Mergers & Acquisitions This course is presented in London on: 15-18 May 2018, 22-25 October 2018 This course can also be presented in-house for your company or via live on-line webinar The Banking and Corporate Finance Training Specialist
Course Objectives Participants will: Be introduced to strategic issues facing a company, including the drivers of growth, the company life cycle, the concepts in acquisitions of risk and return and the product market s growth and decline Get an overview of growth through acquisition with assessing the alternatives and how to determine whether or not to make the acquisition. Have explained Course to Overview them the acquisition process, due diligence, the verification process and how to establish the important acquisition criteria Gain an understanding of the structure of the acquisition including key points in the legal agreements, integration, success and failure factors and the importance of the integration team Get to grips with key legal issues in acquisitions such as earn-outs and incentivisation Be introduced to the sale process, what the seller s motives are and what the different methods of sale could be Get an overview of preparing the company for sale, how to optimise the operation, clear important legal points and choose the appropriate advisers Have explained to them how to initiate the process by preparing the key documents and the management of the sale operation Gain an understanding of the operation of the sale process, what are the costs, how an auction works, the risks involved and the timescale Cover how to seal the deal and the alternative outcomes to a trade sale Be introduced to major valuation principles Get an overview of the accounting approach with the accounting measure of performance and value, and the problems involved with operative accounting Have explained to them accounting valuation metrics with net asset valuations and dividend-based models, as well as the application of earnings-based multiples Gain an understanding of the comparable company valuation issues, and ascertain whether comparability is achievable Be taught about how to calculate the cost of capital including assessing the cost of debt and calculating the cost of equity Experience the use of the cash flow approach to valuation Be introduced to the reasons for the growth of private equity and leveraged buyouts Get an overview of the principles of leveraged finance Have explained to them the use of debt to drive equity value and also how to structure the transaction Be taught how to identify and close a good private equity transaction Have an overview on the ideal company characteristics of an MBO candidate and how to avoid conflicts of interest Background of the Trainer The trainer has over 40 years of City experience, encompassing banking, investment banking, M&A, and corporate finance at Citicorp, early stage investment, and corporate advisory work. He is a director of several companies and chairman of a fast-growing software company quoted on AIM. Besides having been a visiting lecturer at the City of London (now Cass) Business School, he has 20 years experience of delivering in-house training to leading banks and investment banks in the UK, Europe, Africa, Asia and the USA, and public courses in UK, Europe and Asia covering M&A, company valuation, investment banking, corporate finance and credit analysis.
Course Content Day 1 - How to Buy a Business The Drivers of Growth The need to deliver 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 DISCUSSION: Advantages and disadvantages of each approach 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 Defining a synergy Identifying the likely presence of a synergy Risks of prediction, cost and achievement Accounting standards Who is the auditor, what principles are followed GAAP versus IFRS Judging forecasts Scepticism rules
Commercial factors The target s history Recurring revenue Intellectual property Customer base 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 Deal structuring Earn-out / deferred consideration Non-compete undertakings Warranties and indemnities Disclosure letters 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 Valuing a Business 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 tax position Company PAYE, corporation tax Quiz: What are the top ten objectives of a vendor Issues in assessing the value of the business Other factors Intellectual Property Market share Customer base Niche products Strategic value to a buyer Initiating the Process Choosing advisers Investment bank Merger brokers Accountants Other 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 virtual 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 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 3 - How to Sell a Business 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 The application and drawbacks of dividend models Earnings-based metrics 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 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 4 - Private Equity & Management Buy-outs The Growth of Private Equity and Leveraged Buyouts The 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 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 clauses 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 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
Course Summary 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 riskfree activity. Buyers overpaying or using inappropriate financing methods can lead to destruction of value and in some cases financial distress. Day one covers topics of risk and return, process, investigation and integration as a practical guide to identifying and negotiating acquisitions The second 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 third day of this mergers & acquisitions course covers the topics of the financial ratios used in comparable company valuation, creative accounting, and 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 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. 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
09:30-17:00 London Standard Price: 2400 +VAT Membership Price: 1920 + VAT In-House Training Delivering this course in-house for a number of participants could be very cost effective. The venue and timing can be agreed to suit the client, as well as the selection of the trainer and the precise contents of the seminar. Tailored Learning All of our training courses can be tailored to suit your company s exact training needs. We will work closely with you to help develop a training programme with content that is unique for your organisation. Please email us on enquiries@redcliffetraining.co.uk for more information E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact requirements.