How To Value Your Business

1. How To Value Your Business Presented to the 43rd Annual Business Administration Conference NRMCA October 24,2001 New Orleans

2. How To Value Your Business • What is Value? “Everything is worth what its purchaser will pay for it” Publius, 1st century BC • Appraised Value • Market Value • These are two different numbers - affected by timing and the nature of the transaction • The “house next door” story

3. How To Value Your Business Why are Businesses Valued? • Financing • Internal sale • Divorce/Stockholder suit • Estate-planning purposes • Tax purposes • Property/Estate taxes • Loss of management • Buy-sell agreements • ESOP • Condemnation

4. How To Value Your Business Appraised Valuation Methods • Multiples of Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) • Discounted Free Cash Flow Method • Cost to Recreate (asset value approach) • Price per annual production yard

5. How To Value Your Business Appraised Valuation Methods: Multiples of EBITDA • EBITDA is defined as Earnings Before Interest, Taxes, Depreciation and Amortization • It defines, in any single period, the amount of cash the business generates to pay principle, interest, taxes, and capital expenditures • It is the single most reliable tool used today to measure the performance of a business

6. How To Value Your Business Appraised Valuation Methods: Multiples of EBITDA • What period? • Last 12 months? • Average of the last three years? • Two ways to examine EBITDA • Actual • Recast • The results will be in a high-low range

7. How To Value Your Business Appraised Valuation Methods: Multiples of EBITDA • Recast EBITDA will translate into these values: • 3.5 to 5 times for ready mixed and concrete products operations • 5 to 9 times aggregate operations (maybe more?)

8. How To Value Your Business Appraised Valuation Methods: Discounted Free Cash Flow Method • Defined as the future cash flows earned by the Company’s assets, discounted to present value • Or, “the cash that is left after all expenses to service principle and interest”.

9. How To Value Your Business Appraised Valuation Methods: Discounted Free Cash Flow Method Approaches: • Free Cash Flows - defined as earnings before interest and after taxes (EBIAT), plus depreciation, less capital expenditures and changes in working capital. • This is calculated over ten years...or as long as possible • Add the terminal value at the end of the projection period

10. How To Value Your Business Appraised Valuation Methods: Discounted Free Cash Flow Method • Results are then discounted • A discount rate range is applied, based on current market conditions (inflation rates are key) • The net numbers based on these discount rates establishes a range of values called the Weighted Average Cost of Capital (“WACC”) • This determines the total enterprise value - after deducting debt, it established the equity value to the owners.

11. How To Value Your Business Appraised Valuation Methods: Cost to Recreate (asset value approach) • Examine price of both new and used equipment, in place: • cost of land/cost of erection • working capital • permitting period (and impact of opportunity cost) • start-up losses • Compare to actual market value of existing assets • Not looking at appraised values (orderly/forced liquidation approaches.) Looking strictly at the market

12. How To Value Your Business Appraised Valuation Methods: Price Per Production Yard • All methods combined lead to a range of “appraised value” • This is compared to a rule of thumb value approach: price per annual production yard • This may range from $25 - $50

13. How To Value Your Business Market Valuation Methods • Always just a variation on appraisal methods, but with a much more subjective approach • Variables include: • the Purchaser’s perception of the market • the financial condition of the Seller • cost of greenfielding as an option to a purchase

14. How To Value Your Business Market Valuation Methods • Discounted Free Cash Flow Method -may be affected in the same ways • Value can be manipulated by the Purchaser: • steeper discount rates for calculated Net Present Value • Accelerating plant/truck demand schedules, affecting capex rates • Adjustments in projected market growth

15. How To Value Your Business

16. How To Value Your Business

17. How To Value Your Business

18. How To Value Your Business Market Valuation Methods

19. How To Value Your Business Market Valuation Methods • Cost to Recreate (asset value approach) - • May only be considered as an option to “greenfielding”, in the case of a new market entrant • Often simply a comparative value analysis as a “bolt-on acquisition” in the case of an existing market player

20. How To Value Your Business Market Valuation Methods Other Approaches • Platform Opportunity - If the Seller is a larger player in the market, value can vary widely if the Purchaser is motivated enough to seek an entry into the market (remember the “house next door” story) • Bolt-On Acquisition - If that is the perception, value is usually less than a Platform Opportunity

21. How To Value Your Business Summary • There is a difference between appraisal and market value methods • Each has its own purpose and place in establishing how a business is valued • The two approaches do not always produce the same value equation, particularly in changing market conditions