Valuation of Dataline Oil Services Was Performed with the Following Valuation Methods

Valuation of Dataline Oil Services was performed with the following valuation methods:

1. Multiples

The EBIT multiple was chosen as valuation metric, as “it focuses directly on the growth and risk of the business’s operational earnings, valuing them directly without bringing in the complications of choices about financial structure” (Pesenti, 2007).

Based on the historical comparable transactions “a ‘normal’ price was in the region of six to eight times EBIT. The rule-of-thumb seemed to be that for a reasonable business five times or less was ‘cheap’, while a price approaching ten times was ‘expensive’” (Pinto, 2009).

Table 1. Dataline Oil Services Company Value (£m)

EV/EBIT multiple

5.0x 6.0x 7.0x 8.0x 9.0x

41 49 57 65 73

Based on the EBIT multiple approach the enterprise value of Dataline Oil Services is £49-65m.

2. Discounted Cash Flows (DCF)

The APV method was used to perform DCF valuation.

APV formula: V = V (all-equity) + PV (MM violations)

First, the value of the company was estimated assuming all-equity financing. The assumption was made that the cash flows affected by the fluctuations in the oil process will stabiles after 2003. The free cash flow from year 2003 was calculated as follows:

UFCF = EBIT + D&A – tax (@ 30%) – capex – investment in WC = £6.8m

(see Exhibit 1 for detailed calculations).

Based on the available information, “over a three- to five-year cycle, mandatory capital expenditures tended to equal depreciation of £2.5-3.0m