The main scope of this assignment is the valuation of the Lanxess AG a German based chemistry corporation, with about 14,400 employees and annual sales of about 5.05 billion EUR. The core activities of Lanxess AG are specialty chemicals, polymers and intermediates, including rubber chemicals, material protection products, ion exchange resins, inorganic pigments, semi-crystalline products and fine chemicals.
The authors have described the two enterprise evaluation methods – the DCF-approach and the multiplier method – with its advantages and disadvantages in practical application. For the corporate evaluation of Lanxess AG, the authors based the calculation on those two most common global evaluation approaches. The DCF method estimates the value of a company by discounting expected cash flows in the future or determined period of time, similar to the value of an investment. For the assessment of the company value, the entity and equity DCF method with an assumed constant growth rate of 3 percent has been applied. For the validation of the calculated DCF corporate values the multiplier method was conducted as second evaluation method based on EBIT-, EBITDA-, Price-Cash Flow-, Price-Earnings, and revenue ratios. For the necessary peer-group, the authors selected six appropriate global competitors: Arkema, BASF, Clariant, DSM, Huntsman and Rhodia. The different evaluation methods lead to various enterprise values of Lanxess AG with a bandwidth of evaluated results between 1.50 billion EUR and the value of 17.98 billion EUR. The DCF-approach results in values from 3.81 billion EUR to 5.81 billion EUR. For the multiplier method there have been calculated enterprise values between 1.5 billion EUR and 17.98 billion EUR. The overall median enterprise value of 3.09 billion EUR compared to the market capitalization of Lanxess AG with 2.19 billion EUR nearly fits into the proposed evaluation strategy but appears undervalued.
Each of the described and applied methods has its own validity because of the specific underlying assumptions. Therefore it is not surprising that there a range and difference in the calculated enterprise value for Lanxess AG.
The team of this evaluation project for Lanxess AG is satisfied with the results by the given information and data quality. The results confirm that the potential investor should analyse Lanxess AG in detail with proposed various functional due diligences.
Table of Content
1 Introduction
1.1 Preface/Problem Description
1.2 Objectives
1.3 Scope and Structure of Work
2 Basic Valuation Principles
2.1 Preface
2.2 Corporate Valuation – History and Drivers
2.3 Discounted Cash Flow Methods
2.3.1 Entity Method
2.3.2 Equity Method
2.3.3 Conclusion of the DCF Method
2.4 Multiplier Method
2.4.1 Introduction to the Multiplier Method
2.4.2 Methodology of the Multiplier Method
2.4.3 Conclusion of the Multiplier Method
2.5 Summary
3 Company Analysis: Lanxess AG
3.1 Preface
3.2 History of Lanxess AG
3.3 Product History
3.4 Market History
3.5 Customer and Sales Analysis
3.6 Strategic Alliances/Partnerships
3.7 Assessment of Earnings
3.8 Summary
4 Information Baseline and Quality
4.1 Preface
4.2 Financial Projections for Lanxess AG
4.3 Assessment of Available Data and Data Quality
4.4 Cash Flow Calculation for Lanxess AG
4.5 WACC Calculation for Lanxess AG
4.6 Analysis and Derivation of Peer Group
4.7 Summary
5 Valuation
5.1 Preface
5.2 DCF Method
5.3 Multiplier Method
5.3.1 Arkema
5.3.2 BASF
5.3.3 Clariant
5.3.4 DSM
5.3.5 Huntsman
5.3.6 Rhodia
5.3.7 Actual Calculation of Multiplier Method
5.4 Results of Both Evaluation Methods/Summary
6 Conclusion
6.1 Theoretical/Practical Summary
6.2 Recommendation
6.3 Future Research Direction
Objectives & Core Topics
The primary objective of this work is to determine the corporate value of Lanxess AG by employing established valuation methodologies, specifically comparing Discounted Cash Flow (DCF) approaches and the Multiplier Method to provide a comprehensive analysis of the company's financial standing.
- Application of the DCF method (Entity and Equity approach) for enterprise valuation.
- Utilization of the Multiplier Method based on a selected peer group of global competitors.
- Analysis of Lanxess AG's historical performance, product segments, and market positioning.
- Calculation and interpretation of WACC and CAPM parameters for corporate valuation.
- Comparative analysis of evaluation results to address valuation range and market perception.
Excerpt from the Book
2.3.1 Entity Method
As already outlined the focus of this assignment is on the WACC-approach from the entity perspective. This method of detecting the market value of the equity capital bases on the free cash flow and mentions both the cost of equity- and debt capital under consideration of their relation toward each other. First, the total capital is to be evaluated by summing the discounted FCFs. Then, the debt capital will be subtracted to detect the market value of the equity capital. The following formula shows, how to proceed:
The free cash flows of a determinable period are discounted by the weighted average cost of capital, followed by detecting the equity value subtracting the debt capital from the result.
Summary of Chapters
1 Introduction: Provides the problem description, research objectives, and outlines the structure of the assignment regarding the valuation of Lanxess AG.
2 Basic Valuation Principles: Explains the theoretical foundations of corporate valuation, focusing on the Discounted Cash Flow and Multiplier methods.
3 Company Analysis: Lanxess AG: Examines the history, business segments, product evolution, and earnings performance of Lanxess AG.
4 Information Baseline and Quality: Details the financial projections, data assessment, WACC calculations, and the peer group selection for the valuation.
5 Valuation: Executes the practical valuation of Lanxess AG using DCF and Multiplier methods and compares the results.
6 Conclusion: Summarizes the findings, provides recommendations for corporate valuation practices, and suggests future research directions.
Keywords
Corporate Valuation, Lanxess AG, Discounted Cash Flow, DCF Method, Multiplier Method, Entity Approach, Equity Approach, WACC, CAPM, Peer Group, Specialty Chemicals, Enterprise Value, Financial Performance, Market Capitalization, Due Diligence.
Frequently Asked Questions
What is the fundamental purpose of this work?
The assignment aims to calculate the corporate value of Lanxess AG using standard global evaluation methods to provide a meaningful assessment for potential investors.
What are the primary valuation methods utilized?
The authors employ the Discounted Cash Flow (DCF) method, including both Entity and Equity approaches, alongside the Multiplier Method for validation.
What is the core research objective?
The main objective is to evaluate the corporate value of Lanxess AG while addressing the complexity of financial performance indicators and demonstrating the stress ratio between complexity reduction and evaluation accuracy.
Which scientific methods are applied?
The work uses dynamic investment appraisal theory (DCF) and comparative market analysis (Multiplier Method), supported by WACC calculations and Capital Asset Pricing Model (CAPM) parameters.
What content is covered in the main section of the paper?
The main section covers the theoretical basis of valuation, a detailed company analysis of Lanxess AG, the establishment of an information baseline, and the practical application of valuation formulas using specific financial data from a selected peer group.
Which keywords characterize this analysis?
The study is characterized by terms such as Corporate Valuation, DCF, WACC, Multiplier Method, and specific financial indicators related to the chemical industry.
Why was a peer group of six companies selected?
A peer group consisting of Arkema, BASF, Clariant, DSM, Huntsman, and Rhodia was chosen to provide a reliable basis for the Multiplier Method, ensuring the valuation is based on comparable industrial and financial characteristics.
What does the final comparison of results reveal?
The comparison shows a variance in the calculated enterprise value between approximately 2.1 billion EUR and 5.4 billion EUR, highlighting the impact of different underlying assumptions and valuation approaches.
- Citation du texte
- Silvio Wilde (Auteur), Daniel Franzen (Auteur), 2011, Corporate Valuation - Lanxess AG, Munich, GRIN Verlag, https://www.grin.com/document/211110
