Financial Modelling for Mergers & Acquisitions

Course Overview This hands-on course offers practical instruction on how to model economic, financial and strategic issues associated with M&A. The course covers alternative methods for evaluating the financial and economic effects of models including discounted cash flow, earnings, cash flow and economic models, while addressing programming and model structuring subjects. Case studies illustrate the practical issues associated with M&A modelling. By the end of the course, you will be able to construct an integrated model from the ground that includes sources and uses of funds, pro-forma financial statements, acquisition premiums, cash flow waterfalls, synergies and effective presentation of the merger analysis. Summary of course content Advanced DCF models for M&A that include complex terminal valuation techniques and flexible transaction timing Modelling of alternative transaction structures with pro-forma balance sheet, taxes and calculation of accretion and dilution Evaluation of transaction multiples through evaluating growth, return on investment, and transition periods Converting corporate models into acquisition models with different timing and synergy assumptions Constructing and analysing LBO models with complex debt structuring and cash flow waterfalls Methodology Case studies, hands-on analysis and template models are used in the programme. The Course Director will help the delegates to build their own financial model from a blank spreadsheet, incorporating sophisticated M&A concepts. Take-away Delegates will receive a comprehensive suite of financial modelling software on CD that includes various template models and add-ins. The software consists of corporate, M&A, project finance and LBO models. Computer-based exercises All delegates should bring a laptop loaded with Microsoft Excel 2003 or later to facilitate in-class studies and exercises. Who should attend? M&A specialists Corporate financiers Financial analysts Investment bankers Securities analysts Accountants involved in structuring M&A deals FTS Eligible This programme is approved for listing on the Financial Training Scheme (FTS) Programme Directory and is eligible for FTS claims subject to all eligibility criteria being met. Please note that in no way does this represent an endorsement of the quality of the training provider and programme. Participants are advised to assess the suitability of the programme and its relevance to participants’ business activities or job roles. The FTS is available to eligible entities, at a 50% funding level of programme fees subject to all eligibility criteria being met. FTS claims may only be made for programmes listed on the FTS Programme Directory with the specified validity period. Please refer to www.ibf.org.sg for more information. Supporting partner
Day 1 M&A, model drivers and DCF analysis M&A terminology and course themes Terms in merger analysis Overview of valuation in M&A Alternative objectives in valuing M&A: DCF valuation, multiples, IRR, synergies vs. premium, constrained accretion and dilution analysis Exercise: Valuation from premium and synergy vs. earnings dilution Risk analysis and importance of debt capacity in M&A valuation Analysis with existing M&A models - objectives and structure Buy side and sell side presentations in M&A transactions Standalone target valuation model using DCF and synergy estimates with value build-up Benefits and problems from using P/E, EV/EBITDA and price to book multiples and in combination with DCF analysis Use of integrated M&A model LBO model with analysis of IRR Credit analysis in alternative merger models Combined model with equity IRR, unlevered IRR, accretion and dilution and DCF analysis Discounted free cash flow and value drivers Financial theory and basis for DCF model Development of assumptions through considering industry structure, growth potential, pricing strategy, capital expenditure costs and fixed vs. variable operating costs Construction of revenue, expense and capital expenditure model section from operating assumptions Building flexible models that evaluate different start, explicit and terminal periods Calculation of depreciation expense  Evaluation of return on invested capital and use of return to evaluate forecasts Discussion of measuring growth and WACC Calculation of terminal value using constant growth assumption Determination of enterprise value using constant growth assumption and valuation multiples Sensitivity analysis and scenario analysis for different operating and valuation assumptions Day 2 Standalone financial model for valuation and transaction module for acquisition analysis Corporate modelling and standalone valuation Layout and structure of corporate and M&A models Balance sheet as model starting and ending point Debt module and reconciliation of cash flow with balance sheet Model of financial statements and use of balance sheet to audit cash flow Calculation of projected return on invested capital Modelling constant capital structure on a book and market basis Valuation and adjustments in terminal period and bridge from enterprise value to equity value Four methods of valuation from corporate models Importance of stable period in evaluating cash flows Discounting with mid-year cash flows and terminal value at end of period Use of ROIC/WACC spread in computing terminal value Calculation of stable period working capital changes from terminal growth rate Modelling issues with ratio of stable level of capital expenditures to depreciation Items to include in bridge between equity value and enterprise value Effect of items in bridge on the WACC Presentation and risk analysis of alternative valuation methods Structuring of acquisition model and accounting in M&A Transaction assumptions Alternative transaction assumptions and calculation of implied transaction multiples Sources and uses of funds analysis with alternative residual funding Purchase accounting, elimination of existing equity and re-valuation of assets and liabilities Goodwill and impairment calculations in alternative situations Pro-forma balance sheet for modelling and analysis using sources and uses of funds and goodwill Using alternative balance sheet dates for pro-forma analysis Alternative tax accounting for mergers Deferred tax changes from M&A Day 3 Acquisition model and cash flow waterfall Financial structure of acquisitions and financial modelling Debt capacity in transactions and use of Debt to EBITDA ratio Valuation in private equity transactions and use of entry and exit EV/EBITDA multiples Amortising and bullet debt structures in leveraged transactions Use of capitalising subordinated debt in financing transactions Alternative structures for equity financing Deferred tax changes from M&A Optimal holding period and J-curve Construction of acquisition model Transfer of data from standalone model and incorporation of flexible transaction dates Inclusion of terminal proceeds in operating analysis Construction of debt schedule for existing debt and amortising debt with repayment at exit Modelling credit spreads and cash sweep as a function of debt/EBITDA Development of bullet debt with provisions for cash flow sweep Structuring of liquidity facilities and provision for senior debt defaults Income statement and tax module with adjustments for transaction and net operating loss carry forward Cash flow statement with provisions for waterfall, cash sweep and dividends Alternative calculations for positive and negative cash flow Limits on cash sweep, use of liquidity facility and debt defaults Modelling of cash flow to alternative equity tranches and earn-out provisions Analysis using LBO model Presentation of cash flow waterfall Calculation of IRR on equity, sub-debt and equity Determination of break-even points for equity, subordinated debt and senior debt Scenario analysis and use in evaluating debt capacity Tornado analysis for due diligence and underwriting Day 4 Entry and exit multiples in acquisition analysis, integrated acquisition models and synergies Calculation of implied multiples for entry, exit and DCF Construction of P/E ratio from value drivers with alternative transition periods Modelling of invested capital Modelling of cost of capital Computation of free cash flow and growth rate Incorporation of implied multiples in DCF analysis and acquisition models Regression analysis of multiples and theory of multiples Integrated models and accretion and dilution analysis Importance of accretion and dilution for investment analysts and management Incorporation of stock price of acquiring company, exchange ratios and partial share swap transactions in merger models Debt issuances in integrated model and credit constraints Sources and uses and goodwill analysis in consolidated models Pro-forma balance sheet for consolidated company Consolidation of operating accounts, asset accounts and working capital Modelling of financing and taxes for consolidated company Calculation of consolidated and standalone EPS Computing alternative ratios to simulate credit ratings and evaluate credit quality Sensitivity analysis of alternative acquisition premiums and debt financing Synergy analysis in acquisition analysis Theory of synergies and identifying synergies Different types of synergies Valuation of synergies Break-even synergies