VERSATA VALUATION GUIDE

Version 022515
Part 1: Getting Acquainted With the Model

The model is in the form of a Google spreadsheet. It has ten tabs. The first five are
outputs; the latter five are inputs. Inputs are underlined in green.
The Summary tab displays the models main results and assumptions. The business can
be valued either of two ways, depending on the selection in cell E2. Old uses a 5-year
DCF, with disposition at a multiple of terminal EBITDA. New uses a 20-year DCF.
The Projection tab shows a forecast of the P&L during the first five years after
acquisition.
DCF generates a more detailed forecast of business performance after acquisition.
Standard Balance Sheet summarizes the financial position of the company using common
categories.
Standard Income Statement summarizes the revenues and expenses of the company using
common categories.
Each input tab will be discussed below.
When filling out the model, please do not modify the output tabs.

Part 2: Finding Data

If the target is privately held, financial data will be provided either over email or through
a shared drive.
If the target is publicly traded, please visit the companys investor relations page, and
save a copy of the most recent annual report.
If a newer interim report is available, please also save a copy of it.
Please follow the naming convention below:
o A2014 is the annual report for FY 2014
o H1 2014 is the half-year report for FY 2014
o Q1 2014 is the first-quarter brief for FY 2014
Remember that fiscal years are designated by the end date. Thus, if a companys fiscal
year ends in January, FY 2015 will include eleven months in calendar year 2014.
Please familiarize yourself with the targets historical performance and any recent news
about the business.
Helpful resources include:
o markets.ft.com
o google.com/finance
o finance.yahoo.com
o msn.com/money
o reuters.com/finance/stocks
o gurufocus.com
o wvb.com
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Versata often reviews targets in other countries. If the investor relations page or source
materials are in a foreign language, please use Google Translate to convert them into
English. Although machine translation is not perfect, it is usually sufficient to prepare an
initial valuation. Should a target appear promising, we may commission a professional
translation later on.

Part 3: Company Tab

To begin filling out the model, select the INPUT Company tab.
In the Company Attributes section, enter the
o Name of the target.
o The country in which the target has its headquarters.
o The stock symbol, if shares are publicly traded. Please follow Googles format,
including the exchange prefix. e.g., LON:SGE for The Sage Group.
o The currency in which the company publishes results. Please use the standard
three-character abbreviation. e.g., GBP for British pounds. The model will
automatically identify the currency in which the stock trades, which may be
different.
o The date on which you are preparing the model.
o The date on which the next report is scheduled to be released. There may be a
calendar of announcements at the targets investor relations page. If the next
report date is not given in advance, please estimate it from the date of the previous
years publication.
o The price of the stock on the day when you prepare the model, if the stock is
publicly traded. The model will automatically look up the current price.
o The number of common shares outstanding. Please record your source in the
Comments field to the lower right. The model will automatically provide a shares
outstanding figure from Google Finance for comparison.
o The number of common shares that may be issued through dilutive instruments,
such as options, warrants and RSUs. Please record your source in the Comments
field. Include instruments that are issued but not vested. Do not include
instruments that are out-of-the-money. Do not include convertible debt or
convertible preferred stock, but mention them in the Comments, noting the total
amounts and the conversion rates.
o The amount of cash that would be raised through the exercise of in-the-money
instruments. Include instruments that are issued but not vested, but do not include
convertible debt or convertible preferred. Use the same currency as that used in
the reports.
Under Summary Description, provide a brief, one-line description of the business. For
example, Fleet management software, or Dematerialization solution. Try to distill the
longer descriptions available from Reuters, the FT, and other information services.
Under Acquisition Plans, enter
o Approximate transaction costs, in 000s of the reports currency. Rules of thumb
are 100 USD for American firms; 150 CAD for Canadian firms; 100 GBP for

British firms; 200 EUR for firms in Continental Europe; 25,000 JPY for Japanese
firms.
o Approximate length of restructuring, in months. Rules of thumb are 3 for US
firms; 3 for UK and Canadian firms having under 250 employees, 6 for larger; 6
for firms in Continental Europe and Japan having under 100 employees, 9 for
those having 101-250 employees, 12 for larger.
Under Historical Performance, record the targets revenue, net income and end-of-year
stock price (if publicly traded) during each of the past ten years. The list of years may be
altered to reflect the data available. e.g., if the most recent results are for 2014, the
coverage should be 2005-2014. If data for the full ten years are not available, please go
back as far as you can. For many publicly-traded stocks, 10-year income statement data
can be found in WVBs dossier file (accessible with a free registration).
Under News Stories, list the date (mm/dd/yyyy) and title of articles concerning major
recent events. Include a hyperlink to the story. For example, 9/22/2014 Sage Group
announces acquisition of PayChoice. The Key Developments page at Reuters is a good
resource.
In the Cap Table section, list known major investors and their percentages of
ownership (measured in terms of shares held, not voting rights). Record your source in
the Comments field or at the bottom of the Major Investor list.
The section Sensitivity Analysis should be left blank.
In the Comments section, each comment should begin on a new line. Press CTRL +
Enter to create a line break. Place an asterisk followed by a space at the start of each
comment.
In addition to identifying sources, please also record under Comments
o total US federal net operating losses (NOLs), if disclosed;
o customer retention rates, if disclosed;
o other material facts about the business.
Under Source Documents, please note the reports on which you are relying.

Part 4: Balance Sheet Tab

Next, select the INPUT BS tab.

Under As of, record the date as of which the companys financial position is being
reported. Use the most recent balance sheet available.
Starting in row 5, enter each asset and liability line from the targets balance sheet.
Under Account Name, record the items name as printed in the financial report. Use the
original language, unless the alphabet is non-Latin.
Under Account Type, select the appropriate category for the asset or liability.
o Include current marketable securities under Cash and Cash Equivalents.
o Try to separate Trade receivables from Other receivables. The former should be
classified as Accounts Receivable, the latter as Other Current Assets.
o Sometimes Trade and Other Receivables are combined in interim reports, but
stated separately in annual reports. Where this happens, assume that if Trade and
Other is higher in the interim than in the annual report, the entire increase is

attributable to Other. If Trade and Other is lower in the interim report, assume that
the entire decrease is attributable to Trade.
o Other Current Assets, Other Non-current Assets, and Other Accrued
Liabilities are catch-all descriptions for items that do not fit into more specific
categories.
o Goodwill should be classified under Intangibles.
o Sometimes Deferred Revenue is stated only in the annual report. Where this
happens, assume that the most recently disclosed Deferred Revenue figure
remains accurate at the time of the interim report. Create two lines, one labelled
Other Accrued Liabilities, and the other labelled Deferred Revenue: Current.
Enter the annual reports figure for Deferred Revenue in both lines, but set the
value in Other Accrued Liabilities to be negative.
o Be careful to distinguish Finance Leases from other forms of Debt.
o Count Preferred Stock as Debt.
In addition to reading the main statement, also read the accompanying notes. The notes
may enable you to refine the categorizations (e.g., by providing separate amounts for
items lumped together in the statement).
Under Amount, record the total associated with each asset and liability. Enter all
amounts in 000s of the reports currency.
Under Source, list the source report, following the naming convention (e.g., A2014).
Under Page, list the page number within the source report. Where the PDF page
number differs from that printed in the document, use the former.
Under Translation and Comments, provide the English equivalent of foreign-language
account names. Some common translations are provided in the appendix at the end of this
guide. A helpful resource is linguee.com.
Under Translation and Comments, please also note anything unusual about the various
balance sheet items. For example, if a large proportion of the Accounts Receivable
consists of non-current receivables, please mention it here.

Part 5: P&L Tab

Next, select the INPUT P&L tab.

Under As of, please record the end date of the period covered.
Where possible, use a full twelve months of income statement data.
If the most recent income statement is from an interim report, the model will derive the
past twelve months results using the last annual data and the previous years interim
data. In this case, please list the most recent interim period under Interim Now, the last
fiscal year under Last Annual, and the previous years interim period under Interim Y1. For example, if the most recent results are for the half-year ended 6/30/14, you should
enter: H1 2014, A2013, H1 2013, respectively. Please leave the three cells blank if
the most recent income statement is from the annual report.
Under TTM Rev., please enter total revenue for the most recent twelve months
reported. If the latest report is for an interim period, please add the interim reports
revenue to the last annual reports revenue, and subtract the previous years interim

revenue. (e.g., create an equation where the cell = H1 2014 revenue + A2013 revenue
H1 2013 revenue.)
Cell K2 allows the model to switch between projecting future results from twelve-month
and from interim data. Unless instructed otherwise, please keep the setting on TTM.
Under Mix Known, indicate whether the composition of the targets revenues is
disclosed or not. Sometimes, the revenue mix is disclosed only in part. Answer Yes if
you are confident that the models recurring revenue figure is accurate, No otherwise.
Beginning in row 5, enter the line items from the targets income statement.
Under Account Name, record the name as printed in the report, using the original
language unless the script is non-Latin.
Under Account Type, select the appropriate category:
o License consists of perpetual licenses and other software fees that are not
recurring in nature.
o Recurring consists of maintenance, support, SaaS (software-as-a-service),
cloud, term licenses, hosting and managed services.
o Services consists of professional services, installation, training and consulting.
o Other consists of items which do not fit into the categories above. e.g.,
hardware sales.
o Generic Revenue can be used when total sales are reported without a
decomposition by type. Revenue categorized as generic should be allocated using
the % Revenue labels.
o For example, if you believe the generic revenue is 80% SaaS and 20%
professional services, create three lines. In the first, select Generic revenue, and
enter the total amount. In the second, select % Revenue Recurring, and enter
80% under Amount. In the third, select % Revenue Services, and enter 20%.
o Hard COGS consists of expenses associated with revenues that are essentially
pass-through. It includes royalties, third-party licenses, third-party maintenance,
and hardware purchased for resale. If there is a Hard COGS expense, please
identify the revenue stream against which it should deducted, and select the
appropriate Hard COGS category under Account Type.
o Sometimes, there is reason to believe a hard cost is associated with a revenue
type, but the expense amount is unknown. When this happens, select the
appropriate % Hard COGS category, and enter an estimate of the percentage of
pass-through sales within the revenue type.
o Cost of sales items that are not hard can be classified as Software COGS if
related to License or Recurring, and Services COGS if related to Services.
o American software firms often divide operating expenses into Research and
Development, Sales and Marketing, and General and Administrative.
Operating expenses which do not fit into one of these categories can be classified
as Generic Operating Expense.
o Depreciation, amortization, and impairment of intangibles should all be classified
as Depreciation & Amortization.
o Sometimes, depreciation is combined in a single line with other operating
expenses. When this happens, please determine the amount of depreciation from
the statement of cash flows. Create two lines in the model, one marked as
Generic Operating Expense, and one as Depreciation and Amortization. Set
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the amount in both equal to the depreciation value from the cash flow statement,
but make the amount in Generic Operating Expense negative.
o Software companies sometimes capitalize development costs. These should be
counted in the models P&L input as a real expense, classified as Research &
Development.
o Subsidies and other operating income not included in the top-line total should be
entered as negative operating expenses.
o Financial income and expense, and other items of non-operating income and
expense, should be classified as Interest & Other.
Under Amount, enter the amount of each revenue or expense item in 000s of the
reports currency. When the input is a percentage, be sure to include the % sign.
Under Quarters, enter the number of quarters reflected in each lines revenue or
expense total. e.g., 2 for an H1 amount.
Under Period, enter the period with which the revenue or expense item is associated.
Where data from more than one period are used, it is important that the labels be
consistent with those entered in cells G2:I2.
Under Source, record the name of the source report.
Under Page, record the page number within the source report. Again, use the PDF page
number rather than the number printed in the document.
Under Translation and Comments, provide the English equivalent of foreign account
names.
Under Translation and Comments, note also the places where you have made a
conjecture instead of relying on information disclosed in the report. (For example, if you
have estimated a hard cost that is not explicitly stated.)
Where the most recent income statement is from an interim report, it is necessary to enter
data for three periods. First, enter data for the most recent interim period. Then, enter data
for the last whole fiscal year, and highlight these rows in light green. Finally, enter data
for the same interim period last year, and highlight these rows in pink.
For example, if the most recent report is H1 2014, you will begin on row 5 with the P&L
inputs for H1 2014. Beneath the last H1 2014 line, you will start entering inputs for
A2013, shaded in light green. You will then enter inputs for H1 2013, shaded in pink.
Keep in mind that only one set of generic revenue percentages and only one set of hard
COGS percentages can be entered, which will apply to data from all periods.

Part 6: Severance Tab

Next, select the INPUT Severance tab.

Search within the reports for the most recent employee total. For multinational targets, try
to find the total employees by country. Do not include contractors.
List the countries under Location, and the corresponding employee totals under
Employees. If more than 80% of staff are in a single country, you can treat all
employees as belonging to that country.
Search within the report for the total annual compensation paid to employees in each
country. The total compensation includes wages and salaries, benefits, and payroll taxes.
Enter the amount under Annual Comp, in 000s of the reports currency.
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If the total annual compensation is unknown, you can enter an estimate (in 000s of
reports currency) of the average annual compensation per employee under Avg Comp.
Rules of thumb are 80 USD for American staff; 80 CAD for Canadian staff; 50 GBP for
British staff; 70 EUR for staff in Continental Europe; 9,000 JPY for Japanese staff.
Under Retention, enter 30%, unless instructed otherwise.
Under Months, enter the appropriate rule of thumb: 2 months for US staff; 3 for
Canadian and British staff; 6 for staff in Continental Europe and Japan.
Under Source and Page, please record the source for your compensation and total
employee figures.
Severance is often pre-funded for employees in Israel. If there are staff in Israel, please
note this in the Comments field of the INPUT Company tab.

Part 7: Leases Tab

Finally, select the INPUT Leases tab.

Search within the reports for the most recent schedules of operating and finance lease
commitments.
Beginning in row 5, enter each lease (or set of leases).
Under Lease, enter the location name or another description (e.g., Facilities).
Under Type, select the appropriate classification:
o Op Offices for operating leases of business facilities;
o Op Other for all other operating leases (e.g., cars, data centers);
o Finance for finance or capital leases.
Under Source and Page, please record the sources for your lease inputs.
If the cost per month and end date of leases are known, please record these under Cost
per Month and Ends, respectively. Provide the cost in 000s of reports currency. Under
Start Date, enter the last day of the period covered by the report from which the lease
data are taken.
If the report instead provides a projection of future obligations by year, enter the amounts
(in 000s of reports currency) under Year 1 to Year 5.
Sometimes, reports will combine out-years (e.g., by providing a total for years two to
five). Where this happens, assume that the obligation in subsequent years is roughly
comparable to that in Year 1. Thus, if the obligation in Year 1 is 95, and the total
obligation for Years 2 to 5 is 300, enter 100 in each of Years 2 to 4, and 0 in Year 5.
Please add obligations beyond Year 5 to the amount for Year 5.
If future obligations for operating leases are unknown, please assume that the leases will
continue for three years, and that the required payment in each year is equal to the current
annual rent expense.
If no data on operating leases or rent expense are provided, please assume that there are
facilities leases lasting three years, the annual cost of which is equal to 400 USD (or
approximate local currency equivalent) per employee per month.
After you finish entering lease data, please review your inputs across all tabs before
submitting the model.

French and German Financial Terms

English
Half-Year
Quarter
Employees
Operating Leases
Income Statement
Sales Revenue
Other Revenue
Shares
Software
License
Maintenance
Services
Expenses
Amortization
Operating Result
Interest
Taxes
Balance Sheet
Cash

French
semestre
trimestre
effectif
contrats de location
compte de rsultat
chiffre d'affaires
autres produits de l'activit
actions
logiciel
licence
maintenance
services, prestations associes
charges
amortissements
rsultat oprationnel
intrts
impts
bilan
trsorerie, disponibilits

Accounts Receivable

clients et comptes rattachs

Prepaid Expenses
Tangible Assets
Intangible Assets
Goodwill
Deferred Tax Assets

charges constates d'avance

immobilisations corporelles
immobilisations incorporelles
carts d'acquisition
impts diffrs actif
fournisseurs et comptes
rattachs
provisions
passif d'impts diffrs
produits constats d'avance
emprunts et dettes financires

Accounts Payable
Provisions
Deferred Tax Liabilities
Deferred Revenue
Financial Liabilities

German
Halbjahr
Quartal
Mitarbeiter
Operating-Leasing
Gewinn- und Verlustrechnung
Umsatzerlse
Sonstige Ertrge
Aktien
Software
Lizenz
Wartung, Pflege
Dienstleistung
Aufwendungen
Abschreibungen
Betriebsergebnis
Zinsen
Steuern
Bilanz
Zahlungsmittel, Liquide Mittel
Forderungen aus Lieferungen
und Leistungen
Aktive
Rechnungsabgrenzungsposten
Sachanlagen
Immaterielle Vermgenswerte
Firmenwert
Aktive latente Steuern
Verbindlichkeiten aus
Lieferungen und Leistungen
Rckstellungen
Passive latente Steuern
Passive Rechnungsabgrenzung
Finanzielle Schulden