Foreword The public market valuation of technology companies throughout the 1990s is probably one of the most interesting phenomena in recent financial history. No sector has generated more enthusiasm among investors, and no sector has created more millionaires, albeit mostly on paper. Once the bubble burst, the correction process was brutal. The price of technology companies dropped by over 70 percent on average, and a significant number of companies went out of business, while others were simply avoided by the investment community. I Tilman Pohlhausen asks a valid question: Did this downturn in valuation lead to some companies being unjustly undervalued, given their past and expected cash flows? If so, he continues, would such companies be suitable for a concept rarely heard of previously for technology companies: a buyout, possibly even financed to a high degree by debt? The idea is not new. In contrast to Europe, a number of well-financed private equity funds in the United States exclusively target the technology sector for buyouts. What is new, however, is that many more technology companies, because of their lower valuation, could become targets of buyout investors in Europe, as well. Ultimately, with his analysis of the buyout attractiveness of European technology companies, the author attempts to estimate the validity of this perception. 1 Introduction.- 1.1 Theoretical Formulation.- 1.2 Method and Procedures.- 2 The Market for Leveraged and Management Buyouts.- 2.1 Definitions.- 2.2 History.- 2.2 Value Generation.- 3 The Emergence of Technology Buyouts.- 3.1 Definition of a Technology Company.- 3.1 Investment Rationale.- 3.2 Technology Buyout Investors.- 3.2 Current Trends.- 3.3 Findings and Interpretations.- 4 Overview of Leveraged Buyout Valuation.- 4.1 Weighted Average Cost of Capital Method.- 4.2 Adjusted Present Value Method.- 4.3 Changing Costs of Capital Method.- 4.4 Equity Cash Flow Method and Internal Rate of Return.- 5 Simplified Valuation Model.- 5.1 Inputs.- 5.2 Leverage.- 5.3 Projections.- 5.4 Valuation.- 5.5 Special Cases.- 5.6 Model Limitations.- 6 Adjusting for Technology Risk and Return.- 6.1 Technology Risk.- 6.2 Technology Return.- 6.3 Implications.- 7 European Technology Market Screening.- 7.1 Model Extension.- 7.2 Model Application.- 7.1 Top European Technology Buyout Candidates.- 7.2 Findings and Interpretation.- 7.3 Suggestions for Further Research.- 8 Summary and Conclusion.- References.- List of Appendixes.- Appendix A: Field Description Sheet.- Appendix B: Excel Instructions. Tilman E. Pohlhausen ist als Analyst bei JP Morgan in London tätig.
