- resources in finance

Reykjavik Savings Bank

Acquisition Finance Workshop

Prof. Ian Giddy, New York University

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.

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



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


Case Studies
Actavis FCF
Valuing Actavis
A Bridge Too Dear
Financing the BAA Acquisition
Second lien facility
Issuerco PIK
Woodstream Mezz
Woodstream Termsheet


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


Case Studies
Ubuntu Properties
The LBO of ISS
Reykjavik Fleet Leasing
Albanian Bridge
RFL Malaysia
Madras Appliances



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 (industry ratios)
Corporate Finance and Debt Capacity Tables (US and global companies) (industry comparables) (corporate financial ratios) (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 | | | | contact
Copyright ©2007 Ian Giddy. All rights reserved.