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    ATC Case Solution

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    Abi
    ACC, a telecommunications company, was considering acquiring ATC, a regional wireless firm, to expand its service offerings and provide bundled services. To determine the purchase price, ACC needed to value ATC using a discounted cash flow approach due to uncertainties. Key inputs for the terminal value calculation included growth rates estimated from capital expenditures, working capital changes, and depreciation. Non-operating assets like cash, marketable securities, and investments were also identified. Potential synergies from expanded products, increased network utilization, and greater customer reach could create additional value from the acquisition.

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    ATC Case Solution

    Uploaded by

    Abi
    136 views3 pages
    ACC, a telecommunications company, was considering acquiring ATC, a regional wireless firm, to expand its service offerings and provide bundled services. To determine the purchase price, ACC needed to value ATC using a discounted cash flow approach due to uncertainties. Key inputs for the terminal value calculation included growth rates estimated from capital expenditures, working capital changes, and depreciation. Non-operating assets like cash, marketable securities, and investments were also identified. Potential synergies from expanded products, increased network utilization, and greater customer reach could create additional value from the acquisition.

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    ACC, a telecommunications company, was considering acquiring ATC, a regional wireless firm, to expand its service offerings and provide bundled services. To determine the purchase price, ACC needed to value ATC using a discounted cash flow approach due to uncertainties. Key inputs for the terminal value calculation included growth rates estimated from capital expenditures, working capital changes, and depreciation. Non-operating assets like cash, marketable securities, and investments were also identified. Potential synergies from expanded products, increased network utilization, and greater customer reach could create additional value from the acquisition.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    136 views3 pages

    ATC Case Solution

    Uploaded by

    Abi
    ACC, a telecommunications company, was considering acquiring ATC, a regional wireless firm, to expand its service offerings and provide bundled services. To determine the purchase price, ACC needed to value ATC using a discounted cash flow approach due to uncertainties. Key inputs for the terminal value calculation included growth rates estimated from capital expenditures, working capital changes, and depreciation. Non-operating assets like cash, marketable securities, and investments were also identified. Potential synergies from expanded products, increased network utilization, and greater customer reach could create additional value from the acquisition.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    At a glance
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    ACC is considering acquiring ATC to provide bundled services and attract more customers. The acquisition is expected to increase revenue and reduce expenses. A discounted cash flow (DCF) approach using adjusted present value (APV) is used for valuation given the unique nature of the firms and changing capital structure.

    A discounted cash flow (DCF) approach using adjusted present value (APV) is used for valuation given the unique nature of the firms and changing capital structure. The growth rate is calculated as (Capital Expenditure + Change in Working Capital - Depreciation) / (D+E).

    The non-operating assets include cash, marketable securities, marketable equity securities, and investments in affiliate entities. The total approximate value is $1939.9.

    Case Solution:

    Valuation of AirThread Connections


    Erik Stafford, Joel L. Heilprin
    Summary

    ACC, a larger provider of cable, high speed internet and VoIP was planning to add on new business to
    their existing portfolio, and ATC was one such option. ATC is one of the largest regional wireless firms
    and due to the potential synergies in the business they are in, ACC is considering to add them to their
    business to provide bundled services to attract more customers. Once merged, it is believed that they
    are likely to have an increased revenue and reduced expenses. ACC now needs to consider aspects of
    valuation before they can make a final bid.

    Questions

    1. Find out the terminal value. How many inputs are required to estimate this terminal value and
    how are the growth rates calculated? Mention all the assumptions
    2. How can be estimate the assets that are non-operating? Approximate the value of non-
    operating assets for the firm?
    3. How can we find the tentative value of synergy, clearly state the estimation? How much
    payment could be made for acquisition?

    Solution:

    1. Find out the terminal value. How many inputs are required to estimate this terminal value and
    how are the growth rates calculated?

    The absence of any comparable in the industry and unique nature of the firms, vouches for a
    discounted cash flow approach. Also, we can infer that the capital structure of the firm keeps on
    changing considerably for the years. This implies that we cannot use WACC, as it requires a
    stable D&E structure. So, now to estimate the values for next 5 years, we will value the firm in 2
    parts. First assuming it as fully unlevered (no debt) firm and then add on the benefits and costs
    of Debt on to it.
    Hence, the LBO valuation using APV method, adjusted present value valuation is used here.
    Further analysis and calculations given in the excel.

    Growth rate is given by, g = (Capital Expenditure + Change in Working Capital - Depreciation) /
    (D+E)
    All the calculations are included in the Excel

    2. How many assets can be tagged as non-operating? Approximate the value of non-operating
    assets for the firm?
    We have Cash & cash equivalents, marketable securities, marketable equity securities and
    investments in affiliate entity can be considered as Non- operating assets

    Value of Non-operating Assets


    Affiliate Entity 1719
    Cash 204.5
    Marketable securities 16.4
    Marketable Equity Securities 0
    Total Value of Non-Operating Assets 1939.9
    3. How can we find the tentative value of synergy, clearly state the estimation? How much
    payment could be made for acquisition?

    Possible synergies are:


    Expanded product offerings for both the firms- (mobile internet and access to the spectrum for
    ACC; while high speed internet and wired connections for ATC)
    Increased network utilization for both the firms
    More customer reach – (bundled offerings are more likely to attract more customers and
    possibility to reach out to business customers are also more)

    The bid should be made after doing the valuation of the firm, including value of both operating
    and non-operating assets. Calculations shown in Excel

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