Evaluation criteria applied to listed companies operating in technology markets:

the case of CDC

November 29, 2005
Index

Purpose of the assessment of the value driver analysis of the strategic position
ing of firms rating
Purpose of evaluation

statutory assessment process for determining a current value theory, may be vo

luntary or statutory (art. 2343 cc), compared to the contribution of assets Fair
ness opinion It 's a report on the adequacy of a company's value (or an asset
company) already determined by the management of a company in relation to a corp
orate finance transactions (eg determination of a share swap) Can be voluntary
or law (eg Art. 2441 cc) assessed against M & A (mergers and acquisitions) Re
ady to determine the value of the subject of a potential transaction It 's alw
ays a voluntary rating of equities of companies listed on securities markets T
ime to identify the current theoretical value of equities listed on regulated se
curities markets (Stock Exchange) E 'voluntary and is conducted by brokers / b
anks / securities firms, resulting in judgments of target price on the stock (pr
ice per share), reflecting the convenience to buy the current value of stock (BU
Y , HOLD, SELL)
Index

Purpose of the assessment of the value driver analysis of the strategic position
ing of firms rating

Drivers cash value

Flows
From a general point of view, the value of an asset is the value of cash flows /
economic returns that this activity can generate the time value of cash flows d
iffers according to the following: Time One euro now worth more than a dolla
r tomorrow Risk One euro is certainly more uncertain than a dollar (subject
to randomness) Purchasing power Inflation impact on the value of deferred ca
sh flows over time Cash Measured in terms of greater or less facility or maj
or / minor costs to monetize the activity being evaluated
Index

Purpose of the assessment of the value driver analysis of the strategic position
ing of firms rating
Strategic Positioning Analysis Principles
The basis of any appraisal company is an analysis and understanding of the field
of membership of the company and its strategic positioning

Analysis of the external environment and the baseline (variables and macro analy
sis of the sector) Analysis of strategic positioning within the sector they belo
ng Critical review of the feasibility / viability of the business plan (Economic
and Financial) of the company
Strategic Analysis posizion.to
Analysis of the external macro scenario - variables of social, environmental, de
mographic, technological sector - set of relationships with stakeholders of the
company's component sector affiliation: Customers: ability to meet the needs o
f demand (demand analysis) Suppliers: ability to acquire the inputs at competi
tive conditions (and relationships with these suppliers) Competitors: 1. inten
sity of competition between the companies (analysis of supply), 2. ability to di
fferentiate itself from competitors based on sustainable competitive advantages
Outdoors
Outdoor / competitive
Social variables Environment variables
Sector
Customers Suppliers Competitors
Population structure
Technology
Policy
Strategic Positioning Analysis
Industry analysis

Sectors
A monopoly company very high barriers
Possible structure of
Structural Model Variables
Duopoly Oligopoly Perfect Competition Many companies no barrier homogeneous Prod
ucts Perfect information flows Few firms Two firms
Analysis of industry structure (structure of supply) in terms of: supply concent
ration, entry barriers, product differentiation, information dissemination
Concentration Barriers Entry / Exit Information Product differentiation
Significant barriers
Opportunities for product differentiation Imperfect information retrieval
Substitutes
Bargaining power
Threat of substitute products

Analysis of competitive forces in the sector (Porter's model) to determine the c

ompetitive strength of the company compared to other actors in the sector refere
nce
Suppliers
Competitors
Customers
Bargaining power Threat of entry
Rivalry among existing firms
Potential entrants
Analysis of strategic positioning Competitive Advantage
Analysis of critical success factors of the company (SWOT Analysis): strengt
hs weaknesses opportunities Threat Analysis of internal company skills Res
ources Company (tangible, intangible, human) Patents / Products Trademarks /
brands Distribution Network Expertise / human resources motivation

Competitive Advantage
Strengths & Weaknesses
Sector analysis
Organizational capacity
Resources
Materials
Financial Products Plant Machinery ... ....
Intangible
Reputation Technology Brands Signs ... ... ..
Human
Justification Motivation skills ... ..
Ability to organize the use of company resources
Index

Purpose of the assessment of the value driver analysis of the strategic position
ing of firms rating

Value and price: defining criteria and evaluation methods

the economic cost - financial market
Criteria Criteria Criteria
- Financial DCF Method unlevered - Method of Multiple Exchange
Value and price Definition

Current theoretical value (fair market value)

Giving the value of economic capital as the most rational, demonstrable, objecti
ve and stable, 'the price at which a company is exchanged between a willing sell
er and a buyer each of them acting in the interest of obtaining a profit, and bo
th being equally informed on 'company and the market expresses an evaluation of
the profit of its acquisition or sale by a specific subject and' the maximum pot
ential of a company and takes into account the synergies obtained through the ac
quisition by the buyer expresses the actual amount at which the company is excha
nged between the parties may be different from the price actually recognized as
not serving the bargaining power of the counterparties is' fruit of negotiation
and suffers from a number of elements of nature contingent and subjective

Potential value

Price

Specific considerations by either party on the activities of existing companies,

by either party of any tax benefits or costs associated with the transaction sy
nergies emerging for either party, from any transaction
Value and price

Continuity
corporate going concern value (assuming continuity)
And 'the value of economic capital determined under the assumption that the comp
any is operationally active, and will continue to operate without threat of inte
rruption of the going concern assumption, depending on the type of value sought,
can be distinguished in: Assumptions managerial autonomy of the company being
evaluated Hypothesis management synergies between two or more companies and '
the value determined in taking the company will stop its operations and that its
activities will be divested separately involves an assessment of individual ass
ets and materials assets of the company considered separately (break-up value)
Liquidation value

Defining criteria and evaluation methods

There are no formulas or specific rules for carrying out assessments, teaching a
nd professional practice have developed criteria and methods of evaluation crite
ria and methods differ depending on the elements of management where the emphasi
s put (property, income, financial) and capture only some of the possible compon
ents of corporate value and therefore the assessment criteria, their internal me
thods, must be properly selected according to: The nature and characteristics
of the company being valued (but not limited to: Commercial companies and comp
anies services: criteria based on the pattern Company with a strong component
of fixed assets (tangible and intangible) assets methods (or mixed) holding co
mpany with real estate companies: capital approach Listed Companies: Policy Ex
change

Criteria and evaluation methods

Synthesis
Criteria of cost

Capital approach simple method investment income complex methods (Capitalization

unlimited / limited in time) financial methods - cash flow (DCF levered / unlev
ered) methods of multiple methods of stock exchange transactions of comparable m
ethods

Economic criteria - financial

Market criteria

Definition of Criteria Cost

Value of the property / company = function (replacement cost / playback) The c

ost of replacement (or reproduction) include charges associated with the reconst
ruction, the prices applicable at the date of the valuation,€of similar goods wi
th equivalent utility cost criteria are normally applied using methods of capita
l According to these methods, the company's value is the result of an assessme
nt at market value and in the event of continued management of all the tangible
and intangible assets of the company (where they can be determined individually)
, less all liabilities These methods do not explicitly take into account aspects
of the company's ability to produce economic results / future cash flows
Economic Criteria - Financial Definition
The economic and financial criteria are based on the assumption that the value o
f property / company is the present value of future benefits (profits / cash flo
ws) can be obtained from the use of methods The value of the income is equal t
o the sum of the present value of future income (treated for a limited time or u
nlimited). The rate used for discounting purposes (or capitalization) of the inc
ome is normally fixed at the rate of return on risk capital (cost of equity) T
hese methods are generally applied in commercial companies and financial service
methods / flows Cash (DCF) The value of the company is the present value of f
uture cash flows that it will be able to generate. The discount rate used for di
scounting expected cash flows may be the rate of return on risk capital (cost of
equity) or the weighted average cost of capital (WACC), depending on the type o
f cash flow considered (levered / unlevered)
Method unlimited income
Capitalization
Unlimited income capitalization method is assumed that the company is able to ge
nerate a level of annual income equal to R (normalized income) for an unlimited
period of time W = R s where W: Value of economic capital A: Income normalized:
capitalization rate
Income method
Capitalization limited in
Limited income capitalization method is assumed that the company is able to gene
rate a level of annual income equal to R (normalized income) for a limited time
in symbols: W = R ani *
where W: Value of economic capital R: Normalized Income Annuity factor the anima
l: Discount rate n: Number of years for which it is assumed that the company pro
duces income
Income method is a standard income:

Income

Net, ie exclusive of tax and financial management (method levered) Normal, ie ad

justed for extraordinary items Middle, which must be representative of the resul
ts the entire time span considered
Income capitalization method

Rate
It 's the normal rate of return expected by an investor consider investing in ve
nture capital in the sector where the company operates (in the case of cost of e
quity method income levered) If R is used as unlevered rate capitalization weigh
ted average cost of capital (WACC) - a method not usually applied in practice, t
he capitalization rate applied must be consistent with the financial leverage of
the company to be evaluated (see next section on the WACC / CAPM)
Financial method (DCF) unlevered Definition
According to the DCF method, the unlevered value of the economic capital of a co
mpany at a certain date (the "reference date") is the algebraic sum of: Enterp
rise value = present value of cash flows produced by the operating company Pre
sent value of cash flows produced by the operating company over a period of time
(the period of projection explicit) Present value of operational activities o
f the company at the end of the projection period explicit ("residual value or t
erminal value ") Value of ancillary equipment not on the relevant date (" surp
lus assets ") Net financial debt as burdensome to the reference date (to be tr
immed offset to enterprise value) generally applied the DCF method" unlevered "w
hich treats cash flows net of financial management using a discount rate consist
s of the weighted average cost of capital (WACC)
Financial method (DCF) formula unlevered
In mathematical terms: W = Vo + SA - D
n - t + F (1 + WACC) - n + SA - DW = Σ F (1 + WACC) (t) (n) t = 1
where W current theoretical value of the capital of the company; Vo value "opera
tional" instrument of capital invested in the Company; F (t) Cash flow unlevered
for each of the n year period over the projection period explicit;€F (n) Residu
al value of the only operational activity the compound at the end of the last ex
plicit forecast period; WACC Weighted average cost of capital invested; A value
attributed to non-instrumental goods (" urplus Assets"); D Extent of burdensome
debts the reference date.
Financial method (DCF) tep unlevered operational
i.
Definition of explicit forecast horizon forecast cash flows (FCF ) for the proje
ction period explicit estimate of weighted average cost of capital (WACC) Estima
ted residual value (terminal or residual value) calculation of the value of " ur
plus Assets ( A) calculation of the value of net financial debt payment (D)
ii.
iii.
iv. see vi.
Financial method (DCF) tep unlevered operational
inizione projection period explicit
N the period to be considered for the calculation of flows explicit forecast sho
uld be extended until the company reaches an equilibrium in the market, namely:
The company produces steady margins, maintain a turnover rate of investment co
nstant thus generates a rate of return on investment The company continued gro
wing at constant rates during operational and reinvests the same proportion of g
ross flows generated annually
Financial method (DCF) tep unlevered operational
Unlevered free cash flow forecast

Critical review of the corporate business plan (if available) Elongation of the
forecast period Determination of unlevered cash flows or flows flows - operating
 activities made available by one company - and for the service of all sources o
f capital. venture capital (dividends, refunds and capital gains). burdensome de
bt capital (interest, power and debt repayments)
Financial method (DCF) tep unlevered operational
Review unlevered free cash flow Operating income (EBIT) - Income tax operating N
OPLAT = (Net operating profit less adjusted taxes) + Depreciation + / - Other no
n-cash matches + / - Investments and disinvestment in working capital (excluding
surplus assets and onerous debts ) = Cash flow for the current management - Gro
ss investment to maintain the normal operation = unlevered free cash flow (FCF )
Financial method (DCF) tep unlevered operational
ion WACC (weighted average cost of capital) The WACC is the average cost of diff
erent sources of financing corporate WACC = wd * w * i + id * (1 - tc) where w i
and weight given to equity Cost of equity (coincides with determined the income
method) wd weight attributed to the debt capital tc id pre-tax cost of debt of
the company tax rate average
Let us dwell on how the determination of i
Financial method (DCF) tep unlevered operational
ion WACC (weighted average cost of capital) Methods of determining the cost of e
quity): i i = Risk free rate of return (rf) + Risk Premium (s) There are two pos
sible models for an estimate. Capital Asset Pricing Model (CAPM) and 'the most u
sed 2. Arbitrage Pricing Model (APM) Rarely used theoretical reference
Financial method (DCF) tep unlevered operational
ion WACC (weighted average cost of capital)
Determining the cost of equity based on CAPM and 'equation that describes the tr
ade-off between the expected rate of return (expected return) and the non-divers
ifiable risk ( ystematic risk) ie = RF + Beta (Rm - RF) where: i
Normal rate of return RF Risk free rate (nominal or real depending on the nature
of flows discounted). It generally uses the rate of return on bonds am / long t
erm (rm - rf) in Beta Award for market risk. Most expected return on the portfol
io's overall market share than the risk free rate.
Including professional practi
ce generally between 4% and 6% cov (rs, rm) = βs eta coefficient of the sector
in which the company operates. m σ 2 mea ure  the ri k i  not diver ifiable equi
ty inve tment
Financial method (DCF) Step unlevered operational
ion WACC (weighted average co t of capital)
For e timation of Beta there are everal alternative : Li ted company Beta pe
cific company, calculated by regre ing the time erie  of covariance of bond yi
eld property with the market return, with the variance of market return unli ted
companie  U ing beta  of area  comparable with that of it elf (i  a olution
"re idual") U e of beta factor  derived from the market for comparable compani
e  (not diver e), deducting the financial component, and thu  obtaining the a e
t beta . Thi  i  then caling the company to evaluate, according to the report:
BetaL BetaU * = [1 + (1 - tc) * D / E]
Financial method (DCF) Step unlevered operational
ion WACC (weighted average co t of capital) The co t of debt i  u ually e timate
d by reference to the yield to maturity of the debt of the Company: 1. For compa
nie  with debt ecuritie  (bond ) i ued and placed on the market i  to convert
the price  of ecuritie  rate  of return (IRR) 2. If the company ha  no debt ec
uritie  traded on regulated market , reference hould be made at market rate  fo
r cla e  of debt with imilar ri k profile  to tho e of companie  a e ed
Financial method (DCF) Step unlevered operational
iv. E timate the terminal value
Alternative method  applied in practice: 1. Capitalization unlimited net operati
ng income in TN ha  the problem of non-explicit a umption  about the inve tment
 needed to upport the level of net operating income to infinity 2. Empirical u
e of multiplier  on EBITDA / EBIT or net profit 'very difficult to determine th
e multiplier applicable to future fundamental value  3. Equity ca h flow per pec
tive medium (CFU calculated tn +1). It '  the mo t u ed method, applying FCF (n
+1) F (n) = formula
WACC - g
Where: FCF (n +1) a normal level of free ca h flow in the fir t year after the p
rojection period expre  the WACC Weighted average co t of capital employed grow
th rate g of free ca h flow  to infinity
Financial method (DCF) Step unlevered operational
alcohol value of urplu  a et 

The e ancillary non- trategic or in trumental, uch a : - Real E tate non-in tru
mental - Deferred tax - Other non-in trumental flow  relating to uch activitie 
mu t be eliminated to calculate the value of the operating urplu  a et  mu t
be con idered at their market value
Financial method (DCF) Step unlevered operational
lcolo value of net financial debt

In order to obtain the 'Equity Value "mean  the debt obligation  hould be deduc
ted from the' Enterpri e Value" Theoretically burden ome debt  hould be deducte
d ba ed on their market value (not book value) In practice, if the co t of debt
co tly approache  to market rate  and if they have a limited "duration" i  accep
table con idering that the book value approximate  the market value Typical burd
en ome debt  are: - Bank loan  - Financing Long-term - Bond  - Other hort-term
ecuritie 
Criteria for market definition
A uming that the value of an a et i  determined by reference to the price reco
rded in trade in imilar good  occurred in the recent pa t the market criteria a
re normally applied by u ing the following three main method : 1. Bag method
The method  con i t of tock in the company to recognize a value equal to that c
onferred by the tock market, regardle  of the actual a et  and income, hi tor
ical and pro pective
2. Method of multiple tock
The value of a company (which can al o be li ted) i  equal to that determined by
applying certain ignificant company a et  and economic variable  ( uch a  EBI
TDA, EBIT, net income, operating ca h flow) of the multiplier derived from compa
rable companie  (for characteri tic  of bu ine  and ize) with ecuritie  li te
d on regulated mkt
3. Method of comparable tran action 
The method  of comparable tran action  i  to recognize the company a value of ru
levati price  in recent off-market tran action , involving companie  imilar
Method of tock Definition

The method con i t  in recognizing the company a tock market value equal to tha
t conferred by the tock market on which the hare  of that company i  treated u
nder perfectly efficient market price indication  tem from depleted market eval
uation. However, market imperfection  affect the tock price  recorded ignifica
nt factor  impacting on the ignificance of market price :

Market evolution; ize floating Actual volume of trade on the title (liquidity)
Exi tence of price  "comparable" to a time horizon ufficiently large hare of t
he company concerned - Comparability over time market price i  relevant where, a
t that time, were made by
Method of average tock

E timated price

E tabli hed the po ibility of applying the rational method of tock in term  of
application, it require  an e timate of an "average price" rea onably con idere
d expre ive of the appreciation of the tock market being evaluated for the pur
po e  of determining the "average price" hould be identified :

Definition of the horizon with re pect to which to collect price  for e timation
of the mean in general practice vocational identifie  the reference period long
enough for (3 to 12 month ) than the typical hort-term variability and reduced
reliability of cour e  for the pre ence of economic and emotional component  Ch
oice of media to be u ed Doctrine and profe ional practice a  alternative  indi
cate the arithmetic mean  and weighted in two ver ion  (a uming that weighting
the volume  traded), al o giving the econd ignaling greater ignificance
Method of Multiple Definition

A company'  value i  determined ba ed on the application of the fundamental valu

e  of the company from multiple a e ment The e multiple  are determined with r
eference to relation  between:

Market price  of comparable companie  who e hare  are traded on tock ize  eco
nomic / capital / financial companie  bought and old
In thi  method, who e reliability i  expanding along with the evolution of finan
cial market , international practice and doctrine attach increa ing importance t
o the challenge  every time you adopt method  ba ed on detection of multiple  of
comparable companie  can be ummarized a  follow :

Selection of comparable companie 

Comparable multiple  method

Selected companie 

The election of comparable companie  i  reflected in the identification of a a

mple of companie  with ufficient uniformity with the company evaluated factor 
of choice: Field of Member hip Size Region Market hare  of operation
Type of core etc..
Method of Selection of multiple multiplier 
The choice of the multiplier re ult  in the 'identification of appropriate relat
ion hip  between:

Value  expre ed by the market, typically:

"Equity value (EV)" Firm value (FV)

Fundamental value  of companie  in the ample con idered, typically:

Shareholder ' equity (BV) Ca h flow  (CF) Turnover (Sale ) EBITDA (EBITDA) Opera
ting income (EBIT) Net income
The u e of multiplier  and billing cu tomer number, which ha  found general appl
ication in the new economy on hor eback in 2000, ha  now been definitively aband
oned To date, the practice ee  a general uniformity in the choice of
Method of comparable tran action  Definition

The value of an a et / company i  determined by reference to the price recorded

in trade in imilar good  occurred in the recent pa t u e of thi  method ha  em
erged with the increa ing availability of information on tran action  which take
place "off market" involving comparable companie  The method can be applied in
two variant :

Direct method
A company'  value i  equal to that re ulting from direct compari on of price  ma
de imilar operation  on comparable companie  (rarely applied in Italy) The valu
e of a company i  determined ba ed on the application of multiple  of the fundam
ental value ' company to evaluate. The e multiple  are determined with reference
to relation hip  between: - Price made on tran action  occurring out ide the ma
rket - Size  economic / capital / financial companie  bought and old

Indirect method (multiple tran action  made on)

The indirect method i  applied in a manner imilar to that of multiple tock and
hare  the application limit 
Concluding evaluation technique  applied to oc.tà li ted operating in technolog
y market 

In current profe ional practice for li ted companie  operating in technology ma

rket  (information technology, biotechnology, telecommunication ) broker  / inve
tment bank  generally apply the following two criteria: 1. Economic Policy - Fi
nancial: financial method (DCF unlevered) 2. Market criteria: method of multiple
tock Implementing rule  - a capital lea e (unlevered DCF) i  u ed a  the main
method, after critical review of economic projection  provided by the financial
management of the company - the tock market multiple  method i  u ed a  a metho
d control or otherwi e a i ted in the financial ector. For the information tec
hnology ector generally u ed the following multiplier :
- Enterpri e Value / EBITDA - Enterpri e value / EBIT - Price / Earning 

Concluding evaluation technique  applied to oc.tà li ted operating in technolog

y market 
What ha  changed ince 2000

More attention in the critical crutiny of corporate bu ine  plan  i  no longer

the primary method that con i t  of multiple, but the financial method of apply
ing the method of multiple tock ize  have been abandoned ju t repre entative o
f ability to generate profit (turnover, number of cu tomer , internet traffic) f
or quantitie  hi torically applied in practice and doctrine advocated by the mor
e con olidated (net income, EBITDA, EBIT)