Bridging Strategy to Valuation

Credit Suisse HOLT helps investors and corporate executives bridge the gap between corporate strategy, financial performance, and valuation. By leveraging the HOLT™ proprietary frameworks, data and tools, we provide unique insights into the value creation potential of a company's current strategy and the impact of alternate strategies on the company's share price. Whether analyzing Equity, Fixed Income or Derivative securities, the HOLT™ Framework offers a competitive edge in understanding the total enterprise valuation in the context of a given corporate strategy and how this value is distributed across the entire capital structure. The case studies below illustrate how the HOLT™ Framework serves as an insightful and high impact framework for investors to identify companies that fit a desired investment style and for corporate management to develop and implement the highest value creation strategies.

Case Studies - Value Creating Investment Opportunities

The HOLT™ database and framework have been used extensively to identify and evaluate companies that fit the investment style of different equity funds, hedge funds, and private equity companies.

Case Study:

A private equity firm wanted to implement a new strategy to invest in turnaround candidates due to recent changes in the competitive landscape. Working together with the client and leveraging the HOLT™ proprietary frameworks and databases, we developed a new investment process that:

• Highlighted well-managed firms with low market expectations, giving them significant upside potential;
  
• Used the HOLT™ cash-flow focus to ferret out accounting quality issues , and quantified the performance risk where relevant;
  
• Identified relevant companies in diverse geographic regions.
  

As a result, the client has identified previously unrecognized targets in sectors where they had been operating for numerous years. They also decided to expand their investments to industry sectors and geographic regions previously ignored.

Case Study:

A hedge fund client planned to make a significant investment in an established company in a sector for which the market anticipated decreasing returns and asset growth, and hence, had reduced valuations. We were asked to develop an objective second opinion on the company's strategy and how it ranked within the industry's competitive landscape. For the company and the industry, we:

• Evaluated reported financials from a HOLT perspective, focusing on CFROI® metric results, asset growth and value-to-cost ratio, which provides a total capital perspective on the company;
  
• Using the HOLT™ valuation variables, we highlighted recent changes in the economic asset life of the company and its peers, which indicated underinvestment in operations and potential business model shifts;
  
• Conducted a company 'deep dive' analysis examining accounting quality concerns and highlighted the major operating areas where the company deviated from industry norms, indicating potential performance risks.
  

As a result, the client not only reconsidered its investment in the company but also identified other alternative investments within the industry that it had not previously recognized.

Capital Allocation

We regularly work with senior executives to help them evaluate the value impact of their use of excess cash. By using the HOLT™ Framework, we are able to quantify the share price impact of alternative avenues such as reinvesting in the organic business, pursuing growth through acquisitions, paying down debt, increasing the dividend, or repurchasing shares. The framework provides an objective perspective on the market's probable reaction to these different strategic actions.

Case Study:

For a major U.S. defense contractor, we determined that the successful execution of their strategic plan would result in several billion dollars of excess cash over the next 3-5 years. The company's management was debating whether to pay down debt or return the capital to shareholders and was looking for a sound framework to evaluate the various options. Our analysis demonstrated that the value of reducing debt (even if they needed to pay pre-payment premiums) was far greater than either increasing the dividend or repurchasing shares.

Portfolio Restructuring

We often use the HOLT™ Framework to help executives understand the impact of various portfolio restructuring strategies on the value of their company.

Case Study:

For a very large European technology company, we determined that one of their businesses was dragging down the performance of the rest of the company and was having a significant adverse impact on the company's share price. Furthermore, our analysis showed that given the long-term economics of the industry sector and management's forecasts, the business unit was very unlikely to meet its cost of capital over the next business cycle. This led to a restructuring of the business unit and a significant change in the resource allocation strategy, and resulted in a positive impact on the value of the company.

Training

We have been often retained by investment houses to train their personnel in connecting corporate strategies to financial performance to valuation. The focus of our training programs is on the key principles of value-managed management and their application to identifying value-creating investment opportunities and developing better corporate strategies.

Case Study:

A large investment management client wanted their analysts and PM's to have a common starting point for valuation. For new hires, this client outsourced analyst training to HOLT University. The resulting client-customized, week-long training program featured in-depth training on the HOLT™ Methodology and Valuation Framework in an intensive hands-on workshop format. Topics covered included:

• The measurement of real economic performance for a firm;
  
• Calibrating expectations implied by a given share price;
  
• Modeling expectations of future cash flows;
  
• Understanding the impact of different strategic options on shareholder value;
  
• A comprehensive top-to-bottom view of investment decision-making processes.