Question

Zeta Group Holdings (Zeta) has three divisions. You have been asked to use valuation multiples of comparable companies to value Zeta. You have collected the following information on Zeta’s performance in each division for the most recent year.

Division	Sales	EBITDA
Pharmaceuticals	$ 1 billion	$ 300 million
Cosmetics	$ 400 million	$ 100 million
Medical Devices	$ 2 billion	$ 400 million

Zeta currently has $2 billion in debt outstanding and a cash balance of $300 million. There are 1,000 million shares outstanding.

You find comparable firms for each division and estimate the median values for different multiples for each division:

Division	Multiple	Median value
Pharmaceuticals	Enterprise Value/Sales	3 x
Cosmetics	Enterprise Value /EBITDA	1.5 x
Medical Devices	Enterprise Value /EBITDA	5 x

Please use the information collected to complete the valuation for each share in Zeta.

Answer 1

1. Value of Pharmaceutical Division = EV/Sales Multiple * Sales of Pharmaceutical

Value of Pharmaceutical Division = 3 * 1 Billion

Value of Pharmaceutical Division = 3 Billion

2. value of Cosmetics Division = Enterprise Value /EBITDA multiple * EBITDA

value of Cosmetics Division = 1.50 * 100 M

value of Cosmetics Division = 150 M

3. value of Medical Devices Division = Enterprise Value /EBITDA multiple * EBITDA

value of Medical Devices Division = 5 * 100 M

value of Medical Devices Division = 500 M

4. Value of Zeta Equity = Value of pharma + value of cosmetics + value of medical devices - Debt + Cash balance

Value of Zeta Equity = 3000 M + 150 M + 500 M - 2000 M + 300 M

Value of Zeta Equity = 1950 M

5. Share Price = value of Zeta Equity / Shares o/s

Share Price = 1950 M / 1000 M

Share Price = $1.95

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