Making Better Corporate Decisions
The Buy-Side Insights Group applies the HOLT™ Valuation Framework to deliver a unique set of insights and solutions to senior management of Credit Suisse's Investment Banking clients. The Group supports these clients by using the same objective framework utilized by 5,000 institutional investors to analyze corporate financial metrics. Our overall objective when assisting corporate clients is to work with senior executives to analyze the key drivers of the company's share price and to determine what actions the company can take to deliver superior returns to its shareholders. Because of the widespread use of the valuation framework by buy-side money managers, the framework allows us to credibly link strategic and financial decisions directly to the impact they will have on a company's share price.
Providing Management/Board Of Directors with an Investor's Perspective on the Company
We provide senior management with a capital market's perspective on their company's stock price and its valuation, focusing on understanding expectations for future operational performance that are embedded in the share price and comparing these expectations to the company's historical performance and the market expectations for the company's peers.
This analysis helps determine how challenging such market expectations are and whether a performance gap exists between investor expectations and the company's current strategy. Depending on the transparency of business-unit data, we may work with the senior management team to develop a better understanding of how the company's business units impact the value-creation potential of the company as a whole.
Case Study:
For a large European manufacturing company, we analyzed and valued each division as well as the corporate plan. Our analysis revealed that investors were not giving the company credit for the performance that management had been delivering, and were planning to continue to deliver. As a result of this insight the company changed its investor communications. Furthermore, our divisional analysis proved that over 20% of the company's capital was invested in underperforming businesses that were expected to continue to underperform. This led to the sale of two of these divisions, an increase in the overall profitability of the firm, and a significant increase in the company's valuation.
Capital Allocation
We regularly work with senior executives to help them evaluate the value impact of various uses of their excess cash. By using the HOLT™ Valuation 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, and repurchasing shares. The framework provides an objective, unbiased perspective on the market's probable reaction to these different strategic actions.
Case Study:
For a major US 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 an objective 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.
Mergers & Acquisitions
The HOLT™ Valuation Framework and corresponding 18,000 global company database can be used to identify and evaluate potential acquisition candidates. Our methodology focuses on understanding the market expectations embedded in the target's share price and determining the growth or profit improvements required to justify different levels of acquisition premiums. Our M&A analysis, like the rest of our analytics, is not focused on accounting results but rather on whether or not various transactions will create value for the company's shareholders.
Case Study:
For a large U.S. manufacturer, we determined that their organic growth strategy was unlikely to increase their valuation, as the market had higher expectations for growth than they believed they could deliver from the existing business. To help them find potential companies to acquire to fill the "growth gap", we screened the HOLT™ database for strategically attractive candidates that had low market expectations relative to their historical performance. Furthermore, for the most attractive candidates, we determined the performance improvement required to justify different levels of acquisition premiums and the likely market reaction to these acquisition candidates. This analysis became a key component of the company's M&A process.
Portfolio Restructuring
We often use the HOLT™ Valuation 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.
IPOs and Equity Offerings
The HOLT™ Valuation Framework is extremely valuable to companies considering going public or raising additional capital in the public equity markets. By having a better understanding of how institutional investors are going to evaluate and value the company's shares, we are able to work with management to focus the executive team on the key value drivers for the company and help use that information to better market the company to investors.
Case Study:
For a large private European-based services company with global operations in mature and emerging economies, we quantified the future operational performance required to achieve different levels of market valuation as they would be measured by buy-side investors upon floatation. These results were compared to the market expectations for peer companies to explain why the requested pricing was warranted. The analysis helped the company focus on the key value drivers in its corporate plan, and aided in the drafting and communication of its equity story to the market, resulting in a very successful IPO.