What is included with this book?
Joshua D. Pearl (New York, NY) is an Associate in Deutsche Bank’s Leveraged Finance Group, where he was also previously an Analyst. He received his BS in Business Administration from Indiana University’s Kelley School of Business.
About the Authors | p. xiii |
Foreword | p. xv |
Acknowledgments | p. xvii |
Supplemental Materials | p. xxi |
Introduction | p. 1 |
Structure of the Book | p. 2 |
Valuation (Chapters 1-3) | p. 3 |
Leveraged Buyouts (Chapters 4 & 5) | p. 5 |
Mergers & Acquisitions (Chapter 6) | p. 6 |
Value Co Summary Financial Information | p. 6 |
Valuation | |
Comparable Companies Analysis | p. 11 |
Summary of Comparable Companies Analysis Steps | p. 12 |
Select the Universe of Comparable Companies | p. 15 |
Study the Target | p. 15 |
Identify Key Characteristics of the Target for Comparison Purposes | p. 16 |
Screen for Comparable Companies | p. 20 |
Locate the Necessary Financial Information | p. 21 |
SEC Filings: 10-K, 10-Q, 8-K, and Proxy Statements | p. 21 |
Equity Research | p. 23 |
Press Releases and News Runs | p. 24 |
Financial Information Services | p. 24 |
Summary of Financial Data Primary Sources | p. 24 |
Spread Key Statistics, Ratios, and Trading Multiples | p. 25 |
Calculation of Key Financial Statistics and Ratios | p. 27 |
Supplemental Financial Concepts and Calculations | p. 39 |
Calculation of Key Trading Multiples | p. 44 |
Benchmark the Comparable Companies | p. 48 |
Benchmark the Financial Statistics and Ratios | p. 48 |
Benchmark the Trading Multiples | p. 48 |
Determine Valuation | p. 49 |
Valuation Implied by EV/EBITDA | p. 50 |
Valuation Implied by P/E | p. 50 |
Key Pros and Cons | p. 52 |
Illustrative Comparable Companies Analysis for ValueCo | p. 53 |
Select the Universe of Comparable Companies | p. 53 |
Locate the Necessary Financial Information | p. 54 |
Spread Key Statistics, Ratios, and Trading Multiples | p. 55 |
Benchmark the Comparable Companies | p. 65 |
Determine Valuation | p. 69 |
Precedent Transactions Analysis | p. 71 |
Summary of Precedent Transactions Analysis Steps | p. 72 |
Select the Universe of Comparable Acquisitions | p. 75 |
Screen for Comparable Acquisitions | p. 75 |
Examine Other Considerations | p. 75 |
Locate the Necessary Deal-Related and Financial Information | p. 77 |
Public Targets | p. 78 |
Private Targets | p. 80 |
Summary of Primary SEC Filings in M&A Transactions | p. 81 |
Spread Key Statistics, Ratios, and Transaction Multiples | p. 81 |
Calculation of Key Financial Statistics and Ratios | p. 81 |
Calculation of Key Transaction Multiples | p. 89 |
Benchmark the Comparable Acquisitions | p. 92 |
Determine Valuation | p. 93 |
Key Pros and Cons | p. 94 |
Illustrative Precedent Transaction Analysis for ValueCo | p. 95 |
Select the Universe of Comparable Acquisitions | p. 95 |
Locate the Necessary Deal-Related and Financial Information | p. 95 |
Spread Key Statistics, Ratios, and Transaction Multiples | p. 98 |
Benchmark the Comparable Acquisitions | p. 105 |
Determine Valuation | p. 106 |
Discounted Cash Flow Analysis | p. 109 |
Summary of Discounted Cash Flow Analysis Steps | p. 110 |
Study the Target and Determine Key Performance Drivers | p. 114 |
Study the Target | p. 114 |
Determine Key Performance Drivers | p. 114 |
Project Free Cash Flow | p. 115 |
Considerations for Projecting Free Cash Flow | p. 115 |
Projection of Sales, EBITDA, and EBIT | p. 116 |
Projection of Free Cash Flow | p. 118 |
Calculate Weighted Average Cost of Capital | p. 124 |
Determine Target Capital Structure | p. 125 |
Estimate Cost of Debt (r_{d}) | p. 126 |
Estimate Cost of Equity (r_{e}) | p. 127 |
Calculate WACC | p. 131 |
Determine Terminal Value | p. 131 |
Exit Multiple Method | p. 132 |
Perpetuity Growth Method | p. 132 |
Calculate Present Value and Determine Valuation | p. 134 |
Calculate Present Value | p. 134 |
Determine Valuation | p. 135 |
Perform Sensitivity Analysis | p. 137 |
Key Pros and Cons | p. 139 |
Illustrative Discounted Cash Flow Analysis for ValueCo | p. 140 |
Study the Target and Determine Key Performance Drivers | p. 140 |
Project Free Cash Flow | p. 140 |
Calculate Weighted Average Cost of Capital | p. 146 |
Determine Terminal Value | p. 151 |
Calculate Present Value and Determine Valuation | p. 153 |
Leveraged Buyouts | |
Leveraged Buyouts | p. 161 |
Key Participants | p. 163 |
Financial Sponsors | p. 163 |
Investment Banks | p. 164 |
Bank and Institutional Lenders | p. 165 |
Bond Investors | p. 166 |
Target Management | p. 167 |
Characteristics of a Strong LBO Candidate | p. 168 |
Strong Cash Flow Generation | p. 169 |
Leading and Defensible Market Positions | p. 169 |
Growth Opportunities | p. 169 |
Efficiency Enhancement Opportunities | p. 170 |
Low Capex Requirements | p. 170 |
Strong Asset Base | p. 171 |
Proven Management Team | p. 171 |
Economics of LBOs | p. 171 |
Returns Analysis - Internal Rate of Return | p. 171 |
Returns Analysis - Cash Return | p. 172 |
How LBOs Generate Returns | p. 173 |
How Leverage is Used to Enhance Returns | p. 174 |
Primary Exit/Monetization Strategies | p. 176 |
Sale of Business | p. 177 |
Initial Public Offering | p. 177 |
Dividend Recapitalization | p. 177 |
LBO Financing: Structure | p. 178 |
LBO Financing: Primary Sources | p. 180 |
Bank Debt | p. 180 |
High Yield Bonds | p. 184 |
Mezzanine Debt | p. 186 |
Equity Contribution | p. 187 |
LBO Financing: Selected Key Terms | p. 188 |
Security | p. 188 |
Seniority | p. 189 |
Maturity | p. 190 |
Coupon | p. 190 |
Call Protection | p. 191 |
Covenants | p. 192 |
LBO Analysis | p. 195 |
Financing Structure | p. 195 |
Valuation | p. 195 |
Locate and Analyze the Necessary Information | p. 198 |
Build the Pre-LBO Model | p. 198 |
Build Historical and Projected Income Statement through EBIT | p. 199 |
Input Opening Balance Sheet and Project Balance Sheet Items | p. 201 |
Build Cash Flow Statement through Investing Activities | p. 203 |
Input Transaction Structure | p. 206 |
Enter Purchase Price Assumptions | p. 206 |
Enter Financing Structure into Sources and Uses | p. 208 |
Link Sources and Uses to Balance Sheet Adjustments Columns | p. 209 |
Complete the Post-LBO Model | p. 215 |
Build Debt Schedule | p. 215 |
Complete Pro Forma Income Statement from EBIT to Net Income | p. 222 |
Complete Pro Forma Balance Sheet | p. 224 |
Complete Pro Forma Cash Flow Statement | p. 226 |
Perform LBO Analysis | p. 230 |
Analyze Financing Structure | p. 230 |
Perform Returns Analysis | p. 232 |
Determine Valuation | p. 235 |
Create Transaction Summary Page | p. 236 |
Illustrative LBO Analysis for ValueCo | p. 238 |
Transaction Summary | p. 238 |
Income Statement | p. 238 |
Balance Sheet | p. 238 |
Cash Flow Statement | p. 238 |
Debt Schedule | p. 238 |
Returns Analysis | p. 238 |
Assumption Page 1-Income Statement and Cash Flow Statement | p. 238 |
Assumption Page 2-Balance Sheet | p. 238 |
Assumption Page 3-Financing Structures and Fees | p. 238 |
Mergers & Acquisitions | |
M&A Sale Process | p. 251 |
Auctions | p. 252 |
Auction Structure | p. 255 |
Organization and Preparation | p. 257 |
Identify Seller Objectives and Determine Appropriate Sale Process | p. 257 |
Perform Sell-Side Advisor Due Diligence and Preliminary Valuation Analysis | p. 257 |
Select Buyer Universe | p. 258 |
Prepare Marketing Materials | p. 259 |
Prepare Confidentiality Agreement | p. 261 |
First Round | p. 262 |
Contact Prospective Buyers | p. 262 |
Negotiate and Execute Confidentiality Agreement with Interested Parties | p. 263 |
Distribute Confidential Information Memorandum and Initial Bid Procedures Letter | p. 263 |
Prepare Management Presentation | p. 264 |
Set up Data Room | p. 264 |
Prepare Stapled Financing Package | p. 265 |
Receive Initial Bids and Select Buyers to Proceed to Second Round | p. 267 |
Second Round | p. 270 |
Conduct Management Presentations | p. 271 |
Facilitate Site Visits | p. 271 |
Provide Data Room Access | p. 271 |
Distribute Final Bid Procedures Letter and Draft Definitive Agreement | p. 272 |
Receive Final Bids | p. 276 |
Negotiations | p. 276 |
Evaluate Final Bids | p. 277 |
Negotiate with Preferred Buyer(s) | p. 277 |
Select Winning Bidder | p. 277 |
Render Fairness Opinion | p. 277 |
Receive Board Approval and Execute Definitive Agreement | p. 278 |
Closing | p. 278 |
Obtain Necessary Approvals | p. 278 |
Financing and Closing | p. 280 |
Negotiated Sale | p. 281 |
Bibliography and Recommended Reading | p. 283 |
Index | p. 289 |
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