Answer-first summary for fast verification
Answer: sell the business.
**Explanation:** Let's calculate the values for each option: **Sell the business**: $625 million offer **Spin off the business**: - Value at 15× EBITDA: 15 × $45 million = $675 million - Less 5% flotation costs: $675 million × 0.95 = $641.25 million **Peer valuation**: - 14.5 × $45 million = $652.5 million **Analysis**: - Selling the business provides $625 million immediately - Spinning off would provide $641.25 million in value (after costs) - The peer valuation suggests $652.5 million Since the spin-off value ($641.25 million) is higher than the sale offer ($625 million), and considering the peer valuation of $652.5 million, the best option is to **sell the business** as it provides immediate liquidity at a reasonable valuation compared to the spin-off alternative.
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A company has received a $625 million offer for its healthcare division, which has an EBITDA of $45 million. Peer companies are valued at an average EV/EBITDA of 14.5. The company's investment banker suggests that the company can spin off the division at 15 times EBITDA, less 5% in flotation costs. The best option for the company would be to:
A
sell the business.
B
retain the business.
C
spin off the business.