Introduction to Valuation

Valuation is the first step toward intelligent investing.

When an investor attempts to determine the worth of her
shares based on the fundamentals, she can make informed
decisions about what stocks to buy or sell. Without
fundamental value, one is set adrift in a sea of random
short-term price movements and gut feelings.
For years, the financial establishment has promoted the
specious notion that valuation should be reserved for
experts. Supposedly, only sell-side brokerage analysts have
the requisite experience and intestinal fortitude to go out
into the churning, swirling market and predict future prices.
Valuation, however, is no abstruse science that can only be
practiced by MBAs and CFAs. Requiring only basic math
skills and diligence, any Fool can determine values with the
best of them.
Before you can value a share of stock, you have to have
some notion of what a share of stock is. A share of stock is
not some magical creation that ebbs and flows like the tide;
rather, it is the concrete representation of ownership in a
publicly traded company. If XYZ Corp. has one million
shares of stock outstanding and you hold a single, solitary
share, that means you own a millionth of the company.
Why would someone want to pay you for your millionth?
There are quite a few reasons, actually. There is always
going to be someone else who wants that millionth of the
ownership because they want a millionth of the votes at a
shareholder meeting. Although small by itself, if you amass
that millionth and about five hundred thousand of its
friends, you suddenly have a controlling interest in the
company and can make it do all sorts of things, like pay fat
dividends or merge with your company.
Companies buy shares in other companies for all sorts of
reason. Whether it be an outright takeover, in which a
company buys all the shares, or a joint venture, in which
the company typically buys enough of another company to
earn a seat on the board of directors, the stock is always on
sale. The price of a stock translates into the price of the
company, on sale for seven and a half hours a day, five
days a week. It is this information that allows other
companies, public or private, to make intelligent business
decisions with clear and concise information about what
another company's shares might cost them.
The share of stock is a stand-in for a share in the company's
revenues, earnings, cash flow, shareholder's equity -- you
name it, the whole enchilada. For the individual investor,
however, this normally means just worrying about what
portion of all of those numbers you can get in dividends.
The share of ownership entitles you to a share of all
dividends in perpetuity. Even if the company's stock does
not currently have a dividend yield, there always remains
the possibility that at some point in the future there could
be some sort of dividend.
Finally, a company can simply repurchase its own shares
using its excess cash, rather than paying out dividends to
shareholders. This effectively drives up the stock price by
providing a buyer as well as improving earnings per share
(EPS) comparisons by decreasing the number of shares
outstanding. Mature, cash-flow positive companies tend to
be much more liberal in this day and age with share
repurchases as opposed to dividends, simply because
dividends to shareholders get taxed twice.
This series of articles will take you through the major
methods for valuing companies. The main categories of
valuation I will elucidate are valuations based on earnings,
revenues, cash flow, equity, dividends and subscribers.
Finally, I will sum this all up in a conclusion that positions
these valuations in the broader context of fundamental
analysis and gives you a sense of how to apply these in
your own investment efforts.
Earnings-Based Valuations
Earnings Per Share and the P/E Ratio

The most common way to value a company is to use its

earnings. Earnings, also called net income or net profit, is
the money that is left over after a company pays all of its
bills. To allow for apples-to-apples comparisons, most
people who look at earnings measure them according to
earnings per share (EPS).
You arrive at the earnings per share by simply dividing the
dollar amount of the earnings a company reports by the
number of shares it currently has outstanding. Thus, if XYZ
Corp. has one million shares outstanding and has earned
one million dollars in the past 12 months, it has a trailing
EPS of $1.00. (The reason it is called a trailing EPS is
because it looks at the last four quarters reported -- the
quarters that trail behind the most recent quarter reported.
$1,000,000
-------------- = $1.00 in earnings per share
(EPS)
1,000,000 shares

The earnings per share alone means absolutely nothing,

though. To look at a company's earnings relative to its
price, most investors employ the price/earnings (P/E)
ratio. The P/E ratio takes the stock price and divides it by
the last four quarters' worth of earnings. For instance, if, in
our example above, XYZ Corp. was currently trading at
$15 a share, it would have a P/E of 15.
$15 share price
---------------------------= 15 P/E
$1.00 in trailing EPS

Is the P/E the Holy Grail?

There is a large population of individual investors who stop
their entire analysis of a company after they figure out the
trailing P/E ratio. With no regard to any other form of
valuation, this group of unFoolish investors blindly plunge
ahead armed with this one ratio, purposefully ignoring the
vagaries of equity analysis. Popularized by Ben Graham
(who used a number of other techniques as well as low P/E
to isolate value), the P/E has been oversimplified by those
who only look at this number. Such investors look for "low
P/E" stocks. These are companies that have a very low
price relative to their trailing earnings.
Also called a "multiple", the P/E is most often used in
comparison with the current rate of growth in earnings per
share. The Foolish assumption is that for a growth
company, in a fairly valued situation the price/earnings
ratio is about equal to the rate of EPS growth.
In our example of XYZ Corp., for instance, we find out that
XYZ Corp. grew its earnings per share at a 13% over the
past year, suggesting that at a P/E of 15 the company is
pretty fairly valued. Fools believe that P/E only makes
sense for growth companies relative to the earnings growth.
If a company has lost money in the past year or has
suffered a decrease in earnings per share over the past
twelve months, the P/E becomes less useful than other
valuation methods we will talk about later in this series. In
the end, P/E has to be viewed in the context of growth and
cannot be simply isolated without taking on some
significant potential for error.
Are Low P/E Stocks Really a Bargain?
With the advent of computerized screening of stock
databases, low P/E stocks that have been mispriced have
become more and more rare. When Ben Graham
formulated many of his principles for investing, one had to
search manually through pages of stock tables in order to
ferret out companies that had extremely low P/Es. Today,
all you have to do is punch a few buttons on an online
database and you have a list as long as your arm.
This screening has added efficiency to the market. When
you see a low P/E stock these days, more often than not it
deserves to have a low P/E because of its questionable
future prospects. As intelligent investors value companies
based on future prospects and not past performance, stocks
with low P/Es often have dark clouds looming in the
months ahead. This is not to say that you cannot still find
some great low P/E stocks that for some reason the market
has simple overlooked -- you still can and it happens all the
time. Rather, you need to confirm the value in these
companies by applying some other valuation techniques.
The PEG and YPEG
The most common Foolish applications of the P/E are the
P/E and growth ratio (PEG) and the year-ahead P/E and
growth ratio (YPEG). Rather than reinvent the wheel, as
there is a wonderful series of articles already written on
these very subjects in Fooldom, I will simply direct your
attention to them and talk about them very briefly. The full
article on the PEG and YPEG, titled "The Fool Ratio."
The PEG simply takes the annualized rate of growth out to
the furthest estimate and compares this with the current
stock price. Since it is future growth that makes a company
valuable to both an acquirer and a shareholder seeking
either dividends or free cash flow to fund stock buybacks,
this makes some degree of intuitive sense. Only looking at
the trailing P/E is kind of like driving while looking out the
rearview mirror.
If a company is expected to grow at 10% a year over the
next two years and has a P/E of 10, it will have a PEG of
1.0.
P/E of 10
---------------------- = 1.0 PEG
 10% EPS growth

A PEG of 1.0 suggests that a company is fairly valued. If

the company in the above example only had a P/E of five
but was expected to grow at 10% a year, it would have a
PEG of 0.5 -- implying that it is selling for one half (50%)
of its fair value. If the company had a P/E of 20 and
expected growth of 10% a year, it would have a PEG of
2.0, worth double what it should be according to the
assumption that the P/E should equal the EPS rate of
growth.
While the PEG is most often used for growth companies,
the YPEG is best suited for valuing larger, more-
established ones. The YPEG uses the same assumptions as
the PEG but looks at different numbers. As most earnings
estimate services provide estimated 5-year growth rates,
these are simply taken as an indication of the fair multiple
for a company's stock going forward. Thus, if the current
P/E is 10 but analysts expect the company to grow at 20%
over the next five years, the YPEG is equal to 0.5 and the
stock looks cheap according to this metric. As always, one
must view the PEG and YPEG in the context of other
measures of value and not consider them as magic money
machines.
Multiples
Although the PEG and YPEG are helpful, they both operate
on the assumption that the P/E should equal the EPS rate of
growth. Unfortunately, in the real world, this is not always
the case. Thus, many simply look at estimated earnings and
estimate what fair multiple someone might pay for the
stock. For example, if XYZ Corp. has historically traded at
about 10 times earnings and is currently down to 7 times
earnings because it missed estimates one quarter, it would
be reasonable to buy the stock with the expectation that it
will return to its historic 10 times multiple if the missed
quarter was only a short-term anomaly.
When you project fair multiples for a company based on
forward earnings estimates, you start to make a heck of a
lot of assumptions about what is going to happen in the
future. Although one can do enough research to make the
risk of being wrong as marginal as possible, it will always
still exist. Should one of your assumptions turn out to be
incorrect, the stock will probably not go where you expect
it to go. That said, most of the other investors and
companies out there are using this same approach, making
their own assumptions as well, so, in the worst-case
scenario, at least you won't be alone.
A modification to the multiple approach is to determine the
relationship between the company's P/E and the average
P/E of the S&P 500. If XYZ Corp. has historically traded at
150% of the S&P 500 and the S&P is currently at 10, many
investors believe that XYZ Corp. should eventually hit a
fair P/E of 15, assuming that nothing changes. This
historical relationship requires some sophisticated
databases and spreadsheets to figure out and is not widely
used by individual investors, although many professional
money managers often use this approach.
Revenues-Based Valuations
Valuation: The Price/Sales Ratio
Every time a company sells a customer something, it is
generating revenues. Revenues are the sales generated by a
company for peddling goods or services. Whether or not a
company has made money in the last year, there are always
revenues. Even companies that may be temporarily losing
money, have earnings depressed due to short-term
circumstances (like product development or higher taxes),
or are relatively new in a high-growth industry are often
valued off of their revenues and not their earnings.
Revenue-based valuations are achieved using the
price/sales ratio, often simply abbreviated PSR.
The price/sales ratio takes the current market capitalization
of a company and divides it by the last 12 months trailing
revenues. The market capitalization is the current market
value of a company, arrived at by multiplying the current
share price times the shares outstanding. This is the current
price at which the market is valuing the company. For
instance, if our example company XYZ Corp. has ten
million shares outstanding, priced at $10 a share, then the
market capitalization is $100 million.
Some investors are even more conservative and add the
current long-term debt of the company to the total current
market value of its stock to get the market capitalization.
The logic here is that if you were to acquire the company,
you would acquire its debt as well, effectively paying that
much more. This avoids comparing PSRs between two
companies where one has taken out enormous debt that it
has used to boast sales and one that has lower sales but has
not added any nasty debt either.
Market Capitalization = (Shares Outstanding * Current
Share Price) + Current Long-term Debt
The next step in calculating the PSR is to add up the
revenues from the last four quarters and divide this number
into the market capitalization. Say XYZ Corp. had $200
million in sales over the last four quarters and currently has
no long-term debt. The PSR would be:
(10,000,000 shares * $10/share) + $0 debt
PSR = ----------------------------------------- =
0.5
$200 million revenues

The PSR is a measurement that companies often consider

when making an acquisition. If you have ever heard of a
deal being done based on a certain "multiple of sales," you
have seen the PSR in use. As this is a perfectly legitimate
way for a company to value an acquisition, many simply
expropriate it for the stock market and use it to value a
company as an ongoing concern.
Uses of the PSR
As with the PEG and the YPEG, the lower the PSR, the
better. Ken Fisher, who is most famous for using the PSR
to value stocks, looks for companies with PSRs below 1.0
in order to find value stocks that the market might currently
be overlooking. This is the most common application of the
PSR and is actually a pretty good indicator of value,
according to the work that James O'Shaughnessey has done
with S&P's CompuStat database.
The PSR is also a valuable tool to use when a company has
not made money in the last year. Unless the corporation is
going out of business, the PSR can tell you whether or not
the concern's sales are being valued at a discount to its
peers. If XYZ Corp. lost money in the past year, but has a
PSR of 0.50 when many companies in the same industry
have PSRs of 2.0 or higher, you can assume that, if it can
turn itself around and start making money again, it will
have a substantial upside as it increases that PSR to be
more in line with its peers. There are some years during
recessions, for example, when none of the auto companies
make money. Does this mean they are all worthless and
there is no way to compare them? Nope, not at all. You just
need to use the PSR instead of the P/E to measure how
much you are paying for a dollar of sales instead of a dollar
of earnings.
Another common use of the PSR is to compare companies
in the same line of business with each other, using the PSR
in conjunction with the P/E in order to confirm value. If a
company has a low P/E but a high PSR, it can warn an
investor that there are potentially some one-time gains in
the last four quarters that are pumping up earnings per
share. Finally, new companies in hot industries are often
priced based on multiples of revenues and not multiples of
earnings.
Cash Flow-Based Valuations
Cash-Flow (EBITDA) & Non-Cash Charges

Despite the fact that most individual investors are

completely ignorant of cash flow, it is probably the most
common measurement for valuing public and private
companies used by investment bankers. Cash flow is
literally the cash that flows through a company during the
course of a quarter or the year after taking out all fixed
expenses. Cash flow is normally defined as earnings
before interest, taxes, depreciation and amortization
(EBITDA).
Why look at earnings before interest, taxes, depreciation
and amortization? Interest income and expense, as well as
taxes, are all tossed aside because cash flow is designed to
focus on the operating business and not secondary costs or
profits. Taxes especially depend on the vagaries of the laws
in a given year and actually can cause dramatic fluctuations
in earnings power. For instance, CYBEROPTICS
(Nasdaq: CYBE) enjoyed a 15% tax rate in 1996, but in
1997 that rate will more than double. This situation
overstates CyberOptics' current earnings and understates its
forward earnings, masking the company's real operating
situation. Thus, a canny analyst would use the growth rate
of earnings before interest and taxes (EBIT) instead of
net income in order to evaluate the company's growth.
EBIT is also adjusted for any one-time charges or benefits.
As for depreciation and amortization, these are called
non-cash charges, as the company is not actually spending
any money on them. Rather, depreciation is an accounting
convention for tax purposes that allows companies to get a
break on capital expenditures as plant and equipment ages
and becomes less useful. Amortization normally comes in
when a company acquires another company at a premium
to its shareholder's equity -- a number that it account for on
its balance sheet as goodwill and is forced to amortize over
a set period of time, according to generally accepted
accounting principles (GAAP). When looking at a
company's operating cash flow, it makes sense to toss aside
accounting conventions that might mask cash strength.
When and How to Use Cash Flow
Cash flow is most commonly used to value industries that
involve tremendous up-front capital expenditures and
companies that have large amortization burdens. Cable TV
companies like TIME-WARNER (NYSE: TWX) and
TELECOMMUNICATIONS INC. (Nasdaq: TCOMA)
have reported negative earnings for years due to the huge
capital expense of building their cable networks, even
though their cash flow has actually grown. This is because
huge depreciation and amortization charges have masked
their ability to generate cash. Sophisticated buyers of these
properties use cash flow as one way of pricing an
acquisition, thus it makes sense for investors to use it as
well.
The most common valuation application of EBITDA, the
discounted cash flow, is a rather complicated spreadsheet
exercise that defies simple explanation. Economic Value
Added (EVA) is another sophisticated modification of cash
flow that looks at the cost of capital and the incremental
return above that cost as a way of separating businesses that
truly generate cash from ones that just eat it up. The most
straightforward way for an individual investor to use cash
flow is to understand how cash flow multiples work.
In a private or public market acquisition, the price-to-cash
flow multiple is normally in the 6.0 to 7.0 range. When this
multiple reaches the 8.0 to 9.0 range, the acquisition is
normally considered to be expensive. Some counsel selling
companies when their cash flow multiple extends beyond
10.0. In a leveraged buyout (LBO), the buyer normally tries
not to pay more than 5.0 times cash flow because so much
of the acquisition is funded by debt. A LBO also looks to
pay back all the cash used for the buyout within six years,
have an EBITDA of 2.0 or more times the interest
payments, and have total debt of only 4.5 to 5.0 times the
EBITDA.
Investors interested in going to the next level with EBITDA
and looking at discounted cash flow or EVA are
encouraged to check out the bookstore or the library. Since
companies making acquisitions use these methods, it makes
sense for investors to familiarize themselves with the logic
behind them as this might enable a Foolish investor to spot
a bargain before someone else.

Equity-Based Valuations
What is Equity?
Equity is a fancy way of referring to what is actually there.
Whether it's tangible things like cash, current assets,
working capital and shareholder's equity, or intangible
qualities like management or brand name, equity is
everything that a company has if it were to suddenly stop
selling products and stop making money tomorrow.
Traditionally, investors who rely on buying companies with
a substantial amount of equity to back up their value are a
paranoid lot who are looking to be able to collect
something in liquidation. However, as the TV-dominated
mass-consumer age has helped intangibles like brand
names create powerful moats around a core business,
contemporary investors have begun to push the boundaries
of equity by emphasizing qualities that have no tangible or
concrete value, but are absolutely vital to the company as
an ongoing concern.
The Balance Sheet: Cash & Working Capital
Like to buy a dollar of assets for a dollar in market value?
Ben Graham did. He developed one of the premier screens
for ferreting out companies with more cash on hand than
their current market value. First, Graham would look at a
company's cash and equivalents and short-term
investments. Dividing this number by the number of shares
outstanding gives a quick measure that tells you how much
of the current share price consists of just the cash that the
company has on hand. Buying a company with a lot of cash
can yield a lot of benefits -- cash can fund product
development and strategic acquisitions and can pay high-
caliber executives. Even a company that might seem to
have limited future prospects can offer tremendous promise
if it has enough cash on hand.
Another measure of value is a company's current working
capital relative to its market capitalization. Working capital
is what is left after you subtract a company's current
liabilities from its current assets. Working capital
represents the funds that a company has ready access to for
use in conducting its everyday business. If you buy a
company for close to its working capital, you have
essentially bought a dollar of assets for a dollar of stock
price -- not a bad deal, either. Just as cash funds all sorts of
good things, so does working capital.
Shareholder's Equity & Book Value
Shareholder's equity is an accounting convention that
includes a company's liquid assets like cash, hard assets
like real estate, as well as retained earnings. This is an
overall measure of how much liquidation value a company
has if all of its assets were sold off -- whether those assets
are office buildings, desks, old T-shirts in inventory or
replacement vacuum tubes for ENIAC systems.
Shareholder equity helps you value a company when you
use it to figure out book value. Book value is literally the
value of a company that can be found on the accounting
ledger. To calculate book value per share, take a company's
shareholder's equity and divide it by the current number of
shares outstanding. If you then take the stock's current price
and divide by the current book value, you have the price-
to-book ratio.
Book value is a relatively straightforward concept. The
closer to book value you can buy something at, the better it
is. Book value is actually somewhat skeptically viewed in
this day and age, since most companies have latitude in
valuing their inventory, as well as inflation or deflation of
real estate depending on what tax consequences the
company is trying to avoid. However, with financial
companies like banks, consumer loan concerns, brokerages
and credit card companies, the book value is extremely
relevant. For instance, in the banking industry, takeovers
are often priced based on book value, with banks or savings
& loans being taken over at multiples of between 1.7 to 2.0
times book value.
Another use of shareholder's equity is to determine return
on equity, or ROE. Return on equity is a measure of how
much in earnings a company generates in four quarters
compared to its shareholder's equity. It is measured as a
percentage. For instance, if XYZ Corp. made a million
dollars in the past year and has a shareholder's equity of ten
million, then the ROE is 10%. Some use ROE as a screen
to find companies that can generate large profits with little
in the way of capital investment. COCA-COLA (NYSE:
KO), for instance, does not require constant spending to
upgrade equipment -- the syrup-making process does not
regularly move ahead by technological leaps and bounds.
In fact, high ROE companies are so attractive to some
investors that they will take the ROE and average it with
the expected earnings growth in order to figure out a fair
multiple. This is why a pharmaceutical company like
MERCK (NYSE: MRK) can grow at 10% or so every year
but consistently trade at 20 times earnings or more.
Intangibles
Brand is the most intangible element to a company, but
quite possibly the one most important to a company's
ability as an ongoing concern. If every single
MCDONALD'S (NYSE:MCD) restaurant were to
suddenly disappear tomorrow, the company could simply
go out and get a few loans and be built back up into a world
power within a few months. What is it about McDonald's
that would allow it to do this? It is McDonald's presence in
our collective minds -- the fact that nine out of ten people
forced to name a fast food restaurant would name
McDonald's without hesitating. The company has a well-
known brand and this adds tremendous economic value
despite the fact that it cannot be quantified.
Some investors are preoccupied by brands, particularly
brands emerging in industries that have traditionally been
without them. The genius of INTEL (Nasdaq: INTC) and
MICROSOFT (Nasdaq: MSFT) is that they have built
their company names into brands that give them an
incredible edge over their competition. A brand is also
transferable to other products -- the reason Microsoft can
contemplate becoming a power in online banking, for
instance, is because it already has incredible brand equity in
applications and operating systems. It is as simple as
Reese's Peanut Butter cups transferring their brand onto
Reese's Pieces, creating a new product that requires
minimum advertising to build up.
The real trick with brands, though, is that it takes at least
competent management to unlock the value. If a brand is
forced to suffer through incompetence, such as
AMERICAN EXPRESS (NYSE: AXP) in the early 1990s
or Coca-Cola in the early 1980s, then many can become
skeptical about the value of the brand, leading them to
doubt whether or not the brand value remains intact. The
major buying opportunities for brands ironically comes
when people stop believing in them for a few moments,
forgetting that brands normally survive even the most
difficult of short-term traumas.
Intangibles can also sometimes mean that a company's
shares can trade at a premium to its growth rate. Thus a
company with fat profit margins, a dominant market share,
consistent estimate-beating performance or a debt-free
balance sheet can trade at a slightly higher multiple than its
growth rate would otherwise suggest. Although intangibles
are difficult to quantify, it does not mean that they do not
have a tremendous power over a company's share price.
The only problem with a company that has a lot of
intangible assets is that one danger sign can make the
premium completely disappear.
The Piecemeal Company
Finally, a company can sometimes be worth more divided
up rather than all in one piece. This can happen because
there is a hidden asset that most people are not aware of,
like land purchased in the 1980s that has been kept on the
books at cost despite dramatic appreciation of the land
around it, or simply because a diversified company does
not produce any synergies. SEARS (NYSE: S), DEAN
WITTER DISCOVER (NYSE: DWD) and ALLSTATE
(NYSE: ALL) are all worth a heck of a lot more broken
apart as separate companies than they ever were when they
were all together. Keeping an eye out for a company that
can be broken into parts worth more than the whole makes
sense, especially in this day and age when so many 1970s
conglomerates are crumbling into their component parts.
Yield-Based Valuations
A dividend yield is the percentage of a company's stock
price that it pays out as dividends over the course of a year.
For example, if a company pays $1.00 in dividends per
quarter and it is trading at $100, it has a dividend yield of
4%. Four quarters of $1 is $4, and this divided by $100 is
4%.
Yield has a curious effect on a company. Many income-
oriented investors start to pour into a company's stock when
the yield hits a magical level. The historical performance of
the Dow Dividend Approach supports the general
conclusion buttressed by Jim O'Shaugnessey's work that
shows that a portfolio made up of large capitalization,
above-average yielding stocks outperforms the market over
time.
Some, like Geraldine Weiss, actually invest in stocks based
on what yield they should have. Weiss measures the
average historical yield and counsels investing in a
company's shares when the yield hits the edge of the
undervalued band. For instance, if a company has
historically yielded 2.5% and is currently paying $4 in
dividends, the stock should trade in the $160 range.
Anyone interested in learning more about Weiss's yield-
oriented valuation approach should check out Dividends
Don't Lie. The simplest way to take advantage of stocks
that are undervalued based on their yield is to use the Dow
Dividend Approach, which you can learn more about in the
Fool's School area.
Member-Based Valuations
Sometimes a company can be valued based on its
subscribers or its customer accounts. Subscriber-based
valuations are most common in media and communication
companies that generate regular, monthly income -- like
cellular, cable TV and online companies. Often, in a
subscriber-based valuation, analysts will calculate the
average revenues per subscriber over their lifetime and then
figure the value for the entire company based on this
approach. If AMERICA ONLINE (NYSE: AOL) has six
million members and each sticks around, on average, for 30
months, spending an average of $20 a month, the company
is worth 6 million times $20 times 30 or $3.6 billion. This
sort of valuation is also used for cable TV companies and
cellular phone companies. For instance, Continental
Cablevision was bought out for $2000 a subscriber.
Another way a company can be valued on members is
based on accounts. In the healthcare informatics industry,
companies are routinely acquired based on the value of
their existing accounts. These acquisitions often completely
ignore the past earnings or revenues of the company,
instead focusing on what additional revenue could be
conceivably generated from these new accounts. Although
member-based valuations seem rather confusing, their
exact mechanics are unique to each industry. Studying the
history of the last few major acquisitions can tell an
inquisitive investor how the member model has worked in
past mergers and can suggest how it might work in the
future.