Timken Company was the leader in Bearings Industry, however lately the revenues had been declining owing to its cyclical nature and decreased demand for bearings. Timken was facing increased competition from Europe and Japan who were the leading manufacturers of ball bearings. To fight these imports Timken decided to pursue the strategy of bundling where in it could add additional products and services to its products and provide more value to its customers. Timken then started a companywide restructuring to consolidate business operations and also add new products to their portfolio.
To fulfill the above stated objectives Timken decided to pursue the acquisition strategy and chose Torrington as its …show more content…
The status quo value of Torrington as calculated was $710 million.
A relative valuation was done using the information on comparable bearing companies as provided in the case. Sales was taken as benchmark to filter the three companies namely Kaydon Corp., NN Inc., and Metals USA Inc. as they did not meet the criteria. Enterprise Value/EBITDA and Enterprise Value/Sales were used as multiples to arrive at the value of Torrington at $696 million and $915 million respectively. Usually in acquisition cases transaction multiples are also used but lack of this data prevented us from calculating the value of Torrington using this approach.
Based on Free Cash Flow to the firm and relative valuation the value of Torrington was found to be: | Free Cash Flow to firm | Relative Valuation | | | Enterprise Value/EBITDA | Enterprise value/Sales | Torrington Valuation | $710 million. | $667 million | $833.7 million |
How to finance this deal