Industries / Corporate finance and investment
Put ranges on M&A and company valuations, simulate portfolios and find the efficient frontier.
ModelRisk
ModelChoiceValue of a company being bought
10,000 futures
The agreed $600M is more than the company is worth in 44.4% of futures. To be 80% sure, walk away above $539M.
Clients in corporate finance and investment
Across the business
From the deal to the portfolio, each part of the business has its own question. Pick one to jump to it.
Questions we answer
Charts marked with a model code come from a free example model you can open in Excel. The others are marked illustrative.
ModelChoiceLay out each way to do the deal with its regulatory and integration risks. A friendly merger has the best expected value, $663.2M; a hostile bid comes out at −$81.1M, with a 45% chance of regulatory approval against 65%.
ModelChoiceA fund weighs three ways into a mid-market manufacturer with $50M of EBITDA. Buying at 6× with management rolling over equity has the best expected value, $278.5M; a full buyout at 8× comes out at $62.0M.
ModelRiskThe business case, built on the most likely values, shows an NPV of $4.5M. Simulated, the mean is $1.5M and the NPV is negative in 38.5% of futures, because volume and price have more room to fall than to rise.
ModelRiskOn the expected demand, building big looks best, with an NPV of $63.7M. Simulated, building small and deciding in year 3 is worth $24.5M on average, against $16.1M for building big, which loses money in 36.4% of futures.
ModelRiskManagement's plan takes leverage from 2.4× to 1.1× by 2031. With persistent swings in growth and margins that fall with volume, the company breaches a covenant in 16.0% of futures, most often in the first year.
ModelRiskSimulate the currency and interest-rate paths together. Hedging half the exposure costs €5.2M of expected cash flow over three years and halves the cash flow at risk, from €58.8M to €29.4M.
Mean €35.6M · cash flow at risk €58.8M
ModelRiskBoth models keep the 95% value at risk inside the $50M limit. The difference is further out: the 99% expected shortfall is $121.9M with fat tails, against $97.3M with normal returns.
99% VaR $79.0M · 99% expected shortfall $97.3M
ModelRiskSet the most the portfolio may lose in a bad year, and the ModelRisk Optimizer searches for the mix of assets with the highest expected return within that limit, simulating every mix it tries. Run it across a range of limits and you have the efficient frontier: a mix below it takes the same risk for less return.
How it fits together
Built in ModelRisk and ModelChoice, in Excel. Each step has a free example model you can open.
ModelRiskForecast the salesAdoption and price ranges give the revenue the plan depends on.CF-02 ModelRiskRun the three statementsGrowth, margins and working capital flow through to debt and covenants.CF-03 ModelRiskValue the businessCash flows and the terminal value give the range of enterprise value.CF-04 ModelChoiceChoose the dealEach way to do the deal, with its risks, rolled back to the best choice.MC:MA-Acquisition-Decision Free example models
Valuation, investment, funding, treasury and portfolio models, and decision trees for deals. Each one opens in Excel.
M&A Acquisition DecisionA large diversified corporation is evaluating the acquisition of a target company in an adjacent market segment.Private Equity BuyoutA private equity fund is evaluating a leveraged buyout of a mid-market manufacturing company with $50M EBITDA.Investment Appraisal of a New Production LineThe business case says invest. What does the risk say?Three-Statement Forecast and Funding RiskWill the company stay within its bank covenants?Company Valuation with Terminal-Value UncertaintyIs the price right?Currency and Interest-Rate ExposureHow much cash could currency and interest-rate moves cost, and how much does hedging half of it save?Portfolio Value at Risk and Expected ShortfallHow much could the reserve portfolio lose in a bad year?Investment Portfolio Chosen by the OptimizerWhich mix of equities, bonds and real estate earns most while the one-year 95% value at risk stays within the policy's limit?Training
Risk analysis modelling courses can focus on your industry and on the problems you model, online or face-to-face.
See the coursesConsulting
Our consultants review one of your own models before a critical decision or a public review.
See consultingFAQ
Yes, at any confidence level and with the return distributions you choose. In the free portfolio example the 99% expected shortfall is $121.9M with fat-tailed returns, against $97.3M with normal returns, while the 95% value at risk is about the same.
Yes. The Optimizer is part of every ModelRisk licence. It finds the mix with the highest expected return within a limit you set, such as the one-year 95% value at risk, and Efficient Frontier Analysis re-runs the search across a range of limits and plots the best result at each.
Yes. You simulate the uncertain paths and apply the decision rule in every future. In the free real options example, building small and deciding in year 3 is worth $24.5M on average, against $16.1M for building big now.
Yes. ModelRisk and ModelChoice each have a free 15-day trial, and our team can go through one of your own models with you.
Free 15-day trials of ModelRisk, ModelChoice and Tamara. For Pelican, we'll show it to you on risks like yours.
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