Protagenic Therapeutics Inc. (PTIX)

[Slyder75]

From this link:

http://seekingalpha.com/article/60049-traffix-merger-presents-arbitrage-opportunity

The transaction values Traffix’s share base upon New Motion’s Wednesday closing price of $14.00 at $9.56 a share, more than a 42% premium over Traffix’s closing price on Wednesday.

42% premium over FORM 25 Filing is $.62, which in my mind, is BS!

I'm not going to go through and evaluate Traffix market position at the time of the merger, or the growth potential involved for that company

However, in a hyper growth marketplace, fair valuation is the multiples of revenue approach. Check here: http://www.accountingtools.com/acquisition-valuation-methods

Valuation Based on a Multiple

Another option is to use a revenue multiple or EBITDA multiple. It is quite easy to look up the market capitalizations and financial information for thousands of publicly held companies. The buyer then converts this information into a multiples table, which itemizes a selection of valuations within the consulting industry. The table should be restricted to comparable companies in the same industry as that of the seller, and of roughly the same market capitalization. If some of the information for other companies is unusually high or low, then eliminate these outlying values in order to obtain a median value for the company’s size range. Also, it is better to use a multi-day average of market prices, since these figures are subject to significant daily fluctuation.

The buyer can then use this table to derive an approximation of the price to be paid for a target company. For example, if a target has sales of $100 million, and the market capitalization for several public companies in the same revenue range is 1.4 times revenue, then the buyer could value the target at $140 million. This method is most useful for a turn-around situation or a fast growth company, where there are few profits (if any). However, the revenue multiple method only pays attention to the first line of the income statement and completely ignores profitability. To avoid the risk of paying too much based on a revenue multiple, it is also possible to compile an EBITDA (i.e., earnings before interest, taxes, depreciation, and amortization) multiple for the same group of comparable public companies, and use that information to value the target.

Better yet, use both the revenue multiple and the EBITDA multiple in concert. If the revenue multiple reveals a high valuation and the EBITDA multiple a low one, then it is entirely possible that the target is essentially buying revenues with low-margin products or services, or extending credit to financially weak customers. Conversely, if the revenue multiple yields a lower valuation than the EBITDA multiple, this is more indicative of a late-stage company that is essentially a cash cow, or one where management is cutting costs to increase profits, but possibly at the expense of harming revenue growth.

If the comparable company provides one-year projections, then the revenue multiple can be re-named a trailing multiple (for historical 12-month revenue), and the forecast can be used as the basis for a forward multiple (for projected 12-month revenue). The forward multiple gives a better estimate of value, because it incorporates expectations about the future. The forward multiple should only be used if the forecast comes from guidance that is issued by a public company. The company knows that its stock price will drop if it does not achieve its forecast, so the forecast is unlikely to be aggressive.

Revenue multiples are the best technique for valuing high-growth companies, since these entities are usually pouring resources into their growth, and have minimal profits to report. Such companies clearly have a great deal of value, but it is not revealed through their profitability numbers.

However, multiples can be misleading. When acquisitions occur within an industry, the best financial performers with the fewest underlying problems are the choicest acquisition targets, and therefore will be acquired first. When other companies in the same area later put themselves up for sale, they will use the earlier multiples to justify similarly high prices. However, because they may have lower market shares, higher cost structures, older products, and so on, the multiples may not be valid. Thus, it is useful to know some of the underlying characteristics of the companies that were previously sold, to see if the comparable multiple should be applied to the current target company.