Giddy | Rabobank Mergers & Acquisitions Course

Amsterdam Institute of Finance

Rabobank Financial Structuring:
Mergers, Acquisitions and Divestitures

Prof. Ian Giddy, New York University

This module is part of the Advanced Corporate Finance sequence for Rabobank professionals.

A 3-day training course dedicated to the valuation, structuring, financing and negotiating of M&A transactions

Evaluating and pricing acquisitions
Creating shareholder value through rigorous pre-merger analysis
Identifying and assessing different synergies
Employing venture capital, private equity and leveraged finance
Managing post-acquisition integration and divestitures
Financing and structuring the deal

The Course

This three-day course uses an analytical "corporate finance" framework and real-world applications to introduce the key principles and techniques of successful mergers, acquisitions, buyouts and divestitures. It addresses crucial questions including: Why do mergers that looked great on paper fail in reality? How does one value companies acquiring, or being acquired? What does it take to make the "synergy" come to life? How can a merger be funded in such a way as to retain the merged entity's flexibility? When do leveraged acquisitions make sense, and how can they be financed?

One goal for participants is to develop a check list or rapid overview of the key criteria in an acquisition deal, to consider when analysing a proposal, so as to grasp the main strengths and risks of the strategic and financing alternatives after an initial analysis.

Materials

Participants will be provided with a package of materials useful to the structuring and analysis of M&A techniques, including pertinent articles and sample spreadsheets from actual deals done in Europe and elsewhere. The course will include case studies as well as hands-on exercises, and will give participants the opportunity to demonstrate their understanding of deals through presentations and discussions.

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 features of venture capital finance?
What is the basis for leveraged buyouts? How can one structure the financing of an LBO to raise the funds needed without losing control?
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, mezzanine finance and high yield bonds?
When should a company divest? What are the alternative ways of divesting a business?

Outline of Course

Date	Topics	Materials
Day 1	Corporate Finance, Strategy and the Economics of M&A The decisions that create shareholder value Investment, financing, payback and risk management Managers’ vs shareholders’ vs lenders' interests: the agency problem Why M&A drives the market for corporate control Mergers and acquisitions: when do they make sense? Mini-case studies: Wärtsilä NSD, Sterling Drug, AOL-Time Warner The distinguishing features of successful and unsuccessful deals Research evidence on which mergers add value, and which destroy value The four sources of acquisition value Case study: The SBC-AT&T Merger. Participants seek to isolate the potential synergies in a merger of two mature telecoms companies. Evaluating and Pricing Acquisitions, and Undertaking Due Diligence What are the target's value-drivers? Required performance improvements embedded in acquisition premiums Competitive conditions that must drive valuations What due diligence can reveal – and what it cannot The winner’s curse and morning-after woes Tailoring due diligence to the company and industry Case study: New York Magazine. What are the key aspects of due diligence in the publishing world?. What can go wrong, and why Example: Penn State-Guisinger Valuation in Mergers and Acquisitions: Tools & Applications Asset-based and balance-sheet approaches Market value approaches Multiples and comparables Enterprise value and EBITDA Dividend- and cashflow-discount models Case study: Active Generation. Participants value a private company for acquisition, using both comparables and cash flow methods and incorporating the results of potential synergies Restructuring checklist Total cost computation Valuing the combined company Break-up valuation Synergy analysis Sensitivity analysis Case study: MTC-Celtel. Participants value the synergies resulting from a potential acquisition, adjusting for risk and cost-of-capital effects and employing sensitivity analysis on the hoped-for synergy gains. Real option approach Distress situations Blank-check acquisition companies Application: Jamba Juice. Where's the value added?	Presentations Mergers & Acquisitions: The Economics Acquisitions: Strategy and Due Diligence M&A: Valuation Case Studies The SBC-AT&T Merger New York Magazine Penn State and Geisinger: Analysis of a Merger Failure Active Generation MTC-Celtel Articles Types of Mergers and Acquisitions Sample Due Diligence Checklist Calculating a Company’s Cost of Capital Methods of Valuing a Business Spreadsheets wacccalc.xls corpvaluation.xls mergersynergy.xls bofafleetupdate.xls active_generation_valuation.xls
Day 2	Terms and and Structuring of Acquisitions Role of investment bankers and other advisors Developing a negotiating stance Understanding sellers' goals and constraints Dealing with defensive strategies: poison pills and other devices Mini case study: Goldfield's Anti-takeover Defenses Dealing with rival bidders Dealing with private owners Structuring the deal: How much should we pay? How should we pay? The proposed basic Term Sheet Keep the romance alive during due diligence and while you secure financing Closing the deal Case study: Lifetime-AGI. Participants engage in a hands-on negotiating exercise including valuation, setting the price and payment terms of the merger, and negotiating control Divestitures Post-acquisition divestitures Measuring and managing break-up value Taxable and tax-free corporate breakups Before-and-after divestiture analysis Case study: Pinault-Printemps-Redoute. Participants learn how to perform a before-and-after divestiture valuation Private Equity and Venture Capital Major factors determining success of venture capital Financing sources Sequence of financing and exit Role of venture capital firms Case study: Intralinks	Presentations Negotiating a Merger Divestitures Venture Capital Case Studies Goldfield: Anti-Takeover Defenses Johnson & Johnson vs Guidant Life Time: Acquisition of AGI Pinault-Printemps-Redoute Caterpillar Cache Flow Intralinks Articles and Documents Sample Letter of Intent Sample Confidentiality Agreement Sample Purchase Agreement Post-Merger Integration: Airlines Spreadsheets mtc-celtel.xls schirnding.xls breakup.xls
Day 3	Financing Acquisitions Finding the optimal capital structure: debt, equity or mezzanine? Capital structure considerations Case study: Courts. Financing acquisitions at a retail company Senior secured bank financing Asset-based finance Bridge financing Mezzanine debt High-yield bonds Subordinated seller notes and earn-outs Private equity sources Refinancing strategies Case study: Le Meridien. Participants evaluate a variety of creative financing techniques in the context of this challenging acquisition situation. Private Equity and Leveraged Buy-Outs The different approaches of financial vs strategic buyers The leverage effect Sources of debt finance Management vs outside equity Example of spreadsheet-based debt capacity analysis for leveraged finance Focus: synthetic ratings and debt pricing How to structure and price the leverage for an acquisition or buyout Case study: Nukem Security Services. We plan the financing of a leveraged acquisition. Focus: mezzanine and private equity finance Valuation in LBOs: “The VC Method” Paydown and exit analysis Case study: Flexics. Participants employ the tools and ideas of the course to a competitive situation featuring a leveraged buyout and sale to a strategic buyer. They negotiate key features, including: - Valuation of the target - Raising the funding - Terms of payment - Summary "term sheet" agreement Summary and Conclusions	Presentations Acquisition Financing Leveraged Buyouts Case Studies Financing Acquisitions at Courts Le Meridien: A Leveraged Acquisition Nukem Security Services The LBO of ISS iss_financials.xls Flexics: Selling the Company Articles A Note on LBOs Mezzanine Debt 1 and 2 Spreadsheets ratings.xls lbocapacity2.xls flexics.xls

Additional Resources
Books
Applied Mergers and Acquisitions (Robert Bruner)
Mergers, Acquisitions and Corporate Restructuring (dePamphilis)
Damodaran on Valuation (Aswath Damodaran)
Valuation for Acquisitions, Buyouts and Restructuring (Enrique Arzac)

Background Articles
Methods of Corporate Valuation
Notes on cost of capital and capital structure .
Critique of Valuation Methods
Private Equity Valuation Guidelines
A Company in One Page
The Fool's Method
Warren's World
Corporate Financial Restructuring
Real options valuation

Useful Links
dealbook (M&A and private equity deals)
biz.yahoo.com (summary data and financials)
morningstar.com (summary financials)
investinginbonds.com (treasury rates, corporate bond prices and ratings)
standardandpoors.com (bond ratings)
bondsonline.com (corporate bond spreads)
damodaran.com (industry ratios)
advfn.com (corporate financial ratios)
"One Bank" video (what happens when you merge a bank with u2)

About the Instructor
Ian Giddy has taught finance at NYU, Columbia, Wharton, Chicago and in 40+ countries worldwide for the past two 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 the U.S. and abroad. As a banker and consultant he has been involved in the growth of the capital markets 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.