1. Market Multiple Valuation The Wendys Company

2. Market Multiple Valuation – What is it? A valuation theory based on the idea that similar assets sell at similar prices The theory is that when firms are comparable, we can use the multiples approach to determine the value of one firm based on the value of another

3. Market Multiple Valuation – How is it done? Select a set of relevant summary performance measures (e.g., earnings, sales, etc.) Identify companies that are comparable to the target company (i.e., industry, size, etc.) Compute the ratio of the market value to the selected performance measure for each comparable company; the average of these ratios is the market multiple

4. Multiply the summary performance measure for the target company by the market multiple to arrive at equity value If this provides enterprise value, deduct net financial liabilities to arrive at equity value Enterprise value will result if using an enterprise performance measure (e.g., EPAT or NEA) Divide equity value by shares outstanding to determine equity value per share Market Multiple Valuation – How is it done?

5. Why is it used? Advocates argue It is relatively simple It does not rely on subjective forecasts It allows for comparability

6. Weaknesses of Market Multiple Valuation As youll see in the coming slides There is no right performance measure No two companies are directly comparable Some companies are more comparable than others Over- or under-valued comparables will distort the valuation of the target company Estimates of value based on equity (as opposed to enterprise) can lead to inaccurate valuation due to differerences in leverage

7. Wendys Market Multiples Companies used in comparison Burger King McDonalds Yum! Brands KFC Pizza Hut Taco Bell

8. Wendys Market Multiples

9. Wendys Unique Market Multiple Theory that number of restaurants can drive equity value Companies will open more restaurants if profitable Companies will close restaurants if not profitable

10. Multiple Valuations Vs. Trading Price (WEN) Recommendation: Buy

11. Disparity Between Stock Price and Calculated Equity Value Possible Reasons Improper performance measures Inaccurate valuation of comparable companies Comparable companies not actually comparable Market multiples are a poor measure of valuation

12. Questions?