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Investment banking: valuation, leveraged buyouts, and mergers and acquisitions

Author: Rosenbaum, Joshua ; Pearl, Joshua Series: Wiley finance series Publisher: Wiley, 2009.Language: EnglishDescription: 304 p. : Graphs/Ill. ; 26 cm.ISBN: 9780470442203Type of document: Book Online Access: Click here Note: Doriot: for 2014-2015 coursesBibliography/Index: Includes bibliographical references and index
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Doriot: for 2014-2015 courses

Includes bibliographical references and index

Digitized

Investment Banking Valuation, Leveraged Buyouts, and Mergers and Acquisitions Contents About the Authors Foreword Acknowledgments Supplemental Materials INTRODUCTION Structure of the Book Part One: Valuation (Chapters 1-3) Part Two: Leveraged Buyouts (Chapters 4 and 5) Part Three: Mergers and Acquisitions (Chapter 6) ValueCo Summary Financial Information xiii xv xvi xxi 1 2 3 5 6 6 PART ONE Valuation CHAPTER 1 Comparable Companies Analysis Summary of Comparable Companies Analysis Steps Step I. Select the Universe of Comparable Companies Study the Target Identify Key Characteristics of the Target for Comparison Purposes Screen for Comparable Companies Step II. Locate the Necessary Financial Information SEC Filings: 10-K, 10-Q, 8-K, and Proxy Statements Equity Research Press Releases and News Runs Financial Information Services Summary of Financial Data Primary Sources Step III. Spread Key Statistics, Ratios, and Trading Multiples Calculation of Key Financial Statistics and Ratios Supplemental Financial Concepts and Calculations Calculation of Key Trading Multiples Step IV. Benchmark the Comparable Companies Benchmark the Financial Statistics and Ratios Benchmark the Trading Multiples 11 12 15 15 16 20 21 21 23 24 24 24 25 27 39 44 48 48 48 Step V. Determine Valuation Valuation Implied by EV/EBITDA Valuation Implied by P/E Key Pros and Cons Illustrative Comparable Companies Analysis for ValueCo Step I. Select the Universe of Comparable Companies Step II. Locate the Necessary Financial Information Step III. Spread Key Statistics, Ratios, and Trading Multiples Step IV. Benchmark the Comparable Companies Step V. Determine Valuation 49 50 50 52 53 53 54 55 65 69 CHAPTER 2 Precedent Transactions Analysis Summary of Precedent Transactions Analysis Steps Step I. Select the Universe of Comparable Acquisitions Screen for Comparable Acquisitions Examine Other Considerations Step II. Locate the Necessary Deal-Related and Financial Information Public Targets Private Targets Summary of Primary SEC Filings in MandA Transactions Step III. Spread Key Statistics, Ratios, and Transaction Multiples Calculation of Key Financial Statistics and Ratios Calculation of Key Transaction Multiples Step IV. Benchmark the Comparable Acquisitions Step V. Determine Valuation Key Pros and Cons Illustrative Precedent Transaction Analysis for ValueCo Step I. Select the Universe of Comparable Acquisitions Step II. Locate the Necessary Deal-Related and Financial Information Step III. Spread Key Statistics, Ratios, and Transaction Multiples Step IV. Benchmark the Comparable Acquisitions Step V. Determine Valuation 71 72 75 75 75 77 78 80 81 81 81 89 92 93 94 95 95 95 98 105 106 CHAPTER 3 Discounted Cash Flow Analysis Summary of Discounted Cash Flow Analysis Steps Step I. Study the Target and Determine Key Performance Drivers Study the Target Determine Key Performance Drivers Step II. Project Free Cash Flow Considerations for Projecting Free Cash Flow Projection of Sales, EBITDA, and EBIT Projection of Free Cash Flow Step III. Calculate Weighted Average Cost of Capital Step III(a): Determine Target Capital Structure Step III(b): Estimate Cost of Debt (rd) 108 110 114 114 114 115 115 116 118 124 125 126 Step III(c): Estimate Cost of Equity (re) Step III(d): Calculate WACC Step IV. Determine Terminal Value Exit Multiple Method Perpetuity Growth Method Step V. Calculate Present Value and Determine Valuation Calculate Present Value Determine Valuation Perform Sensitivity Analysis Key Pros and Cons Illustrative Discounted Cash Flow Analysis for ValueCo Step I. Study the Target and Determine Key Performance Drivers Step II. Project Free Cash Flow Step III. Calculate Weighted Average Cost of Capital Step IV. Determine Terminal Value Step V. Calculate Present Value and Determine Valuation 127 131 131 132 132 134 134 135 137 139 140 140 140 146 151 153 PART TWO Leveraged Buyouts CHAPTER 4 Leveraged Buyouts Key Participants Financial Sponsors Investment Banks Bank and Institutional Lenders Bond Investors Target Management Characteristics of a Strong LBO Candidate Strong Cash Flow Generation Leading and Defensible Market Positions Growth Opportunities Efficiency Enhancement Opportunities Low Capex Requirements Strong Asset Base Proven Management Team Economics of LBOs Returns Analysis -- Internal Rate of Return Returns Analysis -- Cash Return How LBOs Generate Returns How Leverage is Used to Enhance Returns Primary Exit/Monetization Strategies Sale of Business Initial Public Offering Dividend Recapitalization LBO Financing: Structure LBO Financing: Primary Sources Bank Debt 161 163 163 164 165 166 167 168 169 169 169 170 170 171 171 171 171 172 173 174 176 177 177 177 178 180 180 High Yield Bonds Mezzanine Debt Equity Contribution LBO Financing: Selected Key Terms Security Seniority Maturity Coupon Call Protection Covenants 184 186 187 188 188 189 190 190 191 192 CHAPTER 5 LBO Analysis Financing Structure Valuation Step I. Locate and Analyze the Necessary Information Step IL Build the Pre-LBO Model Step II(a): Build Historical and Projected Income Statement through EBIT Step II(b): Input Opening Balance Sheet and Project Balance Sheet Items Step II(c): Build Cash Flow Statement through Investing Activities Step III. Input Transaction Structure Step III(a): Enter Purchase Price Assumptions Step III(b): Enter Financing Structure into Sources and Uses Step III(c): Link Sources and Uses to Balance Sheet Adjustments Columns Step IV. Complete the Post-LBO Model Step IV(a): Build Debt Schedule Step IV(b): Complete Pro Forma Income Statement from EBIT to Net Income Step IV(c): Complete Pro Forma Balance Sheet Step IV(d): Complete Pro Forma Cash Flow Statement Step V. Perform LBO Analysis Step V(a): Analyze Financing Structure Step V(b): Perform Returns Analysis Step V(c): Determine Valuation Step V(d): Create Transaction Summary Page Illustrative LBO Analysis for ValueCo Transaction Summary Income Statement Balance Sheet Cash Flow Statement Debt Schedule Returns Analysis Assumptions Page 1--Income Statement and Cash Flow Statement Assumptions Page 2--Balance Sheet Assumptions Page 3--Financing Structures and Fees 195 195 195 198 198 199 201 203 206 206 208 209 215 215 222 224 226 230 230 232 235 236 238 238 238 238 238 238 238 238 238 238 PART THREE Mergers and Acquisitions CHAPTER 6 MandA Sale Process Auctions Auction Structure Organization and Preparation Identify Seller Objectives and Determine Appropriate Sale Process Perform Sell-Side Advisor Due Diligence and Preliminary Valuation Analysis Select Buyer Universe Prepare Marketing Materials Prepare Confidentiality Agreement First Round Contact Prospective Buyers Negotiate and Execute Confidentiality Agreement with Interested Parties Distribute Confidential Information Memorandum and Initial Bid Procedures Letter Prepare Management Presentation Set up Data Room Prepare Stapled Financing Package Receive Initial Bids and Select Buyers to Proceed to Second Round Second Round Conduct Management Presentations Facilitate Site Visits Provide Data Room Access Distribute Final Bid Procedures Letter and Draft Definitive Agreement Receive Final Bids Negotiations Evaluate Final Bids Negotiate with Preferred Buyer(s) Select Winning Bidder Render Fairness Opinion Receive Board Approval and Execute Definitive Agreement Closing Obtain Necessary Approvals Financing and Closing Negotiated Sale 251 252 255 257 257 257 258 259 261 262 262 263 263 264 264 265 267 270 271 271 271 272 276 276 277 277 277 277 278 278 278 280 281 Bibliography and Recommended Reading Index 283 289

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