- resources in finance

Kaupthing Bank
Organized by Reykjavik University

Acquisition Finance and Corporate Valuation

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 will include 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 KB 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?
  • How much money is needed for the transaction, including fees and restructuring costs?
  • 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?
  • 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
  • Valuation methods as strategic tools
  • Asset-based valuation
  • Using comparables
  • Discounted cash flow analysis
  • Example: valuing Actavis using the DCF method
  • Measuring the weighted-average cost of capital
  • Case study: Active Generation. The Lebanese owner of a private fitness-center network aims to sell to a strategic buyer, but wants to get the best price. What method should he use to value the business?
  • Valuing a private company and raising private equity
  • Valuation for a start-up business
  • Corporate M&A strategy: how to win, how to lose
  • Sources of value gains from acquisitions
  • Restructuring checklist
  • Valuing the business post-acquisition
  • Case study: MTC-Celtel. Merger synergy analysis

Acquisition Financing Techniques

  • Checklist of senior and subordinated financing techniques
  • Senior secured loans
  • Case study: Acquiring Valvex. How should the senior debt be priced?
  • Asset-based finance
  • 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: Foodcorp's International Debt Placement. Please examine the terms and conditions of this 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
Active Generation
Acquiring Valvex
Second lien facility
Issuerco PIK
Woodstream Mezz
Woodstream Termsheet

Active Generation
Valuation-related spreadsheets

Day Two

Debt Capacity Analysis and Leverage Tiering
  • Debt capacity analysis for 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.
  • Focus: synthetic ratings and debt pricing
  • How to structure and price the leverage for an acquisition or buyout
  • Post-acquisition leveraged re-finance
  • Paydown and exit analysis
  • 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: Suriname Hydropower Services. Can you model the rate of return on the senior and mezzanine funding for this privatization investment?

Managing an Acquisition Proposal: Valuation and Funding

  • Valuation for M&A: financial versus strategic viewpoint
  • Valuing a division within a company
  • Evaluating funding possibilities
  • Terms and pricing of the senior and mezzanine debt
  • Case study: Financing the Flexics Acquisition. The controlling owners of this technology company are seeking a means of realizing the company's corporate value. How could a buyout, or an acquisition, be financed?
  • Summary and Recap


Case Studies
Ubuntu Properties
Suriname Hydropower
Flexics Acquisition


Corporate Finance and Debt Capacity Tables

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) (US and Global companies) (industry comparables) (corporate financial ratios) (funding costs)

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 Kaupthing Bank
Kaupthing Bank is a northern European bank offering integrated financial services to companies, institutional investors and individuals. These services include corporate banking, investment banking, capital markets services, asset management and comprehensive wealth management for private banking clients The Bank operates in ten countries, including all the Nordic countries, Luxembourg, Switzerland, the UK and the US. In addition the Bank operates a retail franchise in Iceland, where it is headquartered. For further detail, see | | | | contact
Copyright ©2006 Ian Giddy. All rights reserved.