Abstract
Abstract The enterprise value is central in business transactions (i.e. mergers and acquisitions, entrance of new shareholders or exit, bank loans), privatization of state-owned companies, etc., when the seller and the buyer confront each other’s business valuations trying to identify as many weaknesses as possible on the other side. Such important value as the enterprise’ is not an exact figure that can be calculated with precision at a certain date for a certain company, but an approximation that both buyer and seller may consider in each other’s attempt to close a good deal for himself/ herself. The valuation approach in this paper is a market method for business investments and comparable sales. This retrospective analysis of a major privatization in the Romanian steel industry - when the industry’s 'giant' was sold by the Romanian State - aims to identify key factors of the enterprise value in the context of international transactions. This was a high-profile privatization of great significance for the European steel industry and this analysis aims to understand enterprise value in order to model it. For this purpose, the article takes into consideration the information available regarding the privatization of Sidex Galați, the relevant literature and the author’s experience, supplemented by the information from the post-privatization evolution of the Romanian steel enterprise. As a result, the article draws lessons and concludes on determining factors of enterprise value, such as assets, solvency, company's history, cash flow, taxation etc., while the price transaction in the case of the privatization of Romanian steel enterprises was also influenced by exogenous factors, such as the steel market, the State's need for revenues, the controlling package of the company sold, etc.
Highlights
The article is a minor extension of the author’s previous research on the factors of enterprise valuation1
The analysis of the terms of Sidex privatization shows major differences in the price paid for the controlling stake of Sidex and in the other terms of the privatization, as in Figure 1, most 3 earnings before interest, taxes, depreciation and amortization 4 Presented at ‘The Twelfth International Conference on Economic Cybernetic Analysis: Economic and Social Aspects of the European Union Consolidation - EUnIT2017, November 24-25, 2017 5 ‘How much is the listed enterprise worth? The price multipliers’ approach’, http://store.ectap.ro/suplimente/International_Finance_and_Banking_Conference_FIBA_20 17_XV.pdf p.77 probably due to very little negotiation power of the seller who lacked the global picture of the steel and its advantages
The privatization opened up the Romanian market to capital and expertise, which can increase the revenues, to management skills and technology that help improve corporate efficiency and performance, and develop links to export markets (OECD, 2003)
Summary
The article is a minor extension of the author’s previous research on the factors of enterprise valuation. The approach used is the retrospective analysis of a strategic privatization, making use of the public information regarding the global steelmaking leader, and the author’s professional and life experience. The article casts a critical eye on the company, and the research question is to identify the most important factors of the enterprise value in order to model this relation. The main hypotheses considered in this research is that the factors that determine the enterprise value should be considered mainly from the buyer’s point of view (who pays the money or not); from this respect, the number of shares (i.e. the controlling percent) that the seller is going to give, and endogenous factors, such as the debts the company accumulated or expected cash-flow, are very important, rather than an asset view of the company.
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