Transaction Structuring, Valuation & Modelling for M&A & LBO’S

This course provides participants with a working knowledge of the principles to be followed when structuring transactions including financial analysis, modelling and valuation. In particular, the legal constraints that must be observed when structuring highly leveraged transactions are explored in detail. This will enable participants to acquire a sufficiently thorough understanding of the subject in order to be able to use the tools and techniques in an effective manner. At the end of the course, participants will have a sound understanding of: The structural design constraints to be observed in order to satisfy lenders funding acquisitions The nature and uses of financial valuation techniques such as discounted cash flow (DCF) using weighted average cost of capital (WACC) and market multiples Key design principles for building financial models in Excel The nature, use and abuse of key valuation ratios such EPS and P/E The key drivers of shareholder value and the methods used to calculate the value of a company such as enterprise value ratios to avoid capital structure distortions The application of valuation techniques to M&A transactions and LBOs The course provides participants with a working knowledge of the principles and practices of structuring corporate finance including financial analysis, modelling and valuation. The programme combines lectures with practical and interactive case studies and exercises to enforce the concepts. These will include real life cases in analysis and valuation. Delegates will acquire the skills to analyse financial statements including practical, hands-on experience in the design and construction of financial models in Excel. Suitable spread sheets will be provided as part of the course materials. Who should attend? Private Equity Investors Financial Analysts Investment and Portfolio Managers Commercial Bankers (senior and mezzanine lenders) Investment Bankers Securities Analysts Business Development & Strategic Planning Executives Corporate Finance Analysts Company Advisors and Auditors Market Regulators Corporate Executives and Managers Credit Analysts and Credit Controllers Those working with or connected to the corporate finance process
Day 1 Valuation Modelling Valuation appraisal techniques Valuation methods: an overview Appraising investment projects Alternative measures of value Payback period; discounted payback period NPV; IRR, introductory sensitivity analysis Dividend discount models: Gordon growth model Multi-stage dividend discount models Capital intensity Cash on cash multiples Case study: comparing alternative appraisal techniques Cost of capital Capital structure Enterprise value concept Impact of tax and financial distress costs Cost of debt, cost of equity WACC (weighted average cost of capital) Model inputs and sensitivity Calculating beta and the risk premium Forecast of free cash flows Case study: Building a WACC valuation model Sensitivity Terminal value calculations Managing the growth variable Building sensitivities Evaluating value for an acquisition target using WACC Case study: Review of an M&A valuation report for Freeport McMoran/Phelps Dodge, major US mining merger Multiples based valuation methodologies Justification of multiples-based valuation tools Characteristics of the earnings forecast Comparable company analysis Selecting the right companies Appropriate ratios/multiples Enterprise ratios and their advantages over conventional ratios Alternative multiple-based valuation ratios Price/book, price/sales and other ratios Case study: Telecom valuation for Orange Day 2 M&A Structures Structure and acquisition/synergies Strategic decision making: do companies need to grow? Acquisition versus organic growth Types of transaction Types of synergies Legal risks in acquisitions Mitigating risk via due diligence Legal protections Credit risk in the event of a problem Impact of the nature of the transaction (friendly/hostile) on due diligence Case study: Strategic choices for growth faced by an international brewer Financial analysis of acquisition prospects Valuation considerations in the acquisition context Earnings dilution Impact of financing structure Impact of synergy Presenting the deal to stakeholders Types of consideration Case study: Building an M&A model Public M&A transactions Takeover codes, practices Documentation Impact of friendly v. hostile on price, due diligence, financing Strategies and tactics – implications for defence Regulatory issues Case study: contested takeover Using shares to finance acquisitions Vendor placing Underwriting a share offering Share for share Merger structures Bookbuilding/placing as an issue method Roadshows Hard and soft underwriting Case study: Xstrata bridge financing and rights issue Day 3 Modelling Highly Leveraged Transactions Leveraged buy-outs Deal types: LBO, MBO, MBI, BIMBO, SBO, LBU, P2P, etc. Traditional financing structures Objectives of senior lenders Objectives of mezzanine lenders Objectives of equity providers Historical rates of returns Carried interest Case study: Restructuring Toys R Us, Legrand Structuring the debt Example capital structures Establishing the amount of debt that can be used Assessing the type of debt that can be used Disadvantages of the high level of gearing Key credit ratios Case study: Materis, international secondary and tertiary buyout Building the LBO model Secondary buy-out case Senior and junior mezzanine Key ratios determining the financing structure Preparing projections for the appraisal of an LBO and mezzanine candidate Model the equity returns Model the mezzanine warrant participation Setting the covenant structure Case study: Building a model of the cash flows and capital structure to test the viability of the syndication feasibility Documentation Internal approvals Facility letters Security structures Key terms of the agreements Case study: review of the Tommy Hilfiger transaction Day 4 Structuring and Restructuring Satisfying the lenders Acquisition vehicle structure Contractual subordination Structural subordination Achieving debt pushdown Achieving tax relief Opco/propco/holdco Case study: Holdco PIK, Cognis Gmbh Financial restructuring Management led business restructuring ahead of distress Cutting costs to meet a lower level of business activity Financial restructuring ahead of projected or possible distress The distressed debt investor’s approach to selecting distress candidates Case study: Kmart Restructuring options The key questions What business levels can be projected in the future ? Can the projections support the current debt burdens Does the company need more cash to execute the new plan? Legal options available Approaches to insolvency (INSOL Principles) Workouts and pre-packaged deals Court imposed restructurings Comparing international approaches Case study: Drax, FTSE 100 debt restructure negotiation Merger arbitrage Taking investment positions in M&A situations Hedging the position The London Stock Exchange/Deutsche Boerse case Case study: Arb trading simulation Course summary and close