The Volvo Way to Market: A Case Study of Private Company Valuation under Different Exit Scenarios

Carl-Johan Kullman & Viktor Köpman

Student thesis: Master thesis


In recent years, Volvo Cars AB (‘Volvo’) has taken several actions that outset the rumours that its current owner was planning for an exit via a market introduction. While an initial public offering (IPO) is the consensus exit option amongst financial journalists, little attention has been devoted to the value of the company or whether there is an alternative exit option. Thus, this thesis sought to answer a research question that covered both aspects; firstly, value Volvo Cars AB on a stand-alone basis (as in the case of an IPO) and, secondly, to explore whether the company was an attractive investment case to a third party, and if so, a valuation from the perspective of the prospective acquirer would be performed. As the research question entails flexibility and requires subjective judgements, a pragmatic case study strategy was taken on. In the quest for finding reliable answers, numerous well-established theoretical models and primary methodologies related to the subject were applied. The matter was investigated by, firstly, researching and understanding critical aspects of Volvo, such as its value proposition, market position, historical performance, and the competitive landscape in which it competes. Secondly, based on the fundamental analysis of Volvo and its peers, a value of the company was derived using both a discounted cash flow (DCF) analysis and comparable companies analysis. Finally, using the fundamental analysis and investment rationale from an alternate buyer perspective, an exploration of likely exit options was performed. The strategic analysis illustrated the challenges of navigating the automobile industry; increasing intensity of rivalry, heavy capital expenditures, technological disruption, and government regulations were, among other factors, identified as the micro-and macroeconomic factors that profoundly influence the industry and its future profitability. However, despite the company’s disadvantage in size in an industry characterised by economies of scale, it has successfully penetrated the market, primarily driven by a rich heritage that has created a strong brand. From this, the company’s stand-alone IPO-range was estimated to €16.245 - €20.364 million. A thorough assessment of Volvo as an investment case, both from the perspective of a financial and strategic buyer, recognised Volvo as an attractive investment for the strategic buyer. After sourcing for a potential acquirer, Renault was identified as the most likely party. By adjusting the DCF analysis for synergistic benefits, the investment value of Volvo to Renault was estimated to €23.536 million. Lastly, by weighing the different options against each other, taking current market conditions into account, it was concluded that a strategic buyer would assign the greatest value to the company and, therefore, this represents the value maximising exit strategy.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2017
Number of pages145