I need help with a discounted cash flow method in a hypothetical scenario that starbucks wants to acquire slowpokes $.$ The project is attached, I just needed help with the highlighted portion.

$1.$ Strategic and Economic Benefits

Strategic Benefits:

Market Expansion: Acquiring Slowpokes would allow Starbucks to enter or strengthen its presence in regions where Slowpokes operates, especially if these regions are underserved by Starbucks.

Diversification: Slowpokes may offer a unique value proposition or product line that complements Starbucks' offerings, potentially attracting a new customer segment.

Brand Synergy: Combining Starbucks' strong global brand with Slowpokes' local reputation could enhance overall brand equity and customer loyalty.

Economic Benefits:

Revenue Growth: The acquisition would potentially increase Starbucks' revenue through Slowpokes' existing customer base and store locations.

Cost Savings: Economies of scale in supply chain management, procurement, and operations could reduce overall costs.

Operational Efficiency: Streamlined operations and shared best practices could improve efficiency and profitability for both entities.

$2.$ Target and Synergy Valuation

Target Valuation:

Comparable Company Analysis $($Comps$)$: Assess Slowpokes$$ value by comparing it to similar companies in the market based on multiples such as EV$/$EBITDA$,$ P$/$E$,$ and P$/$S$.$

Precedent Transactions Analysis: Evaluate previous M&A deals in the coffee and retail space to estimate a reasonable acquisition premium.

Discounted Cash Flow $($DCF$)$: Project Slowpokes$$ future cash flows and discount them to present value using an appropriate discount rate.

Synergy Valuation:

Revenue Synergies: Estimate additional revenues from cross$-$selling opportunities, new product offerings, and market expansion.

Cost Synergies: Calculate potential cost savings from reduced overhead, improved supply chain management, and operational efficiencies.

$3.$ Method of Payment

Stock vs$.$ Cash: Consider the use of cash, stock, or a combination of both. Given Starbucks' strong cash position and stock performance, a mix of cash and stock could be favorable.

Financing: If necessary, outline potential financing options, including debt issuance or leveraging existing cash reserves.

$4.$ Bidding Strategy

Initial Offer: Present a competitive initial offer that reflects a fair premium over Slowpokes$$ current market valuation.

Negotiation Tactics: Be prepared to negotiate terms and conditions to address any concerns from Slowpokes$$ management and shareholders.

Contingencies: Include contingencies for due diligence findings, regulatory approvals, and any potential antitrust issues.

$5.$ Target Management Reaction

Management Integration: Propose a plan for integrating Slowpokes' management team to ensure a smooth transition and retain key talent.

Employee Retention: Address concerns about job security and company culture to mitigate resistance from Slowpokes$$ employees.

Stakeholder Communication: Develop a communication strategy to effectively convey the benefits of the deal to all stakeholders, including employees, customers, and shareholders.

$6.$ Corporate Governance Issues

Board Approval: Ensure both Starbucks' and Slowpokes$$ boards of directors approve the transaction.

Regulatory Compliance: Adhere to all legal and regulatory requirements, including antitrust laws and securities regulations.

Shareholder Approval: Seek approval from Slowpokes$$ shareholders, if required, and address any potential opposition.

Detailed Analysis and Justification

Comparable Company Analysis $($Comps$)$

To value Slowpokes using comps, identify similar companies in the coffee retail industry. For instance:

$-$ Company A: EV$/$EBITDA $=10$x$,$ P$/$E $=15$x$,$ P$/$S $=2$x

$-$ Company B: EV$/$EBITDA $=12$x$,$ P$/$E $=18$x$,$ P$/$S $=2\mathrm{.}5$x

Assume Slowpokes has an EBITDA of $$20$ million, net income of $$15$ million, and revenue of $$100$ million. Applying the multiples:

$-$ EV $($Enterprise Value$)=$ $$20$ million $*10=$ $$200$ million

$-$ Market Cap $=$ $$15$ million $*15=$ $$225$ million

$-$ Revenue Multiple $=$ $$100$ million $*2=$ $$200$ million

The estimated valuation range for Slowpokes is $$200-$$$225$ million.

Precedent Transactions Analysis

Review past M&A deals in the coffee industry:

$-$ Deal $1$: Acquisition premium of $25\%$

$-$ Deal $2$: Acquisition premium of $30\%$

Applying an average premium of $27\mathrm{.}5\%$ to Slowpokes$$ valuation:

$-$ Target Valuation with Premium $=$ $$200$ million $*1\mathrm{.}275=$ $$255$ million

Discounted Cash Flow $($DCF$)$ Analysis

Project Slowpokes$$ future cash flows based on growth rates, margins, and discount rate:

$-$ Year $1$: $$5$ million, Year $2$: $$6$ million, Year $3$: $$7$ million, etc.

$-$ Discount Rate: $10\%$

DCF Value $=$ Sum of PV of future cash flows $+$ Terminal Value.

Synergy Valuation

Estimate synergies:

$-$ Revenue Synergies: $$10$ million$/$year

$-$ Cost Synergies: $$5$ million$/$year

Present Value of Synergies $=$ $$15$ million$/$year discounted at $10\%.$