Mergers & Acquisitions This course is presented in London on: 4-7 October 2016, January 2017, 9-12 May 2017, 2-5 October 2017

Transcription

1 Mergers & Acquisitions This course is presented in London on: 4-7 October 2016, January 2017, 9-12 May 2017, 2-5 October 2017 The Banking and Corporate Finance Training Specialist

2 Course Overview This four day M&A course covers all aspects of buying, selling, valuing private companies and management buy-outs. The first day of this mergers & acquisitions course covers creating shareholder value through the pursuit of a successful M + A strategy has been shown to be a far from risk-free activity. Buyers overpaying or using inappropriate financing methods can lead to destruction of value and in some cases financial distress. Course Overview The second day of this mergers & acquisitions course covers the topics of the financial ratios used in comparable company valuation, creative accounting, the cost of capital, forecasting and discounting free cash flow. Exercises include the use of an Excel spreadsheet as input to valuing a business and, accordingly, attendees are requested to bring a laptop to the course. The third day of this mergers & acquisitions course covers the practical steps that are required to plan, negotiate, and close a successful sale. Valuing the business to be sold and the effective presentation of the commercial attractions of the business are key elements, as are choosing the appropriate advisers and running a competitive auction. The fourth day of this mergers & acquisitions course covers the principles and practicalities involved in arranging and negotiating a management buyout. In addition to the legal issues to be addressed, the use of bank debt and other financial instruments is examined in the context of developing a workable structure for the deal. Course Content Day 1: The Drivers of Growth Shareholder value The company life cycle The importance of directors recognising the value curve Risk and return Relating risk to the life cycle phase of the company / target Product market growth and decline Evaluating niches, substitutes, value in innovation REVIEW: Comparison and contrast of the lifecycle of three different companies, highlighting how success or failure with acquisitions has determined their fate ICI Debenhams GKN Growth through Acquisition Assessing the alternatives Investment JV Acquisition DISCUSION: Advantages and disadvantages of each approach

3 Course Content Determining the acquisition Market objectives Consolidating a fragmented market Building the value proposition Management issues Assessing cultural fit Price parameters Knowledge of comparative deals Opportunity cost Is it a now or never deal REVIEW: The Ansoff Matrix, a handy way to categorise potential risks in acquisition strategies Pitfalls to avoid Realism of synergies Risks of prediction, cost and achievement Accounting standards Who is the auditor, what principles are followed Judging forecasts Scepticism rules Commercial factors Target s history Recurring revenue Intellectual property Customer list CASE STUDY: Reviewing company information to arrive at a value, taking into account qualitative and strategic factors The Acquisition Process Establishing acquisition criteria Target size and affordability Potential synergies Market / competitor impact Regulatory factors Shareholder impact Due Diligence Investigation prior to offer Public sources Private sources Verification Contracts Accounts Pensions Employee disputes Litigation CASE STUDY: Reviewing summary information on a company to determine which areas need investigation and who should have responsibility for the task Structuring the deal Earn-out / deferred consideration Non-compete undertakings Warranties and indemnities Disclosure letters

4 Course Content Acquisition Integration Success / failure factors The importance of the integration team Earn outs and accounting issues Incentivising key managers Establishing clear reporting lines Day 2: Valuation Principles Value to whom? Price and intrinsic value The risk / return trade off Strategic risk The Accounting Approach Accounting measures of performance and value Problems of the accounting approach Are profits relevant? GAAP vs IFRS Creative accounting How to find it Recent examples Review: Was the near collapse of Quindell inevitable? Accounting Valuation Metrics Asset and net asset valuations Dividend-based models Dividend yield Dividend discounting Application and drawbacks of dividend models Earnings-based Price / earnings ratios P/E strengths and weaknesses PEG ratios Enterprise value Exercise: Valuation of a business using different metrics Comparable Company Valuation Issues Is the comparability achievable? Accounting principles Averages, medians, outlines Listed vs private Sustainability of earnings Business model flexibility Exercise: Project Oxford, using comparable company techniques to value a company for acquisition

5 Course Content Calculating the Cost of Capital Assessing the cost of debt Calculating the cost of equity The risk free rate Equity premium Beta The weighted average cost of capital The flaws in the capital asset pricing model Alternative approaches Exercise: Calculating the cost of equity and the weighted average cost of capital The Cash Flow Approach to Valuation The time value of money Calculating the discount rate Forecasting free cash flow Calculating FCF Identifying value drivers Terminal value Exercise: Discounting free cash flow to arrive at a value per share Exercise: Project Media. Using an Excel spreadsheet and given assumptions to arrive at a value of a company that is an acquisition target Project Media II. Varying inputs, in particular the debt / equity mix of the acquisition financing, to consider the maximum price that could be paid for the target Day 3: Overview of the Process Motives and objectives of the vendor Which outcome is preferred Cash only sale with honour Management buyout IPO Timescale Preparing the Company for sale optimising the operations removing skeletons, resolving related party conflicts resolving accounting / audit issues tightening up provisions, write offs, stock obsolescence clearing legal points employee issues customer / supplier disputes choosing advisers tax considerations the vendor s position company PAYE, corporation tax Quiz: What are the top ten objective of a vendor

6 Assessing the value of the business traditional metrics net assets comparative ratios DCF Enterprise Value Other factors IPR Market share Customer base Niche products Strategic value to a buyer Exercise: Calculating the value of a business using different metrics Initiating the Process Choosing advisers Investment bank Merger brokers Accountants Other Exercise: Reviewing the terms of a mandate letter. Attendees are given a draft to edit and criticise Agreeing the mandate Fees Retainer, success, no go Exclusions Companies and territories Time limits Indemnities Preparing key documents Information memorandum Support material Confidentiality undertakings, product information Due diligence pack Reasons for, use of vital data rooms Management preparation Confidentiality Conflicts of interest The sale team Presentation material The Sale Process The cost / risk / timescale issues in A trade sale Buyout IPO Trade sale approaches Public auction Private auction Bilateral negotiation

7 Organising an auction Identifying the purchasers Tiering prospects into probables, possibles, maybe Defining the deadlines The importance of realism Contact and confidentiality Dealing with large company buyers Judging the offers Will a no price offer work? Conducting the second stage discussions Company and management visits Preferred bidder and exclusivity How long for exclusivity? CASE STUDY: Reviewing an information memorandum on a company sale to assess: the value of the business, the most likely buyers Sealing the deal Earn-outs Bridging the valuation gap Warranties, disclosure letter Buyer / vendor conflict Time limits, caps Completion accounts Comfort letters Alternative outcomes IPO, timescale MBO, management conflicts Post exit lock-in Ongoing relationship Day 4: The Growth of Private Equity and Leveraged Buyouts Academic rationale for the use of leverage Modigliani/Miller theory Michael Milken s research Growth of shareholder activism Reviving under performers Changes in company law The development of the European high yield bond and securitisation markets The Principles of Leveraged Finance The use of debt to drive equity values Cash flow management Reducing debt to drive equity value Operational improvements Building need to have Incentivisation of management Getting rich together Cash-capture clauses Exercise: Good or Bad LBO? Discussion of recent transactions to see which ones the attendees would do, and what lessons can be learned about elements of success or failure

8 Structuring the transaction Target IRR Assessing the return appropriate to the risk Assessing debt capacity Forecasting future cash generation Senior / mezzanine debt mix Judging asset values Forecasting exit values Consideration of non-bank finance High-yield bonds Terms and size of issue Second lien debt Too much debt? PIK finance Saint or sinner? Vendor loan notes Making the deal look good Case Study: Based on information provided attendees are tasked with structuring the finance for an MBO. Answers are discussed to identify the critical elements in the financing Legal elements Warranties and indemnities Investor protection New Memo & Arts Incorporating P.E. control elements Tag along and drag along Control of the exit Veto rights for private equity Control of management Management Jensen and Meckling agency theory Why buyouts work The envy ratio Management incentivisation Agreeing the ratchet Carrot and stick Good leaver / bad leaver provisions Covering under performance Exercise: Agreeing the terms of the envy ratio Identifying and Closing a Good Transaction Ideal company characteristics The three golden rules MBO / MBI Assessing management strength Meeting vendors expectations Structuring the deal Avoiding conflicts of interest Recognising the risks of multi-layered financing Due diligence Investigation and verification Tie-in with contract terms Structuring the debt appropriate to the business

9 Discussion: How to finance the acquisition of Manchester United. The Man U accounts are reviewed with the object of deciding how to finance its acquisition. Answers are compared to the actual result. Exit Control by P.E. house IPO Second round financing Trade sale The living dead What Redcliffe s clients are saying about the course; Good overview of structure of deal, made very understanding, much clearer Great case studies & anecdotes Brilliant trainer, very knowledgeable and practical points shared 9:30-17:00 London 2,260 +VAT ( 2,712) Discounts available for multiple participants: 3-4 participants: 15% discount per participant 5-6 participants: 20% discount per participant 7-8 participants: 25% discount per participant 9 or more participants: 30% discount per participant Delivering this course in-house for you to a number of participants could be very cost effective.