Valuation Critical to JV Formation

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  • Multinational asked client to split 50/50 in a proposed merger
  • Client hoped its intangibles meant it could contribute less cash
  • Multinational admitted client’s intangibles were necessary for JV
  • Client ultimately fronted only $US3 million, not $US22 million
  • EverEdge achieved 360:1 return on fees for client

Client Information

A successful EverEdge client drew the attention of a large US multinational. Rather than buy out the client, the two agreed to merge in a 50/50 joint venture valued at $50 million.

The Problem

The details of the JV included both parties contributing $25 million each in cash. The only wrinkle was that while the client saw plenty of benefits in the JV, it felt it was bringing more intangible value to the table than the deal recognised.

EverEdge was engaged to assess the true value of the client’s operations. We discovered it had multiple intangible assets including deep industry know-how, high-quality software and rich pools of useful data. EverEdge explained how these assets represented significant value and advised that the US firm should reduce the client’s total expections to the JV.

The counterparty refused to accept this valuation, concerned that it would mean paying a larger amount into the JV. The counterparty pushed back by saying the client’s intangible assets were worthless.

The Solution

EverEdge responded that if the assets were worth nothing, then it was only fair that they were removed from the JV deal altogether since they clearly added nothing to the merger.

The counterparty hastily responded that the intangible assets in question were integral for making the JV work. This rebuttal allowed EverEdge to point out that if the assets must be included in the merger, then they were worth something which meant the client must contribute less cash to the deal since it was bringing greater value.

Results & Benefits

The counterparty begrudgingly agreed with this reasoning and the client was required to inject only $US3 million in cash into the JV, saving it $US22 million.

This represented a 360:1 return on fees for the client. So, for every dollar paid by the client to EverEdge, we gave them back roughly $360 in added value.

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