What is Acquisition Finance?
Acquisition Finance is the
use of debt, equity and hybrid financing techniques to achieve an
acquisition or leveraged buy-out in a cost-effective manner.
The
focus
will be on identifying the financing solutions that match the company's
cash-flow based value and are adapted to the client situation
-- and this may call
for
nonstandard corporate finance techniques and funding sources.
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The
Workshop
This two-day interactive
course offers a practical study of the techniques of valuing and
financing acquisitions with a special emphasis on leveraged
acquisitions abroad by Icelandic companies.
The
workshop includes case studies of actual acquisition financings and
how the target companies can be valued. It will show how a variety of
techniques, including senior secured leveraged loans, vendor finance,
second lien and mezzanine debt can serve as a
catalyst to help an acquisition get accomplished. We'll use
lecture-discussions, spreadsheet analysis, deal memorandums and
hands-on
exercises. These will give bank professionals the opportunity to
demonstrate
their
understanding of techniques that can be employed in advising clients
and funding their acquisitions.
Some
Features of the Course
- How
should a target company be valued? How does the method of valuation
affect the availability of funds from banks, institutional investors
and private equity investors?
- How can one assess the potential gains from an acquisition?
How dependable are these projections, from an investor's viewpoint?
- What
are the key terms and conditions, covenants and pricing, of different
sources of acquisition finance, including subordinated notes and high
yield bonds?
- What senior,
subordinated and mezzanine and equity financing techniques are
appropriate for
a particular acquisition situation?
- How can one assess the best financing mix
in each acquisition?
- What should one look for in a cash flow
analysis to model the
acquisition finance, including the repayment of senior, mezzanine and
equity investments?
Workshop
participants will be provided with a package of
materials
useful for developing acquisition financing proposals, including
pertinent articles, case studies based on
actual deals, and sample
spreadsheets.
Outline
of Workshop
Date
|
Topics
|
Resources
|
| Day One |
Corporate Valuation for Acquisitions
- The keys to M&A finance:
Valuation of the target, valuation of the synergies, assessment of debt
capacity
- The gains from acquisitions:
Operational and control synergies
- How much is the target worth? How
should we pay?
- A review of valuation tools for
acquisitions
- Asset-based
valuation
- Using
comparables
- Discounted
cash flow analysis
- Enterprise Value and free cash flows
- Exercise:
Actavis Free Cash Flows
- Weighted-average cost of capital
- Case study: Valuing Actavis using
comparables and the DCF method
- Valuing
a financial institution
- Sponsor vs trade acquisitions:
comparing valuation analysis
- Valuing
a private company and raising private equity
- Valuation
by financial sponsors
- Corporate M&A strategy: how to
win, how to lose
- Restructuring checklist
- Valuing
the business post-acquisition
- Case study: MTC-Celtel. Merger
synergy analysis
Acquisition Financing Techniques
- Checklist of senior and subordinated
financing techniques
- Acquisition bridge finance and senior
secured loans
- Case
study: A Bridge Too Dear. How should the bridge loan be priced?
And the senior debt?
- Capital market refinancing: ISS bonds
example
- Asset-based finance and
securitization including WBS
- Case
study: Financing the BAA Acquisition. What would you recommend
for Ferrovial?
- Sale-and-leaseback financing
- Second lien versus senior-sub
mezzanine
- Case
study: Second Lien Facility. How would you adapt this term sheet
to your client's needs?
- Financing with a bond placement
- Private versus public markets (and
144A)
- Terms and pricing of high-yield bond
financing
- Application:
Piaggio.
Please consider the appropriate terms and
conditions of this high-yield financing.
- Mezzanine: Step-up rates, PIKs,
participations, warrants, preferred
- The structure and pricing of sub debt
and warrants
- Case
study: Woodstream's Mezzanine.
What is the effective cost to the issuer of this mezzanine debt issue?
- Terms and conditions of a mezzanine
termsheet
- Case
study: The Woodstream Termsheet. Examine this termsheet. Which
features would you, as investor, insist on? Where would you be willing
to give way?
- Performance-linked participation
debt: an alternative form of mezzanine
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Presentations
spron-valuation.pdf
spron-instruments.pdf
Case Studies
Actavis
FCF
Valuing
Actavis
MTC-Celtel
A
Bridge Too Dear
Financing
the BAA Acquisition
Second
lien facility
Issuerco
PIK
Piaggio
Woodstream
Mezz
Woodstream
Termsheet
Spreadsheets
actavis_fcf.xls
wacc.xls
beta.xls
actavis_valuation.xls
valuation-tools.xls
celtel_solution.xls
woodstream.xls
dubrovnik_eyewear.xls
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Day
Two
|
Debt
Capacity Analysis and Leverage Tiering
- Debt capacity: what is debt? How much
can a company support?
- Asset-based lending
- Example:
Madras Appliances. Based on the assets, how much debt can this
acquisition support?
- Debt capacity and cost of capital
for acquisitions by private companies
- Case
study: Ubuntu Properties.
A private company is looking for a means of financing an acquisition
for expansion. Participants estimate the company's debt capacity and
the
owner's
financing options.
- Debt capacity analysis
- Focus: synthetic ratings and debt
pricing
- How to structure and price the
leverage for an acquisition or buyout
- Post-acquisition leveraged re-finance
- Case
study: Financing ISS. Teams work to model the debt financing for a
buyout of a Danish cleaning services company
- Paydown
and exit analysis
- Case study: Reykjavik Fleet Leasing.
What value should we place on this company at exit?
- Using a model to simulate the cash
flows
- Designing the senior, mezzanine and
equity funding
- Evaluating an acquisition funding
proposal with mezzanine debt
- Case
study: Albanian Bridge Company. Can you model the rate of
return on the senior and mezzanine funding for this privatization
investment?
Structuring an Acquisition: Valuation and Funding
- Valuation for M&A: financial
versus strategic viewpoint ("Is every acquisition financial?")
- Valuing a division within a company
- Divestitures in acquisitions
- Example:
John Deere. Would this company be better off divesting its
finance division?
- Evaluating funding possibilities
- Structuring the funding: borrow on
target assets?
- Case
study: RFL Malaysia. What structure should the buyer use for
this acquisition?
- Terms and pricing of the senior and
mezzanine debt
- Required return on private equity
- Case study: Financing
the Madras Acquisition.
The controlling owners of this retail company need to sell the company.
What is it worth? How
could a buyout,
or an acquisition, be financed?
- Summary and Recap
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Presentations
spron-debtcapacity.pdf
spron-structuring.pdf
Case Studies
Ubuntu
Properties
The LBO
of ISS
iss_financials
Reykjavik
Fleet Leasing
Albanian
Bridge
RFL
Malaysia
Madras
Appliances
Spreadsheets
lbocapacity.xls
actavis_lbo2007.xls
ubuntu.xls
iss_solution.xls
lbo_exit.xls
financing_abc.xls
madras_appliances.xls
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Additional Resources
Background
Reading
Methods
of Corporate Valuation
Critique
of Valuation Methods
P/E
Ratios
Notes
on cost of
capital
and capital
structure
Note
on Leveraged Buyouts
Second
Lien Loans
Mezzanine
Finance 1
Mezzanine
Finance 2
Subordinated
notes term sheet
Property
sale-and-leaseback financing
Useful Links
damodaran.com
(industry ratios)
Corporate
Finance and Debt
Capacity Tables
reuters.com
(US and global companies)
jpmorgansavant.com
(industry comparables)
advfn.com (corporate financial ratios)
bonds.yahoo.com (funding
costs)
Moodys, S&P, Fitch (ratings)
About the Instructor
Dr. Ian
Giddy,
born in South Africa, has taught finance at NYU, Columbia, Wharton,
Chicago and
in over 40 countries worldwide for the past three decades. He was
Director
of
International
Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The
author of more than fifty articles on international finance, he has
served
at the International Monetary Fund and the U.S. Treasury and has been a
consultant with numerous corporations and financial institutions in
North and South America, Europe, Asia, the Middle East and Africa. As a
banker and consultant he has been involved in the
growth of the structured finance market in the USA, Europe and Asia. He
is the author
or co-author of The International Money Market, The Handbook
of International Finance, Cases in International Finance,
Global Financial Markets, Asset Securitization in Asia and The
Hudson
River Watertrail Guide. He and his wife are
the founders of Cloudbridge, a nature reserve in Costa Rica.
About Reykjavik Savings Bank
Reykjavik Savings Bank ("SPRON") is
an Icelandic bank offering integrated
financial services to companies, investors and
individuals. The bank's main purpose it to serve as a trustworthy,
universal banking
institution which fulfills the needs of its customers and actively
participates in social and economic development in the greater
Reykjavik area. For further detail, see www.spron.is.
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