Valuation of ISS A/S

Troels Edlund Jensen

Student thesis: Master thesis


In March 2005 two PE-funds - EQT and Goldman Sachs - acquired the Danish service giant ISS A/S. Within short time they will get reintroduced to Copenhagen Stock Exchange. The main objective in this thesis is assessing whether the ownership has been successful for the PE funds. To answer this question I have made a description of the changes that the PE-funds owners made during their ownership and I conducted an extensive strategy analysis. The changes have made ISS bigger especially in emerging markets and enlarging the scope in terms of the services they offer. This has given good growth opportunities for multiple services and integrated facility service (IFS) where ISS stand good chances of becoming market leader which important because of higher profitability and longer contract that in single service. In the account analyses, where reclassifications of the financial statements are made and an extended DuPont-analysis is conducted, it is concluded that it has been the low profitability that has been the main reason for an unsatisfactory results in period. Also the high debt has influenced the results negatively in the period except in 2010. With the upcoming IPO the capital structure is going to change, which can be seen in the pro forma statement that I made based on the strategic analyses and the accounting analyses together, and it can also be seen on the WACC, which is calculated to be 7.71%. This lead to a valuation done by discounting the forecasted cash flows (FCFF), and thereafter deduct the current financial liabilities and by discounting the residual income and adding the net operating activities. This provides an equity value of 15.076 billion DKK. I measured the sensitiveness on the primary value drivers and concluded that the value is highly sensitive to changes in assumptions and have a positive bias. The IRR is calculated to be 12.2%. Even though it is in low end of the normal requirements for PE funds, one can argue that it is a good investment, also considered the impact of the financial crises. The price they get in the upcoming IPO is going to be about 30% less than this value, but is corresponding well with the price that their peer group is traded at. Based on the valuation I recommend the stock for potentially new investor.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2011
Number of pages105