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. The median earnback period has approximated three3 years each of the past five5 years. An allcash acquisition will have a different effect on book value and. The median tangible book value earnback period via the crossover method for the past seven years is shared above.
Tangible book value dilution is a way of life in larger transactions and is. Ellington residential mortgage reit price to book value earn. Assets such as property and equipment are considered to be tangible assets. Tangible book value per share dilution old national bank. Price to book value is a valuation ratio that is measured by stock price book value per share. One widely used but misleading metric is the dilution of tangible book value tbv that occurs. Tangible book value per share tbvps is the value of a companys tangible assets divided by its current outstanding shares. This article originally appeared on the subscriber side of snl financials website. To calculate the tangible book value per share, malcolm finds that the firms number of shares outstanding is 2,000,000 million. Tbv dilution and earnback are poor indicators of a transactions full. Tbvps determines the potential value per share of a company in the event that it must liquidate its assets. In other words, banks that produce greater returns on tangible capital.
Line up your investment banker early ibankers are consolidating, too, and conflicts are increasing. 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. Tangible book value per share is the pershare value of a companys equity after removing any intangible assets. The book value is essentially the tangible accounting value of a firm compared to the market value that is shown.
The different approaches to calculating tangible book value dilution in. It is currently acceptable to do transactions with tbv earnback periods of up to five. Tangible book value per share tbvps definition investopedia. In fact, the link between tbv earnback and value creation is tenuous. Tcfchemical merger of equals investor presentation tcf bank.