The different approaches to calculating tangible book value dilution in. Line up your investment banker early ibankers are consolidating, too, and conflicts are increasing. Assets such as property and equipment are considered to be tangible assets. Price to book value is a valuation ratio that is measured by stock price book value per share. Tbvps determines the potential value per share of a company in the event that it must liquidate its assets. One widely used but misleading metric is the dilution of tangible book value tbv that occurs.
Tcfchemical merger of equals investor presentation tcf bank. As you can see in this example, there is a major distortion of book value per share due to a major share repurchase done above the current book value per share number. To calculate the tangible book value per share, malcolm finds that the firms number of shares outstanding is 2,000,000 million. This article originally appeared on the subscriber side of snl financials website.
In fact, the link between tbv earnback and value creation is tenuous. Tangible book value dilution is a way of life in larger transactions and is. Tangible book value per share is the pershare value of a companys equity after removing any intangible assets. The median earnback period has approximated three3 years each of the past five5 years. In other words, banks that produce greater returns on tangible capital.
It is currently acceptable to do transactions with tbv earnback periods of up to five. Tangible book value per share tbvps is the value of a companys tangible assets divided by its current outstanding shares. An allcash acquisition will have a different effect on book value and. Ellington residential mortgage reit price to book value earn. While tangible book value earnback is much ballyhooed and has lately been a metric that has led to some good deals not being done the true success of the deal is measured in what it does for the acquirers profitability once the majority of cost savings and synergies are achieved, he wrote. Tbv dilution and earnback are poor indicators of a transactions full. Tangible book value per share tbvps definition investopedia. Tangible book value per share dilution old national bank. The book value is essentially the tangible accounting value of a firm compared to the market value that is shown.
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