5 Ways M&A Could Be The Best Play For Pinnacle Foods

Earlier in the year, Conagra Brands Inc CAG approached Pinnacle Foods Inc PF to express interest in a potential takeover deal. Speculation continues surrounding this possible merger, one that could ultimately create cost saving synergies beneficial to both parties.

An analyst note from Steven Strycula of UBS highlighted five scenarios to come to a possible valuation scenario of Pinnacle if an acquisition were to take place.

5 Ways To Approach A Valuation Of Pinnacle Foods

1. Pinnacle remains a stand-alone business but completes five M&A deals over the next 10 years. Consistent with previous acquisitions, applying a 2x sales transaction multiple on $1.25 billion of acquired revenue calculates a $78 per share value.

2. Pinnacle remains a stand-alone business but completes two M&A deals in five years. After calculating the NPV of FY20 earnings power, the valuation comes out to $68 per share.

3. After applying an industry average 25–30-percent price premium to Pinnacle’s “unaffected” stock price, calculates a $77 per share

4. Using a industry average EV/EBITDA transaction multiple of Pinnacle’s FY17E adjusted EBITDA calculates to $77 per share.

5. Performing an NPV analysis of $265 million in synergies using a 7-percent weighted average cost of capital calculates a $79 valuation, or around $19 in equity value per Pinnacle share.

UBS has a Buy rating on Pinnacle Foods with a $65 price target.