
$3,143.8
893.6
3,143.7
19,026.9
8,621.5
28,699.2
11,817.6
10,972.7
41,032.6
$8,621.5
$17,029.5

Debt to Equity
Market Value
0.0%
0.7%
0.0%
32.2%
14.9%
11.3%
42.5%
0.3%
27.8%
13.1%
16.0%

Debt to Total
Capitalization
0.0%
0.7%
0.0%
24.4%
13.0%
10.1%
29.8%
0.3%
21.8%
13.0%
14.5%

Preferred Stock to
Total
Capitalization
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

Size
Premium
1.2%
1.8%
1.2%
0.8%
0.8%
(0.4%)
0.8%
0.8%
(0.4%)
0.9%
0.8%

Cost of
Equity
11.7%
7.4%
12.7%
10.2%
10.2%
5.2%
12.5%
7.2%
9.0%
9.6%
10.6%

Cost of
Debt
28.1%
22.2%
NA
7.8%
8.3%
6.6%
6.1%
26.8%
5.2%
7.8%
11.2%

0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

WACC Inputs
Unlevered Beta (u )
Calculated Levered Beta (u )
Market Premium (Rm-Rf)
Equity Size Premium (Rs)
Country Risk Premium
Company Specific Premium
Risk-Free Rate (Rf)
Pre-Tax Cost of Debt (Rd )
Assumed Marginal Corporate Tax Rate (T)
Equity as a Percentage of Total Capital
Debt as a Percentage of Total Capital
Target Total Debt / Equity Value

0.91
1.01
6.6%
4.3%
1.5%
2.0%
2.4%
7.8%
33.3%
85.5%
14.5%
16.0%

Peer group average

Calculated Levered Beta = Industry Adjusted Average Unlevered Beta * (1+[(1-Tax Rate) * Target Total Debt / Equity Value])
Based on simple differences of historical large company stock total returns and government bond income returns
Size premium for companies with equity values in the 10th decile from Ibbotson
Country Risk Adjustment - based on exposure to African countries
SPE Team Risk Adjustment
Based on 20-year European Central Bank Bond as of 5/2/2013
Median based on comparable companies analysis
Peer group average
Target % based on comparable companies analysis
Target % based on comparable companies analysis
Peer group average

Calculation of WACC:
Cost of Equity (CAPM)

Cost of Debt

WACC
Selected WACC Range

12

Ke =
Ke =
Ke =
Kd =
Kd =
Kd =
WACC =
14.5%

(Levered Beta * Market Premium) + Size Premium + Risk Free Rate

(1.01 * 6.6%) + 4.3% + 2.4% + 1.5%
17.0%
Pre-tax Cost of Debt * (1-Tax Rate)
7.8% * (1 - 33.3%)
5.2%
15.3%
% of Debt to Total Capital * Tax Effected Cost of Debt (Kd) + % Equity to Total Capital * Cost of Equity (Ke)
--16.5%

Equity Market
Value to Total
Capitalization
100.0%
99.3%
100.0%
75.6%
87.0%
89.9%
70.2%
99.7%
78.2%
87.0%
85.5%

WACC: Capital Structure

Indicates the percentage of total capitalization attributable to debt and equity

Choose an industry market capital structure based on the mean/median of the comparable companies

Capital structures for specific industries can also be obtained from Ibbotson

If you believe the subject company can not be leveraged at the current point (no meaningful earnings, assets, etc.), you can use 100%
equity capital structure

You can also use the current company capital structure for minority valuations (assuming no change of control, capital structure
continues to remain as is)

13

WACC: Beta

Use betas of comparable companies mean/median

Use each public comparable companys actual cap structure when unlevering the betas. Relever the mean or median of the comparables
using the target companys capital structure

Exclude outliers (too low or high betas/do not use companies that are under financial distress)

If there are no public company comparables available to calculate beta, use an Asset beta for an industry from Damodarans website
Go to: http://pages.stern.nyu.edu/~adamodar/ and click Updated Data > Levered and Unlevered Betas by Industry

Industry Name
Advertising
Aerospace/Defense
Air Transport
Apparel
Auto Parts
Automotive
Bank
Bank (Midwest)
Beverage
Biotechnology
Building Materials
Cable TV
Chemical (Basic)
Chemical (Diversified)

14

Number of Firms
32
66
36
54
54
12
416
68
35
214
43
20
18
33

Average Beta
1.68
0.98
1.03
1.36
1.76
1.73
0.77
0.89
0.95
1.23
1.57
1.4
1.37
1.55

Market D/E Ratio Tax Rate Unlevered Beta

40.84%
16.02%
1.25
26.64%
20.08%
0.81
59.08%
21.35%
0.7
13.77%
18.57%
1.23
24.37%
18.77%
1.47
103.42%
16.24%
0.93
128.23%
16.39%
0.37
49.85%
20.99%
0.64
22.29%
18.82%
0.8
15.92%
2.98%
1.07
65.24%
9.48%
0.99
66.11%
21.23%
0.92
24.73%
21.89%
1.15
16.69%
19.75%
1.37

Cash/Firm Value
13.12%
11.74%
14.13%
5.13%
11.65%
16.84%
16.43%
15.03%
4.33%
18.10%
6.18%
3.61%
7.52%
6.96%

Unlevered Beta corrected for cash

1.44
0.92
0.82
1.29
1.66
1.11
0.45
0.76
0.84
1.3
1.05
0.96
1.24
1.47

WACC: Tax Rate

Use the latest country marginal tax rate when calculating WACC for the target from Damodarans website. If revenue comes from more
than one country, weight the marginal tax rate by each countrys revenue

Go to: http://pages.stern.nyu.edu/~adamodar/ and click Updated Data > Marginal tax rate by country

Source: KPMG
Data: As of January 5, 2013
Country
Afghanistan
Albania
Angola
Argentina
Armenia
Aruba
Australia
Austria
15

2005
0.00%
23.00%
35.00%
35.00%
20.00%
35.00%
30.00%
25.00%

2006
0.00%
20.00%
35.00%
35.00%
20.00%
35.00%
30.00%
25.00%

2007
20.00%
20.00%
35.00%
35.00%
20.00%
28.00%
30.00%
25.00%

2008
20.00%
10.00%
35.00%
35.00%
20.00%
28.00%
30.00%
25.00%

2009
20.00%
10.00%
35.00%
35.00%
20.00%
28.00%
30.00%
25.00%

2010
20.00%
10.00%
35.00%
35.00%
20.00%
28.00%
30.00%
25.00%

2011
20.00%
10.00%
35.00%
35.00%
20.00%
28.00%
30.00%
25.00%

2012
20.00%
10.00%
35.00%
35.00%
20.00%
28.00%
30.00%
25.00%

WACC: Equity Risk Premium and Size Premium

Source: Ibbotson

16

Use this Equity Risk Premium

Market Capitalization range for

each decile

Deciles based on high end of

range

WACC: Country Premium

If the public company comparables are in the same country as the target, then you do not need to include a country premium since the
public company comparables capture the country risk premium

If the target is located outside the U.S., and the public comparables are U.S. companies, use the targets country premium from
Damodarans website. If revenue comes from more than one country, weight the country premium by each countrys revenue to come
with an estimate

Go to: http://pages.stern.nyu.edu/~adamodar/ and click Updated Data > Risk Premiums for Other Markets

Country
Albania
Angola
Argentina
Armenia
Australia
Austria
Azerbaijan
Bahamas
Bahrain
Bangladesh
Barbados
Belarus
Belgium
Belize

17

Region
Eastern Europe & Russia
Africa
Central and South America
Eastern Europe & Russia
Australia & New Zealand
Western Europe
Eastern Europe & Russia
Caribbean
Middle East
Asia
Caribbean
Eastern Europe & Russia
Western Europe
Central and South America

Local Currency Rating Rating-based Default Spread

B1
4.00%
Ba3
3.25%
B3
6.00%
Ba2
2.75%
Aaa
0.00%
Aaa
0.00%
Baa3
2.00%
Baa1
1.50%
Baa1
1.50%
Ba3
3.25%
Baa3
2.00%
B3
6.00%
Aa3
0.70%
Caa3
10.00%

Total Equity Risk Premium

11.80%
10.68%
14.80%
9.93%
5.80%
5.80%
8.80%
8.05%
8.05%
10.68%
8.80%
14.80%
6.85%
20.80%

Country Risk Premium

6.00%
4.88%
9.00%
4.13%
0.00%
0.00%
3.00%
2.25%
2.25%
4.88%
3.00%
9.00%
1.05%
15.00%

WACC: Company Specific Risk Premium

18

You can add a company-specific equity risk premium if you believe that there are factors (other than size) that may make the subject
company riskier than that of the comparables used to calculate the WACC. Factors can include:
Key man risk
Customer concentration
Litigation risk
Unproven business model (unproven sources of revenue or expense cuts)
Projections/growth seems high in light of historical results

WACC: Cost of Debt

For the cost of debt, SPT Biz Dev recommends using the following approaches (in priority order):
1.

If the public company comparables have debt, take the mean or median of their cost of debt. Exclude outlier/unreasonable
cost of debt. Also exclude convertible debt

2.

If you believe that the target is an investment grade company, use Moodys Baa pricing found on
http://www.federalreserve.gov/releases/h15/current/

3.

If there are no public comparables, look at Damodaran's website for an industry cost of debt. Updated Data > Levered and
Unlevered Betas by Industry. Look for D/E ratios

4.

Compare financial and operational ratios to rated debt securities to determine implied ratings. S&P has Leveraged
Commentary & Data or you can find these statistics on CapIQ

5.

Use Ibbotson SBBI Valuation Yearbook to benchmark credit statistics to imply a credit rating

19

Venture Capital Return Studies

Stage
Seed/Early Stage
Balanced
Late Stage
All ventures

5-Year IRR
51.4%
20.9%
10.6%
28.3%

10-Year IRR
34.9%
20.9%
21.6%
26.3%

20-Year IRR
20.4%
14.3%
15.3%
16.6%

Source: AICPA - Valuation of Privately-Held-Company Equity Securities Issued as Compensation (2004).

Stage
Early Stage
Expansion
Acquisition / Buyout

IRR
> 45.0%
> 35.0%
> 35.0%

Source: Determinants of Required Return in Venture Capital Investments by Sophie Manigart and Karen De Warle.

Stage
Seed Stage
Startup
3rd Stage
4th Stage
Exit Stage

IRR
70.0%
55.0%
43.0%
37.0%
35.0%

First Stage or Early Development

investments are made in enterprises that
have developed prototypes that appear
viable and for which further technical
risk is deemed minimal, although
commercial risk may be significant.

IRR
50.0%

Second Stage or Expansion enterprises

usually have shipped some product to
consumers (including beta versions).

IRR
60.0%
50.0%
40.0%
30.0%
25.0%

Bridge / IPO financing covers such

activities as pilot plant construction,
production design, and production
testing, as well as bridge financing in
anticipation of a later IPO

Source: A Portfolio Model for Venture Capital Performance Measurement and Investment Selection by Terry Dornay.

Stage
Early Stage

Start-up investments typically are made

in enterprises that are less than a year
old. The venture funding is to be used
substantially for product development,
prototype testing, and test marketing.

Source: Private Capital In the Pacific Northwest by William S. Hannonan.

Stage
Seed
Start-Up
Early-Stage
2nd Stage
Near Exit
Source: From the Mind of the Investor presented at the UNC Pembroke Entrepreneurial Summit, March 12, 2009.

Stage

Start-up
First Stage or "Early Development"
Second Stage or "Expansion"
Bridge / IPO Stage

IRR Range
Scherlis &
Sahlman Study
50.0% to 70.0%
40.0% to 60.0%
30.0% to 50.0%
20.0% to 35.0%

Plummer Study
50.0% to 70.0%
40.0% to 60.0%
35.0% to 50.0%
25.0% to 35.0%

Source: AICPA - Valuation of Privately-Held-Company Equity Securities Issued as Compensation (2004).

20

Illustrative Cost of Capital Range

30.0%

--

40.0%

Select a range