October 24, 2023

Who Makes the Better Deal?

Assessing Schaeffler's Offer for Vitesco
Use case
Decision Augmentation

Schaeffler's recent announcement regarding its voluntary public purchase offer for all outstanding shares of Vitesco Technologies, followed by the subsequent merger of Vitesco Technologies into Schaeffler AG, has ignited a pressing question: Who stands to benefit more from this deal? In the dynamic realm of mergers and acquisitions, the advantage often rests with the party armed with superior information and insights. To assess the merits of this transaction, we embark on an analysis from a purely market-driven perspective, taking into account a spectrum of vital financial metrics that are indispensable in the realm of informed investment decision-making.

Schaeffler's proposal of €91 per share for Vitesco Technologies serves as the initial focal point for our examination. This offer culminates in an equity price of €3,641,929,200. And leading investment firms, that are minority shareholders in Vitesco Technologies like Ninety One already question the price.

Furthermore, the enterprise value, factoring in components such as €672,100,000 in cash and €427,400,000.0 in debt, stands at €3,397,229,000.

Let's begin our analysis by examining benchmark multiples from comparable firms in the market. These multiples are crucial for evaluating the potential of Schaeffler's voluntary public purchase offer for Vitesco Technologies. We'll consider both enterprise value (EV) multiples and price multiples.

Enterprise Value (EV) Multiples

EV multiples
  • Enterprise Value to Operating Cash Flow: It measures the value of the business concerning its operational cash flows, which are essential for the company's liquidity and flexibility.
  • Enterprise Value to Business Model Profit: This multiple assesses the company's value in relation to its profit derived from its core business model.
  • Enterprise Value to Gross Profit: This ratio relates enterprise value to the gross profit generated by the company, indicating its cost management and efficiency.
  • Enterprise Value to EBITDA: EV/EBITDA is a widely-used metric for assessing a company's overall value based on its earnings before interest, taxes, depreciation, and amortization.
  • Enterprise Value to NOPAT (Net Operating Profit After Tax): It takes into account both operating profits and taxes, offering insights into the company's profitability.
  • Enterprise Value to Business Model Cash Flow: This metric evaluates enterprise value in relation to the cash flows generated by the core business model.
  • Enterprise Value to Revenue: It measures a company's valuation relative to its total revenue, providing an understanding of its sales effectiveness.

Price Multiples

Price multiple benchmarks

  • Price to Sales Ratio: This multiple compares the company's market capitalization to its revenue, giving an idea of its valuation concerning sales.
  • Price to Business Model Cash Flow Ratio: It measures the company's market capitalization relative to the cash flows derived from its core business model.
  • Price to Book Ratio: P/B ratio assesses the stock's market value in relation to its book value, offering insights into its asset base and financial health.
  • Price to Operating Cash Flow Ratio: This metric evaluates the stock's valuation concerning its operating cash flows.
  • Price to Earnings Ratio (P/E): P/E ratio provides insight into how much investors are willing to pay for each unit of earnings, indicating the company's earnings potential.

By simulating the probability of Vitesco being underpriced at €91 per share and evaluating it from both the perspective of selling at that price (as underpricing represents a risk) and buying at that price (as underpricing represents an opportunity), we consider the deal from different angles.

Decision Recommendation from a Market Price Perspective

From your analysis, it appears that Schaeffler is making the better deal, and Vitesco may be, at the very least, on par with Schaeffler's offer. This conclusion is based on the consideration that Schaeffler sees an opportunity in acquiring Vitesco at the offered price, while Vitesco's shareholders might be wary of potential underpricing.

Simulating the expected price

Expected market price for Vitesco

As we delve into the simulation of projected share prices for Vitesco Technologies, a fascinating story emerges. The distribution we observe exhibits a pronounced skew, with its focal point resting at an expected share price of €136.22. This price forecast is the result of a rigorous examination of diverse market metrics, yielding valuable perspectives on Vitesco's prospective trajectory. Our simulations reveal a substantial 69% probability that Vitesco could exceed the offered share price by Schaeffler.

Beyond the Price: A Deeper Look at the Merger

In the fast-paced world of mergers and acquisitions, it's easy to get caught up in the excitement of short-term market returns and the initial purchase price. While these are undoubtedly important factors, they are just the tip of the iceberg when it comes to evaluating the true value and potential of a merger.

A holistic evaluation of the merger necessitates a long-term perspective. To uncover the full spectrum of opportunities and challenges, we must delve deeper.

1. Understanding the Business Model: Vitesco Technologies operates with a unique business model that governs its operations, revenue streams, and competitive advantages. How does this model align with Schaeffler's strategy? Are there untapped synergies and cross-selling opportunities?

2. Performance Metrics: Beyond the surface, we analyze Vitesco's historical and projected performance metrics. We scrutinize the company's ability to drive revenue growth, sustain healthy profit margins, and provide strong returns on investments.

3. Intrinsic Value: The intrinsic value of a company goes far beyond its market price. It's an assessment of the company's fundamental worth, considering assets, cash flows, and growth prospects. We ask: Is the offered price by Schaeffler a true reflection of this intrinsic value?

4. The Power of Synergies: The magic word in mergers is 'synergy.' Synergies have the potential to create substantial value by unlocking cost efficiencies, improving operations, and driving top-line growth. A successful merger is often one that maximizes these synergistic benefits.

Join Us for a Deep Dive

Our journey to uncover the true worth and potential of Schaeffler's voluntary public purchase offer for Vitesco Technologies is just beginning. In the weeks to come, we will explore each of these facets in greater detail.

Stay tuned for in-depth analyses, expert opinions, and valuable insights into this merger. We invite you to join us in this exploration. If you're eager to gain a deeper understanding of the intricacies of this deal, don't hesitate to reach out and engage in the conversation. The world of mergers and acquisitions is complex, but with the right insights, it becomes more transparent, and the path to making informed investment decisions clearer.