M&A is a viable path for many companies to continue its growth trajectory. But despite optimistic expectations, mergers and acquisitions frequently fail, in part because managers neglect human resource issues, which are rarely considered until serious problems arise. For future and current investment bankers, as the advisor for the deal, it is important to help your client balance his/her responsibilities as a leader and negotiator. Getting the best deal involves buying the best and happiest people. Putting that at risk by destroying culture and morale while the deal is completed results in millions of dollars in losses. If you found the video helpful, consider reading a great report on these HR issues in M&A by Deborah A. Pikula of Queens University; http://irc.queensu.ca/sites/default/files/articles/mergers-and-acquisitions-organizational-culture-and-hr-issues.pdf If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 835 FinanceKid
In this expense synergies lesson, you'll learn why expense synergies matter, what they consist of, how they impact M&A deals. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" You'll also learn and accretion / dilution, and 3 common mistakes that people make when incorporating synergies into models. Table of Contents: 3:45 Example of Expense Synergies (Office Consolidation) 7:57 Oversight #1: More Granular Estimates / Checks 11:37 Oversight #2: It Takes Time to Realize Synergies 14:39 Oversight #3: It Takes Money to Realize Synergies 17:39 How Does All of This Impact the Deal, Accretion / (Dilution), and So On? 18:34 Recap and Summary Why do Synergies matter? And what are they exactly? Put simply, they're cases where 1 + 1 = 3 in mergers and acquisitions. You combine 2 companies, and get MORE revenue than just the Buyer's revenue plus the Seller's revenue…or you get LESS in expenses than just the Buyer's expenses plus the Seller's expenses. Revenue Synergies are tough to estimate and are very error-prone… but sometimes they matter and can be calculated more precisely. Expense Synergies are more grounded in reality, because you look at what both companies are spending and decide what can be cut - at the very least, it's based on actual expenses incurred by both companies. Synergies matter because some deals require synergies to look good on paper (i.e., be accretive). And some deals are motivated primarily by synergies, such as this one with 2 very similar men's retailers merging. BUT… a lot of people get it wrong in 3 main areas when it comes to expense synergies in merger models: Oversight #1: More Granular Estimates / Checks Lots of models - even very complex ones - will just say something like, "$100 million in synergies per year!" This is NOT ideal. It's better to break out the synergies by specific functional areas, if not by specific employee counts, building rents, anticipated discounts on inventory purchases, and so on. In real life, as a banker, you don't really know enough to do this - need the input of both companies' CFOs and finance departments to make estimates. Oversight #2: It Takes Time to Realize Synergies No matter how evil the combined company is, it can't just take the "Death Star" approach and blow up entire divisions / buildings all at once… it takes time to realize synergies, even if you're simply laying off employees. And something like consolidating buildings or inventory purchases / processes takes even more time. Here: The company makes it easy in their investor presentation, since they give us the expected amounts that will be realized each year. Oversight #3: It Takes Money to Realize Synergies It's not just "free" to consolidate buildings or factories or shuffle people around… there are costs associated with all of that. Often labeled "Restructuring Costs" or "Integration Costs" or similar names. Could show up on the Income Statement or on the Cash Flow Statement or both… depends on the deal and the type of expenses. Here: The company makes it easy for us with its estimate of $100 million in Integration Costs "over the next 18 months" - so we allocate that over the first 2 years of the model. How Does All of This Impact the Deal, Accretion / (Dilution), and So On? If you factor in the time and money required, it always makes the deal less accretive or more dilutive… because it pushes the Combined Pre-Tax Income lower in earlier years due to: a) Some percentage less than 100% of synergies will be there; and b) CFS expenses will push down the company's debt repayment ability, thereby increasing interest expense from debt in the earlier years. Extra Resources http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-05-Mens-Wearhouse-Jos-A-Bank-Deal-Investor-Presentation.pdf
Views: 13129 Mergers & Inquisitions / Breaking Into Wall Street
In this Merger Model tutorial, you'll learn how to complete a merger model case study exercise given at an assessment center. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" You will also learn how to set up a simplified model, how to calculate accretion / (dilution) under different scenarios, and how to calculate the pro-forma credit stats and ratios for the combined company. http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-04-Merger-Model-Assessment-Center-Case-Study.pdf "Before" Excel File: http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-04-Merger-Model-AC-Case-Study-Before.xlsx "After" Excel File: http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-04-Merger-Model-AC-Case-Study-After.xlsx Table of Contents: 3:01 How to Interpret the Case Study and Model Requirements 5:18 Financial Information for Companies A and B 5:31 How to Calculate the Missing Information 8:02 Entering the Key Deal Assumptions 10:55 How to Combine the Income Statements 14:36 How to Calculate Accretion / (Dilution) and Credit Stats 16:46 Answering the Case Study Questions 21:06 Key Takeaways from the Case Study 22:39 Recap and Summary Step 1: Read and interpret the instructions... and understand where to cut corners! Requirements: Need to be able to change the purchase price and % debt and stock used... but cash and the foregone interest on cash are unnecessary, which simplifies things. Also, they've given us incomplete information in a few spots and we need to go through and calculate some figures for Company A and Company B, such as the shares outstanding. SKIP the formatting! Step 2: Enter the financial information for Company A and Company B. Fairly straightforward, but remember that we need to calculate a few additional numbers for this to work, such as the shares outstanding for each company and the Net Income and EPS, at least for the buyer. Step 3: Calculate the "missing information" - Net Income, EPS, and Share Counts. Start with Pre-Tax Income, then calculate Net Income based on the tax rates for both companies, and then EPS... not completely necessary for Company B, but definitely need it for Company A. Then, calculate the Share Count for both companies and the Enterprise Value (just for reference). Step 4: Go up to the top and enter the key assumptions, starting with Question #1. To save time, skip the (1 + Premium) * Share Price * # Shares calculation and just calculate the purchase price based on the premium to Company B's Market Cap instead -- same result either way. Calculate %s for debt and stock, then the amount of debt raised, debt interest rate, and shares issued. Then, fill in the information about the synergies -- no information on expenses here, so we leave it out. Step 5: Combine the Income Statements for Company A and Company B. Start with the Synergies, and then combine all the other line items, factoring in those synergies on top. Remember to factor in acquisition effects, such as additional interest expense. Calculate down to EPS, making sure you include the NEW shares issued in the transaction and increase Company A's share count as appropriate. Step 6: Calculate Accretion / (Dilution) and the Pro-Forma Credit Stats. Take the combined company's EPS and divide by the buyer's EPS and subtract 1. For the credit stats, the two key ones are the Leverage Ratio (Net Debt / EBITDA here) and the Coverage Ratio (EBITDA / Interest) - so calculate those each year. Step 7: Create sensitivities... if you have time. Here, we would argue it's pointless since it takes more time and effort to set them up, and they don't save much time beyond the model we already have -- so we're skipping this step. Step 8: What is the POINT of this case study exercise? Takeaway #1: Even if we pay a higher premium for a seller, the deal might be MORE accretive depending on the purchase method... debt tends to be less expensive than stock. Takeaway #2: Company B is a very cheap asset -- MUCH lower P / E and EV / EBITDA multiples than Company A. When a more expensive buyer acquires a much less expensive seller, the deal will almost always be accretive. Company B's significantly higher tax rate also makes a difference -- Company A gets "free money" after the acquisition since it's only paying 25% in taxes rather than 40%. Takeaway #3: Using debt tends to produce more accretion than stock, but it also produces higher leverage ratios and lower coverage ratios -- so there is a trade-off between accretion / (dilution) and the credit stats following the deal.
Views: 37166 Mergers & Inquisitions / Breaking Into Wall Street
In this tutorial, you’ll learn how to prepare for “fit” questions in investment banking interviews efficiently and how to use the “Rule of 3” to develop short anecdotes and responses that you can re-use to answer the most common questions. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 3:57 Your 3 “Short Stories” 6:22 Your 3 Strengths and 3 Weaknesses 8:36 Your Top 3 Real Weaknesses 12:59 Recap and Summary Lesson Outline: The WORST way to approach “fit” questions is to memorize dozens or hundreds of questions and answers. Instead, you should develop a few stories that you can use and re-use for the most common qualitative questions. Your 3 “Short Stories” should include a Success Story, a Failure Story, and a Leadership Story that demonstrate the qualities bankers are looking for: Analytical skills, ability to work in a team, ability to work long hours, attention to detail, communication skills, and a demonstrated interest in finance. For example, you could discuss an internship where you made several corporate finance processes more efficient, a Treasury internship where you worked with other departments to help the company avoid breaching a Debt covenant, and a math tutoring business you started but ultimately had to shut down. Your 3 Strengths should be easy because you already know the qualities bankers are seeking. Your 3 Weaknesses are tougher because they must be real, but not too real, they can’t be overly personal, and they must be things you could conceivably fix (e.g., don’t say you’re “too short”). You could say that you take too long to make decisions or second-guess yourself, that you’re not always good about speaking up, or that you don’t always follow up on tasks and assignments. For your 3 “Real Weaknesses,” compare yourself to the *ideal* candidate for IB roles (Ivy League school, perfect grades and test scores, accounting/finance major, multiple languages, multiple finance internships, sports, study abroad, and international recognition in some area), and assess how you’re different. Maybe you went to a non-target school or you have low grades; maybe you don’t have much finance experience or you became interested in banking too late; or maybe you haven’t taken any accounting or finance classes. Find your top 3 weaknesses and develop ways to address them. For example, you could say that your family couldn’t afford an Ivy League school or that you attended your university because of a generous scholarship. Or you could explain that you’ve been moving in the direction of finance ever since you became interested in it, despite a late start that precluded you from winning internships. Or you could point to self-study, the CFA, or other courses to explain your accounting/finance skills and how you’ve learned the requirements independently. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Investment-Banking-Fit-Questions.pdf
Views: 32278 Mergers & Inquisitions / Breaking Into Wall Street
You’ll learn about the most common merger model questions in this tutorial, as well as what type of “progression” to expect and the key principles you must understand in order to answer ANY math questions on this topic. Table of Contents: 3:26 Question #1: The Basic Rules 5:23 Question #2: With Real Numbers 8:21 Question #3: Equity Value, Enterprise Value, and Valuation Multiples 12:17 Question #4: Ranges for the Multiples 14:26 Question #5: What if the Buyer is Twice as Big? 16:26 Recap, Summary, and Key Principles Question #1: The Basic Rules "A company with a P / E multiple of 25x acquires another company for a purchase P / E multiple of 15x. Will the deal be accretive or dilutive?" ANSWER: You can’t tell unless it’s a 100% Stock deal. If it is, it will be accretive because the Cost of Acquisition is 1 / 25, or 4%, and the Seller’s Yield is 1 / 15, or 6.7%. Since the Seller’s Yield is higher, it will be accretive. For Cash and Debt deals, or deals with a mix of all three, you’d calculate the Weighted Cost of Acquisition by using Foregone Interest Rate on Cash * (1 – Buyer’s Tax Rate) * % Cash + Interest Rate on Debt * (1 – Buyer’s Tax Rate) * % Debt + 1 / (Buyer’s P / E Multiple) * % Stock and compare that to the Seller’s Yield. Question #2: With Real Numbers “Let’s say it is a 100% Stock deal. The Buyer has 10 shares at a share price of $25.00, and its Net Income is $10. It acquires the Seller for a Purchase Equity Value of $150. The Seller has a Net Income of $10 as well. Assume the same tax rates for both companies. How accretive is this deal?” ANSWER: The buyer’s EPS is $10 / 10 = $1.00. It must issue 6 additional shares to do the deal, so the Combined Share Count is 10 + 6 = 16. Since both companies have the same tax rate and since no Cash or Debt is used, Combined Net Income = $10 + $10 = $20, and Combined EPS = $20 / 16 = $1.25, so the deal is 25% accretive. Question #3: Equity Value, Enterprise Value, and Valuation Multiples “What are the Combined Equity Value and Enterprise Value in this same deal? Assume that Equity Value = Enterprise Value for both the Buyer and Seller.” ANSWER: Combined Equity Value = Buyer’s Equity Value + Value of Stock Issued in the Deal = $250 + $150 = $400. Combined Enterprise Value = Buyer’s Enterprise Value + Purchase Enterprise Value of Seller = $250 + $150 = $400. The Combined EV / EBITDA multiple won’t be affected by the mix of Cash, Stock, and Debt, but the P / E multiple will be. It’s 20x here ($400 / $20), but it will change for non-100%-Stock deals. Question #4: Ranges for the Multiples “Without doing any math, what ranges would you expect for the Combined EV / EBITDA and P / E multiples, and why?” ANSWER: They should be somewhere in between the Buyer’s multiples and the Seller’s purchase multiples. It’s almost never a simple average because of the relative sizes of the Buyer and Seller – and for P / E, the purchase method also plays a role. Question #5: What if the Buyer is Twice as Big? "What happens if the Buyer is twice as big, i.e. it has an Equity Value of $500 and Net Income of $20?" ANSWER: The deal becomes *less* accretive because the company making it accretive, the Seller, now has a lower weighting. The Buyer was previously $250 / $400 of the total, but is now only $500 / $650, which is ~63% vs. ~77%, so we’d expect accretion to fall by 10-15%, which it does. The Combined Multiples will all be closer to the Buyer’s multiples now as well. Recap, Summary, and Key Principles Principle #1: If the Seller’s Yield is above the Weighted Cost of Acquisition, it’s accretive; dilutive if the opposite. Principle #2: Combined Equity Value = Buyer’s Equity Value + Value of Stock Issued in the Deal. Principle #3: Combined Enterprise Value = Buyer’s Enterprise Value + Purchase Enterprise Value of Seller. Principle #4: The Combined P / E Multiple is affected by the Cash / Debt / Stock mix, but the Combined EV / EBITDA Multiple is not. Principle #5: The Combined Multiples will be in between the Buyer’s multiples and the Seller’s purchase multiples – exact numbers depend on sizes of the Buyer and Seller. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-11-Merger-Model-Interview-Questions-Slides.pdf https://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-11-Merger-Model-Interview-Questions.xlsx
Views: 26704 Mergers & Inquisitions / Breaking Into Wall Street
In this tutorial, you’ll learn why the real price paid by a buyer to acquire a seller in an M&A deal is neither the Purchase Equity Value nor the Purchase Enterprise Value… exactly. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 4:29: Problem #1: The Treatment of Debt 8:03: Problem #2: The Treatment of Cash 11:45: Recap and Summary Common questions: “In an M&A deal, does the buyer pay the Equity Value or the Enterprise Value to acquire the seller?” “What does it mean in press releases when they say the purchase consideration ‘includes the assumption of debt’? Does that mean the price is the Enterprise Value?” The Basic Definitions Equity Value: Value of ALL the company’s assets, but only to common equity investors (shareholders). Enterprise Value: Value of ONLY the core business operations, but to ALL investors (equity, debt, etc.). So when you calculate Enterprise Value, starting with Equity Value… Add Items When: They represent other investors (Debt investors, Preferred Stock investors, etc.) or long-term funding sources (Capital Leases, Unfunded Pensions) Subtract Items When: They are not related to the company’s core business operations (side activities, cash or excess cash, investments, real estate, etc.) The Confusion The problem is that many sources say Enterprise Value is what it “really costs to acquire a company.” But that’s not exactly true – yes, sometimes Enterprise Value is closer, but it depends on the deal terms and the items in Enterprise Value. We know, WITH CERTAINTY, that if you acquire 100% of a company, you must pay for 100% of its common shares. So the Purchase Equity Value is sort of a “floor” for the purchase price in an M&A deal. But should you really add the seller’s Debt, Preferred Stock, and other funding sources, and subtract 100% of the seller’s cash balance to determine the “real price”? There are many problems with that approach, but we’ll look at two of them here: PROBLEM #1: Does Debt really increase the purchase price? It depends, because debt can be either “assumed” (kept) or “refinanced” (replaced with new debt or paid off). Debt is Assumed: Does not increase the amount the buyer “really pays” for the seller. Debt is Repaid with the Buyer’s Cash: Does increase the amount the buyer “really pays”. Existing Debt is Replaced with New Debt: Increases the amount the buyer “really pays,” but the buyer still isn’t paying more cash. PROBLEM #2: Does Cash really reduce the purchase price? A buyer can’t just “take” a seller’s entire cash balance following a deal – all companies need a certain “minimum cash balance” to keep operating, paying the bills, etc. That portion of cash is actually a core business operating asset. Enterprise Value: As a simplification, we ignore the minimum cash and subtract all cash instead. So if a company operating by itself always needs some minimum amount of cash, it certainly still needs a minimum amount of cash in an M&A deal. Other Complications Transaction Fees: These always exist, and will always increase the price the buyer pays (lawyers, accountants, bankers, etc.). Unfunded Pensions, Capital Leases, etc.: These don’t necessarily have to be “paid” or “repaid” upon change of control… so they may not even affect the price, even though they factor into Enterprise Value. Extra Cash: What if the buyer’s cash + seller’s cash are used to fund the deal? Then the real price paid may not even be comparable to the seller’s Equity Value or Enterprise Value. The Bottom Line You have to distinguish between the *valuation* of a company or deal and the *actual price paid*. Equity Value and Enterprise Value are useful for valuation, but less useful for determining the real price paid. The real price paid may be between Equity Value and Enterprise Value, above them, or even below them, depending on the terms of the deal – due to the treatment of debt and cash, fees, and liabilities that don’t affect the cash cost of doing the deal. When you see language like “Including assumption of net debt,” that means the approximate Purchase Enterprise Value for the deal, because they are calculating it as Purchase Equity Value + Debt – Cash. But it’s still not what the buyer actually pays – it’s just a way to value the deal and get multiples like EV / EBITDA. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-10-Purchase-Price-MA-Deals.pdf
Views: 45935 Mergers & Inquisitions / Breaking Into Wall Street
You’ll get a quick, but very powerful, tip on how to optimize your Excel setup with the Quick Access Toolbar (QAT) and custom shortcuts in this tutorial. These tips will save you a ton of time when creating valuations, organizing data, and doing any formatting exercise. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Shortcuts Introduced: These are all BUILT-IN shortcuts: Alt, T, O: Options Menu Alt, H, FC: Font Color Alt, H, FS: Font Size Alt, H, H: Fill Color Alt, H, A, C: Center Alt, H, B: Borders Alt, H, O, I: AutoFit Column Width Alt, H, O, W: Column Width Alt, H, 0: Increase Decimal Places Alt, H, 9: Decrease Decimal Places These are the NEW shortcuts you can create via the Quick Access Toolbar: Alt, 1: Font Color Alt, 2: Font Size Alt, 3: Fill Color Alt, 4: Center Alt, 5: Borders Alt, 6: AutoFit Column Width Alt, 7: Column Width Alt, 8: Increase Decimal Places Alt, 9: Decrease Decimal Places Lesson Outline: Many Excel shortcuts that you use repeatedly when creating valuations, models and when formatting data are cumbersome to enter. Something as simple as changing the font color takes 4 keystrokes – Alt, H, F, C – if you use the built-in method for it. Other common commands such as alignment, fill colors, borders, and column widths also take 3-4 keystrokes. A more efficient alternative is to set up the Quick Access Toolbar (QAT) so that you can access the most common commands with shortcuts like Alt, 1 instead. You can either import our file (see the link below under RESOURCES) or go to the Options menu (Alt, T, O) and then the Quick Access Toolbar tab, and create the menu yourself. We recommend setting “Font Color” in position #1, followed by Font Size, Fill Color, Center, Borders, AutoFit Column Width, Column Width, and Increase and Decrease Decimal places. These are some of the most frequently used commands in Excel, and you’ll save a ton of time with the new, shorter versions. A command like AutoFit Column Width that used to take 4 keystrokes now takes only 2 (Alt, 6) with this approach. You might realize 30-40% time savings when working in Excel if you use this full set of shortcuts. They’re especially useful for formatting and analyzing data and doing the initial setup in financial models. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Excel-QAT-Export.exportedUI https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Excel-Shortcuts-Investment-Banking-Slides.pdf
Views: 51601 Mergers & Inquisitions / Breaking Into Wall Street
In this tutorial, you will learn how Equity Value and Enterprise Value change after an M&A deal takes place. You will also learn how the combined company’s Equity Value and Enterprise Value relate to the Equity Value and Enterprise Value of the buyer and seller in the deal. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 1:01 Why Equity Value and Enterprise Value Matter, and the Rules 4:11 Excel Demonstration of Changes in an M&A Deal 9:49 Why the Rules Don’t Work in Real Life How Equity Value and Enterprise Value Change in M&A Deals A common interview question goes something like: “Company A acquires Company B using 100% debt – what is the combined company’s Enterprise Value?” Another common variant is “Company A acquires Company B using 100% stock – what is the combined EV / EBITDA multiple?” Fortunately, there are a few simple rules you can use to determine these answer. First, recall what Enterprise Value MEANS: it’s the value of a company’s core business operations to all investors in the company. So when moving from Equity Value to Enterprise Value, you add Debt and Preferred Stock (and anything else representing other investors) and subtract non-core assets, such as Cash and Investments. The end result is that regardless of how a company finances itself, Enterprise Value does not change and neither do Enterprise Value-based multiples. In the same way, in M&A deals the combined Enterprise Value and combined Enterprise Value-based multiples do not change regardless of how the acquirer buys the seller. Rules for Equity Value and Enterprise Value in M&A Deals Combined Equity Value: Acquirer’s Equity Value, plus the value of stock it issues to buy the Seller. Combined Enterprise Value: Acquirer’s Enterprise Value + the Seller’s Enterprise Value Combined EV / EBITDA: Add both companies’ Enterprise Values and EBITDAs; not impacted by cash/stock/debt mix. Combined P / E: No “shortcut”; impacted by funding mix. Calculate it by determining the Combined Equity Value first, and then the combined Net Income after factoring in foregone interest on cash and interest paid on new debt, and any tax rate differences. Example Calculations: Say that Company A has an Enterprise Value of $100, Equity Value of $80, EBITDA of $10, and Net Income of $4. Its tax rate is 25%. Company B has an Enterprise Value of $40, Equity Value of $40, EBITDA of $8, and Net Income of $2. The foregone interest rate on cash is 2%, and the interest rate on debt is 10%. So if Company A acquires Company B for $40 with 100% debt: Combined Enterprise Value = $100 + $40 = $140 Combined Equity Value = $80 + $40 * 0% Stock Used = $80 Combined EBITDA = $10 + $8 = $18 Combined Net Income = Company A Net Income + Company B Net Income + Acquisition Effects = $4 + $2 – $40 * 100% Debt * 10% Interest Rate * (1 – 25% Tax Rate) – $40 * 100% Cash * 2% Foregone Interest Rate * (1 – 25% Tax Rate) = $3 Combined EV / EBITDA = $140 / $18 = 7.8x Combined P / E = $80 / $3 = 26.7x If you then change around the mix of cash, stock, and debt, the Combined EV / EBITDA, Combined EBITDA, and Combined Enterprise Value will not change at all. However, the Combined Equity Value, Combined Net Income, and Combined P / E will all change depending on the financing mix. In Real Life These rules don’t quite hold up… because: Premium Paid for Seller: Will have to use seller’s Enterprise Value at the share price premium instead. Most sellers are acquired for more than their current market caps! Share Price After-Effects: Does the market like / not like the deal? If so, the buyer’s share price and therefore its Equity Value and Enterprise Value will change after the deal is announced. Synergies, Other Acquisition Effects: Could affect share prices, EBITDA, Net Income, and everything else! RESOURCES: http://youtube-breakingintowallstreet-com.s3.amazonaws.com/106-10-Equity-Value-Enterprise-Value-in-MA-Deals.xlsx http://youtube-breakingintowallstreet-com.s3.amazonaws.com/106-10-Equity-Value-Enterprise-Value-in-MA-Deals.pdf
Views: 20209 Mergers & Inquisitions / Breaking Into Wall Street
In this tutorial, you’ll learn why Goodwill exists and how to calculate Goodwill in M&A deals and merger models – both simple and more complex/realistic scenarios. https://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Resources: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-14-How-to-Calculate-Goodwill-Slides.pdf https://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-14-How-to-Calculate-Goodwill.xlsx Table of Contents: 1:21 Goodwill – Why It Exists and Simple Calculation 6:59 More Realistic Goodwill Calculation 11:47 How to Determine the Percentages in Real Life and Added Complexities 16:07 Recap and Summary Lesson Outline: Goodwill is an accounting construct that exists because Buyers often pay more than the Common Shareholders’ Equity on Seller’s Balance Sheets when acquiring them in M&A deals, which causes the Combined Balance Sheet to go out of balance. By creating Goodwill, we ensure that Assets = Liabilities + Equity. For example, if a Buyer pays $1000 for a Seller, and the Seller has $1500 in Assets, $600 in Liabilities, and $900 in Equity, the Balance Sheet will go out of balance immediately after the deal. If the Buyer spends $1000 in Cash, its Assets side will increase by $500 total ($1500 increase in Assets from the Seller, and $1000 decrease from the Cash usage), and its L&E side will increase by $600 due to the Seller’s Liabilities. Therefore, the Balance Sheet is out of balance by $100, and we fix it by creating $100 of Goodwill on the Assets side. The basic calculation is: Goodwill = Equity Purchase Price – Seller’s Common Shareholders’ Equity + Seller’s Existing Goodwill +/- Other Adjustments to Seller’s Balance Sheet We normally create two Assets to deal with this problem – Other Intangible Assets for specific, identifiable items that have value, such as patents, trademarks, and customer relationships – and Goodwill, which is the “plug” for everything else that ensures balancing. How to Calculate Goodwill in More Detail In all M&A deals, under both IFRS and U.S. GAAP, Buyers are required to re-value everything on the Seller’s Balance Sheet. So, if the Seller’s factories, land, inventory, etc. are worth more or less than their Balance Sheet values, they must be adjusted – and those adjustments will also factor into the Goodwill calculation. Many items that represent timing differences – Deferred Rent, Deferred Tax Liabilities/Assets, etc. – also go away because these temporary differences are reversed and reconciled in M&A deals. Finally, a new Deferred Tax Liability (and sometimes other new items) often gets created in the deal (see our separate video on this one). A real Goodwill calculation might look more like this: Goodwill = Equity Purchase Price – Seller’s Common Shareholders’ Equity + Seller’s Existing Goodwill – Asset Write-Ups + Asset Write-Downs – Liability Write-Downs + Liability Write-Ups If an item increases Assets or reduces L&E, that means less Goodwill is needed to boost Assets – so we subtract that item (this explains why we subtract Asset Write-Ups as well as Liability Write-Downs such as DTLs that get eliminated). To determine the percentages for these write-ups, you could look at the percentages allocated to similar companies that were acquired in this market recently. For example, if we’re acquiring a high-growth software company, we might look at a deal like Atlassian’s $384 million acquisition of Trello and use the percentages allocated to Other Intangibles and the other line items there as a reference. We could use the percentage allocated to Goodwill to check our work at the end as well. Added Complexities in Real-Life Calculating Goodwill in real life gets even more complex because you must deal with items such as Deferred Rent and Deferred Revenue and their possible elimination or write-down, as well as inter-company receivables and payables. Also, the Deferred Tax line items work differently in different deal types (Stock vs. Asset vs. 338(h)(10)). There are different categories of Intangibles, such as Definite vs. Indefinite-Lived ones, and there are also industry-specific items such as In-Place Lease Value and Above/Below-Market Leases in real estate. And don’t forget about Earn-Outs and other Contingent Payments – they show up on the Balance Sheet and also affect Goodwill. All these items follow the same rules; it’s just that you calculate them a bit differently for use in the Goodwill calculation itself.
In this video, you’ll learn how to complete the purchase price allocation and Balance Sheet combination process when a buyer acquires between 50% and 100% of a seller, and how it’s different when the buyer’s stake goes from, say, 30% to 70%, compared to when it goes from 0% to 70%. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 3:31 Step 1: Transaction Assumptions 6:38 Step 2: Sources & Uses and Purchase Price Allocation 10:42 Step 3: Combining the Balance Sheets 16:57 Step 4: What Does This Look Like Under Different Scenarios? 20:11 Recap and Summary Step 1: Transaction Assumptions: Need to assume a certain existing stake, and then an additional stake acquired such that the total post-transaction stake ends up being between 50% and 100%. Assuming here that the target is public, so we also need to assume a price per share and # of shares outstanding. Relevant Numbers to Calculate: 1. What is 100% of the seller's Equity worth? We need that for Goodwill and Noncontrolling Interest calculations later on. 2. What is the buyer's current stake in the seller worth? We need this to determine what the buyer's Balance Sheet looks like before the deal happens. 3. How much is the buyer's additional stake in the seller worth. We need this to calculate the cash, debt, and stock used. 4. How much is the buyer's post-transaction stake in the seller worth? We need this to calculate the Noncontrolling Interest. Step 2: Sources & Uses and Purchase Price Allocation: Largely the same as with any other deal; the only points to be careful of are: 1. Sources and Uses should be based on the stake acquired, not 100% of the seller's value… 2. But Goodwill and PPA should be based on 100% of the seller's value! Step 3: Combining the Balance Sheets: You always combine the Balance Sheets, and the other financial statements, whenever the buyer goes from a stake under 50% to a stake over 50% in the seller. The steps to doing this are nearly the same as in any other M&A deal for 100% of another company… 1. Adjust Cash – For the cash used to fund the deal, and any cash paid for transaction / financing fees. 2. Write Up Assets – Adjust PP&E, Goodwill, Other Intangibles, and Capitalized Financing Fees. 3. Adjust Debt – Reflect new debt used to fund the deal, possible refinancing of existing debt. 4. Adjust the DTLs – Typically write off existing DTL and create a new one. 5. Adjust Shareholders' Equity – Wipe out the seller's existing Shareholders' Equity and reflect any stock issued in the deal. So… what's different? Just 2 things, really: 1. Equity Investments / Associate Companies – You have to wipe this out, if it exists, because now the buyer owns over 50% of the seller and it completely consolidates the statements instead. 2. Noncontrolling Interest – You have to create one if the buyer owns above 50% but less than 100% of the seller. Simple calculation: Value of 100% of the seller's Equity Value minus the stake the buyer owns post-transaction. Step 4: What Does This Look Like Under Different Scenarios? 0% to 70% Stake: Very straightforward - the only real difference is that a Noncontrolling Interest is created, which ensures that the Balance Sheet balances. 30% to 70% Stake: A NCI is created, just as in the case above, AND the existing Equity Investment goes away. 30% to 100% Stake: No NCI is created, but the existing Equity Investment goes away. 0% to 100% Stake: No NCI is created and there is no existing Equity Investment; just a normal M&A deal then. Cash vs. Stock vs. Debt Mix: Doesn't matter for the NCI or Equity Investment or Goodwill treatment at all – only impacts the adjustments to cash, debt, and stock on both sides of the Balance Sheet. RESOURCES: http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-07-Purchase-Accounting-NCI.xlsx http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-07-Purchase-Accounting-NCI.pdf
Views: 12047 Mergers & Inquisitions / Breaking Into Wall Street
In this tutorial, you’ll get a quick but very powerful tip on how to optimize your PowerPoint setup and how to use the Quick Access Toolbar (QAT) and custom shortcuts to save a ton of time when creating pitch books, presentations, stock pitches, and more. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Shortcuts Introduced: These are all BUILT-IN shortcuts: Alt, T, O: Options Menu Alt, H, G, A, L: Align Left Alt, H, G, A, T: Align Top Alt, H, FC: Font Color Shift + Left Click: Select Multiple Shapes Alt, H, G, A, V: Distribute Vertically Alt, H, G, A, H: Distribute Horizontally Alt, H, G, R: Bring to Front Ctrl + G: Group Shapes These are the NEW shortcuts you can create via the Quick Access Toolbar: Alt, 1, L: Align Left Alt, 1, T: Align Top Alt, 1: Alignment Commands Alt, 2: Font Color Alt, 1, L: Align Left Alt, 1, V: Distribute Vertically Alt, 1, H: Distribute Horizontally Alt, 6, R: Bring to Front Lesson Outline: Many PowerPoint shortcuts that you use repeatedly when creating presentations are actually cumbersome to enter. Something as simple as left alignment takes 5 keystrokes – Alt, H, G, A, L – if you use the built-in method for it. Other common commands such as distribution, font color changes, shape fill, shape outline, and shape insertion also take 3-4 keystrokes. A more efficient alternative is to set up the Quick Access Toolbar (QAT) so that you can access the most common commands with shortcuts like Alt, 1; Alt, 2; Alt, 3; and so on instead. You can either import our file (see the link below under RESOURCES) or go to the Options menu (Alt, T, O) and then the Quick Access Toolbar tab, and create the menu yourself. We recommend setting “Align Objects” in position #1, followed by Font Color, Shape Fill, Change Outline Color, More Options, Arrange, and Font Size. Then, you can add the Rectangle command, Draw Horizontal Text Box, Shapes, Straight Connector, and Merge Shapes. These are some of the most frequently used commands in PowerPoint, and you’ll save a ton of time with the new, shorter versions. A command like Align that used to take 5 keystrokes now takes only 3 (Alt, 1, L/R/T/B) with this approach; even a command like Font Color that took 4 keystrokes before now takes only 2 (Alt, 2). You might see anywhere from 30% to 50% time savings when creating slides and manipulating text and objects if you set up these shortcuts properly. They’re especially useful on crowded slides with a lot of objects when you need to align and distribute shapes. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/PowerPoint-QAT-Export.exportedUI https://youtube-breakingintowallstreet-com.s3.amazonaws.com/PowerPoint-Shortcuts-Investment-Banking.pdf
Views: 28037 Mergers & Inquisitions / Breaking Into Wall Street
In this tutorial, you’ll learn how and why earn-outs are used in M&A deals, how they appear on the 3 financial statements, and how they impact the transaction assumptions and combined financial statements in a merger model. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 1:28 What Earn-Outs Are and Why You Use Them 7:46 How Earn-Outs Show Up on the 3 Statements 12:21 How Earn-Outs Impact Purchase Price Allocation and Sources & Uses 16:02 How Earn-Outs Affect the IS, BS, and CFS in a Merger Model 19:12 Recap and Summary What Earn-Outs Are and Why You Use Them Instead of paying for a company 100% upfront, the buyer offers to pay some portion of the price later on – *if certain conditions are met.* Example: “We’ll pay you $100 million for your company now, and if you achieve EBITDA of $20 million in 2 years, we’ll pay you an additional $50 million then.” Earn-outs are VERY common for private company / start-up acquisitions in tech, biotech, pharmaceuticals, and related “high-risk industries.” EA acquired PopCap for $750 million upfront, and offered an earn-out that varied based on PopCap Games’ cumulative EBIT over the next 2 years. The schedule was as follows: 2-Year Earnings Under $91 Million: Nothing 2-Year Earnings Above $110 Million: $100 million 2-Year Earnings Above $200 Million: $175 million 2-Year Earnings Above $343 Million: $550 million Why Use an Earn-Out? You see them most often when the buyer and the seller disagree on the seller’s value or expected financial performance in the future. Earn-outs are a way for the buyer and seller to compromise and say, “We don’t really know how we’ll perform in the future, but if we reach a target of $X in revenue or EBITDA, you’ll pay us more for our company.” The buyer will almost always want to base the earn-out on the seller’s standalone Net Income, while the seller prefers to base it on revenue, partially so the seller can spend a silly amount to reach these revenue targets. As a compromise, EBIT or EBITDA are sometimes used. How Earn-Outs Show Up on the 3 Statements Balance Sheet: Earn-Outs are recorded as “Contingent Consideration,” a Liability on the L&E side. Income Statement: You record changes in the value of the Contingent Consideration here, i.e. if the probability of paying out the earn-out changes, you show it as a Loss or Gain here. It’s a Loss if the probability of paying the earn-out increases, and a Gain if the probability decreases. Cash Flow Statement: When the earn-out is paid out in cash to the seller, it’s a cash outflow here. You also have to add back or subtract changes in the Contingent Consideration value here, reversing what is listed on the Income Statement. How Earn-Outs Impact Purchase Price Allocation and Sources & Uses Earn-outs do not affect the Sources & Uses schedule for the initial transaction since no cash is paid out yet. Earn-outs *increase* the amount of Goodwill created in an M&A deal because they boost the Liabilities side of the Balance Sheet, which, in turn, requires higher Goodwill on the Assets side to balance it. How Earn-Outs Affect the IS, BS, and CFS in a Merger Model You tend to leave the Income Statement impact blank in a merger model unless you have detailed estimates for the seller’s future performance. You SHOULD factor in the cash payout of the earn-out on the combined Cash Flow Statement – you can assume a 100% chance of payout, or some lower probability. The payout will appear in Cash Flow from Financing and reduce cash flow and the company’s cash balance. RESOURCES: http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-08-Earnout-Modeling.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-08-JAZZ-Earnouts.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-08-EA-PopCap.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-08-EA-PopCap-2.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-08-Earnout-Article-MA-Journal.pdf
Views: 17417 Mergers & Inquisitions / Breaking Into Wall Street
How can you increase the value of your business in a sale? One important segment that is often overlooked by traditional cash flow valuation methods (DCF Model) is your working capital. The key question is “how much working capital do I need to run the business to meet my acquirer’s expectations?” If I have an excess amount of stock, this needs to be accounted for in order to fairly compensate the seller for this real cash tied up in working capital. In today’s video, I talk about how adjusting for this difference between “normal” working capital levels and what the business currently holds can result in either a higher or lower acquisition price. This real cash difference is often overlooked and put off until the end of the negotiation process therefore hurting the true valuation estimate. The key takeaway is - the level of working capital to transfer on sale should be what is needed to continue running the business - no more, no less. Any difference needs to be adjusted for in the final acquisition price. If you want to read more, consider the CBV’s business journal article. Click the link below; https://cicbv.ca/wp-content/uploads/2010/10/Putting-the-Pin-in-Net-Working-Capital-Blair-Roblin-Final.pdf If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 2904 FinanceKid
In this session, we start by looking at the sorry history of acquisitions to acquiring firms and then examine common errors in acquisition valuation. Slides: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/realoptions2mod.pdf http://www.stern.nyu.edu/~adamodar/podcasts/valspr15/valsession24.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24soln.pdf
Views: 14588 Aswath Damodaran
In this Valuation Multiples, Growth Rates, and Margins tutorial, you’ll learn about the relationship between valuation multiples such as EV / EBITDA and companies’ growth rates and margins, and you’ll see which factors influence the valuation multiples. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 3:11 Why Valuation Multiples are Shorthand for a Full DCF Analysis 14:06 Does This Correlation Hold Up in Real Life? 19:40 Recap and Summary Question that came in the other day… “I’m confused about how to interpret valuation multiples. If one company’s EV / EBITDA multiple is higher than another’s, does that mean it is growing more quickly? Or does that just mean its EBITDA margins are higher?” “In other words, are multiples more strongly correlated with growth rates or margins?” This is actually a tough question to answer, but the short answer is that valuation multiples are generally correlated with growth rates because multiples are “shorthand” for a full DCF analysis. So higher FCF growth implies a higher multiple: with higher growth, you could AFFORD to pay more for a company’s cash flows. Multiples: Shorthand for DCF Valuation Remember the formula for Terminal Value: Final Year FCF * (1 + FCF Growth Rate) / (Discount Rate – FCF Growth Rate). This implies that you can get a higher Terminal Value by boosting the FCF growth rate or by reducing the Discount Rate. But when you’re looking a set of comparable public companies, the Discount Rate *should* be about the same for all the companies in the set, since the risk/return profile will be similar for companies of a similar size in the same industry. So… in reality, it is mostly FCF growth that drives a company’s Terminal Value, implied value from a DCF, and therefore its implied valuation multiple(s) as well. What determines FCF and FCF growth? Revenue growth, operating margin, taxes, non-cash charges, Working Capital and CapEx requirements… …But the MAJOR drivers are revenue growth and operating margins (or EBITDA margins). When taken together, Revenue Growth and the Operating or EBITDA margin give you an indication of the company’s Operating Income Growth or EBITDA growth. If margins stay the same, revenue growth will flow down directly to EBITDA growth…. so a company growing revenue at 5% will see EBITDA growth of 5% if its EBITDA margin stays the same. If margins change, anything could happen. Increasing margins and holding revenue growth at the same level will result in FCF growth above revenue growth, for example. But the key point is that it’s NOT about the specific margin the company has – instead, it’s about how those margins are changing over time and how they’re influencing Operating Income or EBITDA growth. For example, a 40% EBITDA margin company and a 20% EBITDA margin company, if they’re growing EBITDA and FCF at about the same rates and they’re in the same industry with a similar size, should be valued at similar multiples. Why? Because investors are willing to pay more for more GROWTH, not more simply because a company currently has more free cash flow. Does This Correlation Hold Up in Real Life? Sometimes it does, but often it does not. For example, in our set of biotech/pharmaceutical comps, we get the following numbers: United: 10% EBITDA Growth, 7x EV / EBITDA Cubist: 14% EBITDA Growth, 21x EV / EBITDA Alexion: 22% EBITDA Growth, 23x EV / EBITDA JAZZ: 36% EBITDA Growth, 11x EV / EBITDA Salix: 41% EBITDA Growth, 10x EV / EBITDA MDCO: 137% EBITDA Growth, 9x EV / EBITDA These are off in real life because of the following factors: Acquisitions – These can distort the EBITDA growth figures and create misleadingly high numbers. EBITDA and FCF Differing Dramatically – They’re often quite far apart, so EBITDA growth doesn’t necessarily trend with FCF growth. Speculative Valuations – In markets like tech startups and biotech/pharmaceuticals, valuation is often highly speculative and linked to the results of clinical trials and so on rather than the pure fundamentals. Mispriced Asset – Or perhaps the company in question really is mispriced and the market is overvaluing it or undervaluing it. RESOURCES: http://youtube-breakingintowallstreet-com.s3.amazonaws.com/107-12-Valuation-Multiples-Growth-Rates-Margins-Slides.pdf
Views: 25872 Mergers & Inquisitions / Breaking Into Wall Street
In this tutorial, you’ll learn how the buyer’s and seller’s share prices change when M&A deals are announced and when they close. You’ll also learn a simple rule of thumb you can use to predict how a buyer’s share price might change. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 1:48 How the Seller’s Share Price Changes 3:55 How the Buyer’s Share Price Changes 10:16 Facebook / WhatsApp Example 12:01 Recap and Summary Lesson Outline: Question: “Can you please explain to me, quick and dirty, how the share prices of 2 public companies normally change when an M&A deal takes place? Basically, how can I tell which share price will go up and which will go down?” Answer: It’s easier to explain this for the seller in an M&A deal, so we’ll start there and then go into what happens to the buyer. The Seller The seller’s share price will almost always move closer to the offer price. EX: The company’s share price is $7.00, you offer $10.00 / share for it – the price will almost always jump to $9.90… or $9.80… or something close to $10.00. This is because the seller is now worth close to whatever you’re offering for it. It won’t be exactly $10.00, though, because there is a chance the deal may not close. The Buyer The buyer’s share price depends on how much the market thinks the combined company is worth afterward. EX: The Buyer has 100 shares outstanding at $10 per share, for an Equity Value of $1,000. It then offers the seller $7 per share for its 50 shares in an all-stock deal. How does the buyer’s share price change? It depends! The buyer issues 35 shares to do this, since ($7 * 50) / $10 = $350 / $10 = 35 shares. And the Combined Equity Value is therefore $1,350. There are now 135 total shares outstanding, since the buyer’s share still exist, the seller’s shares disappeared, and 35 new shares were issued. BUT… what does the market think the Combined Company is worth? If it thinks the combined company is worth more than $1,350, the share price will increase because the # of shares outstanding is fixed – so the share price must go up. But if it thinks the combined company is worth LESS than $1,350, the share price will decrease because the # of shares outstanding is fixed – so the share price must go down. So if the combined company is worth: $1,350: The buyer’s share price stays the same. $1,400: The buyer’s share price increases! $1,300: The buyer’s share price decreases! So it depends heavily on market sentiment, and the buyer’s share price could “flip flop” quite a bit over time before the transaction closes. A good real-world example of this is the Facebook / WhatsApp deal – Facebook’s stock price rose, fell, and then rose again in between when the deal was announced and when it closed, all based on investor sentiment. Your Homework Assignment What happens in a 100% cash or debt deal? We simplified it here to look at a 100% stock deal, but how do these share price dynamics change when the buyer uses cash or debt or some combination of those instead? RESOURCES: http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-09-MA-Share-Price-Dynamics.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-09-MA-Share-Price-Dynamics.xlsx
Acquisitions are exciting and fun to be part of but they are not great value creators and in today's sessions, I tried to look at some of the reasons. While the mechanical reasons, using the wrong discount rate or valuing synergy & control right, are relatively easy to fix, the underlying problems of hubris, ego and over confidence are much more difficult to navigate. There are ways to succeed, though, and that is to go where the odds are best: small targets, preferably privately held or subsidiaries of public companies, with cost cutting as your primary synergy benefit. If you get a chance, take a look at a big M&A deal and see if you can break it down into its components. Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/acqanontests.pdf Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valfall16/valsession24.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session24soln.pdf
Views: 3675 Aswath Damodaran
The sale of a company, division, business, or collection of assets is a major event for its owners, management, employees, and other stakeholders. It is an intense, time-consuming process with high stakes, usually spanning several months. The seller typically hires an investment bank and its team of trained professionals to ensure that key objectives are met and a favorable result is achieved. This video covers sell-side M&A from chapter 6 of the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions textbook by Joshua Rosenbaum and Joshua Pearl. Questions answered in the video include? - What is a broad auction? - What is a targeted auction? - What is a negotiated sale? - What is the sell-side M&A process from start to finish? - What is the difference between a strategic and financial buyer? - What is a Confidential Information Memorandum (CIM)? - What is a letter of intent (LOI)? - One step vs two-step merger For those who are interested in buying the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl, follow the Amazon link below; https://www.amazon.ca/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 3165 FinanceKid
In this tutorial, you’ll learn about the key differences between private equity investing in financial services and traditional companies, and you'll see how a bank “buyout” or growth equity deal might work using a simplified example for MidFirst Bank. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 1:12 Key Differences Between Traditional LBOs and Bank Buyouts 7:09 Overview of Simplified Bank Buyout Model 12:29 IRR, Multiples, and Returns Attribution 15:28 Evaluating the Deal 16:33 Recap and Summary RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Bank-Growth-Equity-Buyout-Deals.xlsx https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Bank-Growth-Equity-Buyout-Deals-Slides.pdf https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Bank-Growth-Equity-Buyout-Deals-MidFirst-Filings.pdf Lesson Outline: There’s very little private equity activity in the commercial banking sector due to regulations and deal math. If a PE firm acquires over a certain percentage of a bank, it may be classified as a “bank holding company,” and it will have to comply with regulatory capital and other requirements – which no PE firm wants. Also, most banks are already highly leveraged and cannot use much additional Debt to support a deal; Debt works differently for a bank, and most banks do not aim to “de-lever” over time. If a bank’s Equity is written down and replaced with insufficient new Investor Equity, it might also run into a regulatory capital shortfall. As a result, PE firms almost always have to use a significant amount of Equity, if not 100% Equity, to invest in banks. They often make minority-stake investments, invest in something other than Common Equity, and do club deals with multiple other PE firms to get around these problems. So, “bank buyouts” are more like growth equity deals or debt investments than traditional leveraged buyouts. The main returns sources are Tangible Book Value growth, P / TBV multiple expansion, and Dividends; “Debt Paydown and Cash Generation,” a key returns source in a traditional LBO, does not exist in the same way. TBV growth depends on the bank’s ability to source Deposits and Loans and grow its Net Income over time while issuing modest Dividends. P / TBV multiple expansion depends on the bank’s ability to boost its ROTCE or ROE, boost its Net Income to Common growth, and reduce its Cost of Equity. Of those, it’s most viable for the PE firm to implement strategies to boost the bank’s Returns-based metrics such as ROTCE or ROE. It might plan to cut the bank’s costs, target higher-yielding Assets, aim for higher Asset growth, or secure lower-cost funding sources. A “Bank Buyout” Model in Steps Start by making Transaction and Operating Assumptions, such as the Purchase P / TBV Multiple, Fees, Exit Multiple, and Loan and Deposit Growth. Then, set up the Sources & Uses and PPA schedules. You still write down a bank’s Common Equity, Goodwill, and Other Intangibles, and replace them with new items in a control deal. In a growth equity deal, you would skip this part and just assume extra Cash and Equity from the minority investment. Next, adjust the Balance Sheet – items such as Cash, Gross Loans, the Allowance for Loan Losses, Goodwill/Intangibles, Deferred Taxes, and Equity will change. In a growth equity deal, only Cash and Equity change immediately after. Project the Balance Sheet and use Federal Funds Sold and Purchased as the balancers, and then use the Balance Sheet figures to project the bank’s Income Statement and Cash Flow Statement. Finally, project the bank’s Regulatory Capital. Focus on CET 1, which is close to Tangible Common Equity, and “back into” the Dividends the bank can issue based on its Targeted vs. Actual CET 1. Risk-Weighted Assets can be a percentage of Interest-Earning Assets. Calculate the MoM Multiple and IRR at the end based on the Equity Purchase Price, Exit Equity Proceeds, and Dividends, and create a summary and sensitivities for the entire model. This deal doesn’t seem great because we need 20% Exit P / TBV multiple expansion, from 2.5x to 3.0x, to get a 20% IRR, but the bank’s ROA and ROTCE fall over this 5-year period. It doesn’t seem plausible for the bank’s P / TBV to *increase* when its financial performance declines. But to evaluate it more fully, we’d have to look at different scenarios and sensitivities.
#YouTubeTaughtMe INTERNATIONAL BUSINESS MANAGEMENT (IBM) This video consists of the following: 1. Concept of Cross border merger and acquisition in hindi 2. Advantages of cross border merger and acquisition 3. challenges / disadvantages of cross border merger and acquisition 4. Difference between cross border merger and acquisition in hindi Check out my BLOG : http://www.pptwalablog.blogspot.com Reference books for International business management: 1. https://amzn.to/2qVD2ym - International Business Management by CB Gupta ***BEST BOOK*** 2. https://amzn.to/2Hpxnea - International Business Management by N. Venkateswaran (Author) 3. https://amzn.to/2HoLgsV - International Business: Text and Cases by Cherunilam .F (Author) TAGS FOR VIDEO: Cross border merger and acquisition meaning Cross border merger and acquisition Cross border merger and acquisition case study Cross border merger and acquisition strategies Cross border merger and acquisition ppt merger and acquisition difference Cross border merger and acquisition in india Cross border merger and acquisition pdf Cross border merger and acquisition examples i merger acquisition l merger and acquisition m merger and acquisition u.s. mergers and acquisition regulatory board merger vs acquisition merger or acquisition merger accounting vs acquisition accounting difference b w merger and acquisition diff. b/w Cross border merger and acquisition 401k merger and acquisition merger 7 acquisition chapter 7 merger and acquisition strategies 888 merger and acquisition
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In this lesson, you’ll learn about pro-forma vs. GAAP earnings in merger models, what the difference between both types of EPS is, and the arguments in favor of and against these “pro-forma” metrics. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 3:48 When Pro-Forma Figures Make a Difference, and How Bankers Use Them 7:01 Arguments For and Against Pro-Forma Metrics QUESTION: “What is the significance of the ‘Pro-Forma Earnings’ and ‘Pro-Forma EPS’ and ‘Pro-Forma Accretion/Dilution’ you calculate in merger models?” “What do they mean, and how do bankers use these metrics to advise clients?” SHORT ANSWER: Pro-Forma Earnings always make a company’s results look better by removing certain expenses, and they let bankers argue in favor of marginal-to-poor deals. Typically, to calculate Pro-Forma Earnings, you remove restructuring costs, amortization of intangibles, legal settlement costs, asset impairments, gains/losses, and sometimes even stock-based compensation! In an M&A scenario, you usually remove new depreciation & amortization on asset-writeups and sometimes also restructuring / integration costs (if they appear on the Income Statement) and deferred revenue write-downs. These changes can make a massive difference for some companies (Merck, Alcoa, etc.), but tend not to make a huge difference in most “normal” M&A deals for companies with clean financial statements (e.g., Starbucks / Krispy Kreme). When Does It Matter? “Pro-Forma” or “Non-GAAP” or “Adjusted” or “Operating” earnings in M&A deals make the biggest difference when: Condition #1: The deal is “borderline” accretive/dilutive, and removing a few expenses could flip it. Condition #2: The normal acquisition-related expenses, such as amortization of intangibles, are significant portions of pre-tax income (e.g., more than a few percentage points). Condition #3: OR there are other significant expenses, such as restructuring or integration costs on the Income Statement, that you’re also removing. As an example, if amortization of intangibles were much bigger in a deal – let’s say that 30% of the purchase premium, rather than 5%, were allocated to Definite-Lived Intangibles, then Pro-Forma figures might “flip” the deal to accretive. A banker could then approach the company and argue in favor of the deal on the basis of those Pro-Forma numbers. Arguments FOR Pro-Forma Numbers Argument #1: Pro-Forma metrics give a clearer picture of ongoing business performance since they remove one-time expenses. Argument #2: Pro-Forma metrics better represent a company’s future earnings potential, which investors use to evaluate it Argument #3: Items like the Amortization of Intangibles in M&A deals are not “real” expenses because they’re non-cash and shouldn’t reduce a company’s earnings like Interest Expense does. Arguments AGAINST Pro-Forma Numbers Argument #1: Companies abuse these metrics and label many recurring items, like Restructuring, “non-recurring” (See: Alcoa). Argument #2: There’s little-to-no consistency in the calculations; companies remove wildly different items, so you can’t even use Pro-Forma metrics to compare firms. Argument #3: Some M&A-related items may be non-cash, but they still reflect the cost of doing a deal – and that acquired company will become a part of the core business in the future! Our Opinion(s) We are skeptical of these “Pro-Forma” metrics. If you use them, keep in mind the following: Point #1: Always include the GAAP or IFRS-compliant metrics as well. Point #2: You shouldn’t base a deal or investment recommendation entirely on these metrics, but they can be part of your argument. Point #3: Always explain or footnote what you’re doing so that other people understand which expenses have been removed. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-12-Pro-Forma-Earnings-vs-GAAP-Slides.pdf
https://www.firmsconsulting.com Strategy Skills Podcast: https://itunes.apple.com/us/podcast/strategy-skills-podcast-management/id1021817294?mt=2 Case Interview Podcast: https://itunes.apple.com/us/podcast/about-case-interviews-strategy/id904509526?mt=2 Corporate Strategy M&A Study: https://www.firmsconsulting.com/technology-corporate-strategy/#!step-1 Market Entry Strategy Study: https://www.firmsconsulting.com/market-entry-strategy/#!step-2 Case Interviews Training: https://www.firmsconsulting.com/alice-and-michael/ https://www.firmsconsulting.com/felix/ https://www.firmsconsulting.com/sanjeev/ https://www.firmsconsulting.com/rafik/ https://www.firmsconsulting.com/samantha/ An acquisition case which demonstrates the challenges of breaking out benefits and costs in a deal.
Views: 87802 firmsconsulting
Copy This Experienced Investment Banker Resume Template to Break In As an Associate. http://www.mergersandinquisitions.com/mba-experienced-investment-banker-resume-template/ (Get the full Word and PDF template here) I get a lot of questions on how to structure your resume, how to write about your experience, what to focus on, and how much to write. Rather than writing a giant Q&A on all these topics, I'm going to give you a resume/CV template that you can just copy and modify for your own experiences. "But I'll Have the Same Resume as Everyone Else!" No, because only 0.1% of those who see this template will actually download it and use it. Don't overestimate the competition. And even though this site is well-known, only a tiny fraction of those interested in investment banking have visited it. If you are worried, just modify the formatting and use different fonts, spacing, or margins. In this lesson, you'll learn how to craft your resume if you're at the MBA level, if you've been working full-time, or if you've had extensive transaction experience. --- WANT MORE FREE TUTORIALS, TIPS & TEMPLATES? Subscribe to the Banker Blueprint, a complete action plan for getting into Investment Banking, PE and Hedge Funds. www.mergersandinquisitions.com/banker-blueprint http://www.BreakingIntoWallStreet.com (Financial Modelling Training) http://www.MergersAndInquisitions.com (Investment Banking Blog)
Views: 15702 Mergers & Inquisitions / Breaking Into Wall Street
A long time ago I said that we would never post a investment banking cover letter template... but here it is (click more for the download): By http://www.mergersandinquisitions.com/ "Break Into Investment Banking or Private Equity, The Easy Way" I was tempted to post a Word template, but I don't want 5,000 daily visitors to copy it and to start using the same exact cover letter. But hey, we already have resume templates that everyone is using, so why not go a step further and give you a cover letter template as well? Plus, "investment banking cover letter" is one of the top 10 search terms visitors use to find this site -- so you must be looking for a template. So here it is: http://www.mergersandinquisitions.com/investment-banking-cover-letter-template/ (Get the full Word and PDF template here) WANT MORE FREE TUTORIALS, TIPS & TEMPLATES? Subscribe to the Banker Blueprint, a complete action plan for getting into Investment Banking, PE and Hedge Funds. www.mergersandinquisitions.com/banker-blueprint http://www.BreakingIntoWallStreet.com (Financial Modeling Training) http://www.MergersAndInquisitions.com (Investment Banking Blog)
Views: 73933 Mergers & Inquisitions / Breaking Into Wall Street
In this tutorial, you'll learn how to analyze Debt vs. Equity financing options for a company, evaluate the credit stats and ratios in different operational cases, and make a recommendation based on both qualitative and quantitative factors. http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 0:50 The Short, Simple Answer 3:54 The Longer Answer – Central Japan Railway Example 12:31 Recap and Summary If you have an upcoming case study where you have to analyze a company's financial statements and recommend Debt or Equity, how should you do it? SHORT ANSWER: All else being equal, companies want the cheapest possible financing. Since Debt is almost always cheaper than Equity, Debt is almost always the answer. Debt is cheaper than Equity because interest paid on Debt is tax-deductible, and lenders' expected returns are lower than those of equity investors (shareholders). The risk and potential returns of Debt are both lower. But there are also constraints and limitations on Debt – the company might not be able to exceed a certain Debt / EBITDA, or it might have to keep its EBITDA / Interest above a certain level. So, you have to test these constraints first and see how much Debt a company can raise, or if it has to use Equity or a mix of Debt and Equity. The Step-by-Step Process Step 1: Create different operational scenarios for the company – these can be simple, such as lower revenue growth and margins in the Downside case. Step 2: "Stress test" the company and see if it can meet the required credit stats, ratios, and other requirements in the Downside cases. Step 3: If not, try alternative Debt structures (e.g., no principal repayments but higher interest rates) and see if they work. Step 4: If not, consider using Equity for some or all of the company's financing needs. Real-Life Example – Central Japan Railway The company needs to raise ¥1.6 trillion ($16 billion USD) of capital to finance a new railroad line. Option #1: Additional Equity funding (would represent 43% of its current Market Cap). Option #2: Term Loans with 10-year maturities, 5% amortization, ~4% interest, 50% cash flow sweep, and maintenance covenants. Option #3: Subordinated Notes with 10-year maturities, no amortization, ~8% interest rates, no early repayments, and only a Debt Service Coverage Ratio (DSCR) covenant. We start by evaluating the Term Loans since they're the cheapest form of financing. Even in the Base Case, it would be almost impossible for the company to comply with the minimum DSCR covenant, and it looks far worse in the Downside cases Next, we try the Subordinated Notes instead – the lack of principal repayment will make it easier for the company to comply with the DSCR. The DSCR numbers are better, but there are still issues in the Downside and Extreme Downside cases. So, we decide to try some amount of Equity as well. We start with 25% or 50% Equity, which we can simulate by setting the EBITDA multiple for Debt to 1.5x or 1.0x instead. The DSCR compliance is much better in these scenarios, but we still run into problems in Year 4. Overall, though, 50% Subordinated Notes / 50% Equity is better if we strongly believe in the Extreme Downside case; 75% / 25% is better if the normal Downside case is more plausible. Qualitative factors also support our conclusions. For example, the company has extremely high EBITDA margins, low revenue growth, and stable cash flows due to its near-monopoly in the center of Japan, so it's an ideal candidate for Debt. Also, there's limited downside risk in the next 5-10 years; population decline in Japan is more of a concern over the next several decades. RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Debt-vs-Equity-Analysis-Slides.pdf
Views: 36807 Mergers & Inquisitions / Breaking Into Wall Street
In this tutorial, you’ll learn about bargain purchases, the concept of “negative Goodwill,” and what happens on the financial statements in a merger model when a buyer acquires a seller for an Equity Purchase Price less than the seller’s Common Shareholders’ Equity. https://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 4:20 Part 1: Why Bargain Purchases Take Place 9:17 Part 2: Why the Accounting is Confusing, and a Simpler Method 12:30 Part 3: Real-Life Example of a Bargain Purchase 14:19 Recap and Summary Resources: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-13-Negative-Goodwill-Bargain-Purchases-Slides.pdf https://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-13-Negative-Goodwill-Bargain-Purchases.xlsx https://youtube-breakingintowallstreet-com.s3.amazonaws.com/108-13-Negative-Goodwill-Westamerica-County-Bank.pdf QUESTION: “Can you explain what happens in an M&A deal if the Equity Purchase Price is less than the seller’s Common Shareholders’ Equity?” “Do you get ‘negative’ Goodwill? What is the accounting treatment for this type of bargain purchase?” SHORT ANSWER: No, you never create “negative Goodwill” because it cannot exist under either IFRS or U.S. GAAP. Instead, you take the absolute value of the Goodwill created and record it as an Extraordinary Gain on the Income Statement. You have to put a MAX(0 around the Goodwill calculation to do this. You reverse the Gain on the CFS and reverse the extra taxes the company paid on the Gain. On the Balance Sheet, Cash, Retained Earnings, and the DTL or DTA will be affected by these changes. Part 1: Why Bargain Purchases? Bargain purchases are most common for distressed sellers, when the company is running out of Cash, has high Debt and other obligations, and needs to sell or liquidate quickly. A buyer who likes the seller’s intangibles or other aspects of it might come in and offer a better-than-liquidation price that is still less than the seller’s Common Shareholders’ Equity. In our example here, Starbucks likes Coco Cream Donuts’ brand, customer list, and intellectual property, but doesn’t believe its Tangible Assets are worth all that much, so it allocates 60% of the Equity Purchase Price to those Intangibles. In the purchase price allocation process, it writes off the seller’s Common Shareholders’ Equity and Goodwill, adjusts its PP&E and Intangibles, and creates a new DTL. Instead of recording negative $203 million of Goodwill, it records 0 and shows an Extraordinary Gain of $203 million on the combined Income Statement instead. Part 2: Accounting Confusion, and a Simpler Method Under the old method, you allocated the negative Goodwill proportionally to the acquired company’s Assets until there was nothing left – and if some amount remained, you recorded that amount as an Extraordinary Gain. However, you no longer do this under U.S. GAAP or IFRS, and the rules changed a long time ago. You just record the Gain now. A simpler method for doing this is to simply Credit the Gain to the combined Shareholders’ Equity in the Balance Sheet adjustments – the Balance Sheet will balance immediately after the deal takes place, and the setup is much simpler and easier to explain. Part 3: Real-Life Example Back in 2009, Westamerica Bancorporation paid almost nothing for Country Bank, even though its Net Assets were $48 million. The company recorded a Gain on Acquisition of $48 million on its Income Statement, reversed it on the Cash Flow Statement, and reversed the taxes on this Gain as well. These types of deals were common in the last financial crisis because there were so many distressed sellers that desperately needed to sell.
In this lesson, you’ll learn what the real estate pro-forma is, why it’s important, what the key line items and calculations are, and how to make it more complex with scenarios, based on examples for office and multifamily properties. https://www.mergersandinquisitions.com/real-estate-pro-forma/ https://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Resources: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Real-Estate/Real-Estate-Pro-Forma.xlsx https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Real-Estate/Real-Estate-Pro-Forma-Slides.pdf Table of Contents: 1:23 Part 1: Why the Real Estate Pro-Forma? 2:29 Part 2: Simple Real Estate Pro-Forma Excel & Calculations 12:34 Part 3: How to Build Scenarios into a Pro-Forma (Multifamily Example) 18:09 Part 4: Differences for Other Property Types and More Advanced Items 20:03 Recap and Summary Why the Real Estate Pro-Forma? The Real Estate Pro-Forma is a simplified and combined Income Statement and Cash Flow Statement for properties, with a few modifications – such as no Income Taxes and no Depreciation in most cases. Properties do have financial statements, but for modeling and valuation purposes, we can simplify and just project the Pro-Forma – as we often do when valuing companies with a DCF and projecting only their cash flows. The Shape of the Pro-Forma and Simple Calculations You always start with Potential Revenue, if the property were 100% occupied and all tenants paid market rates, and then make deductions. Next, you list the operating expenses required to run the property’s day-to-day operations. Then, you list the “capital costs” (similar to CapEx and the Change in Working Capital for normal companies) that correspond to long-term items that will last for more than 1 year. Finally, you show the Debt Service (Interest and Principal Repayments) and the Cash Flow to Equity at the bottom. Revenue and Effective Gross Income Base Rental Income at the top represents this “potential revenue” with 100% occupancy and full market rents paid by tenants. Common deductions and adjustments are ones for the Absorption & Turnover Vacancy, Concessions & Free Rent, Expense Reimbursements, and General Vacancy. Effective Gross Income sums up all these adjustments and is similar to Net Revenue or Net Sales for normal companies, but on a Cash basis rather than an accrual basis. Common operating expenses include property management fees, utilities, maintenance, insurance, sales & marketing, general & administrative, property taxes, and reserves. Some are projected based on a % of Effective Gross Income, some are based on $ per square foot or $ per square meter figures, and some are percentages of the property’s value. Reserves exist to “smooth out” the property’s cash flows as large, irregular capital costs come up. The most common capital costs for properties are Capital Expenditures (CapEx), Tenant Improvements (TIs), and Leasing Commissions (LCs). CapEx is for property-wide items; TIs are for tenant-specific customizations; and LCs are paid to brokers who help find new tenants. Net Operating Income (NOI) is Effective Gross Income – Operating Expenses & Property Taxes; it’s similar to EBITDA for normal companies and is critical in valuations. Adjusted NOI is NOI – Net Capital Costs; it’s similar to Unlevered FCF for normal companies since it’s core-business cash flow after capital costs, ignoring capital structure. Cash Flow to Equity is Adjusted NOI – Debt Service; it’s fairly close to the equity investor distributions a property can make each year. How to Build Scenarios into a Multifamily Pro-Forma Typically, you create Base, Upside, and Downside cases with differences in Rent, Vacancy, Bad Debt, Expenses, TIs, and LCs. In credit analysis, you focus on the Base, Downside and Extreme Downside cases since the upside is extremely limited for lenders. Everything must be connected in these scenarios – if there’s a recession, rents will fall, the vacancy rate will rise, and TIs and LCs will also rise because it will be more difficult to find tenants. In our multifamily example here, the Base Case represents steady, uninterrupted growth in Market Rents (3-5%), the same 3% Vacancy Rate, the same 3% Bad Debt, 2-4% Expense Growth, and TIs grow at 2-4% with LCs remaining at 3% of Effective Rent. The Downside Case represents a mild recession over ~2 years, so Market Rents fall, Vacancy and Bad Debt rise to ~6%, Expenses fall, TIs grow at 10%, and LCs jump to 8% of Effective Rent. And the Extreme Downside Case is similar but has even worse numbers, based on the most severe recession from the past few decades. Here, the scenarios tell us that the proposed financing for this deal, with 85% leverage, won’t work because some of the lenders lose money in the Extreme Downside Case, and the equity investors also get wiped out.
In this Enterprise Value lesson we take a look at the rules of thumb to figure out what should be added or subtracted when you calculate it. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" This also covers a short case study based on Vivendi (a leading media/telecom conglomerate based in France), Everyone knows the definition of Enterprise Value: Take Equity Value, add Debt and Preferred Stock (and others), and subtract Cash... But WHY do you do any of that? Enterprise Value represents the value of the company's CORE BUSINESS OPERATIONS to ALL THE INVESTORS in the company - equity, debt, preferred stock, etc. So focus on OPERATIONAL ITEMS and ALL INVESTORS when thinking about what to include... and what to exclude! Table of Contents: 1:19 What Enterprise Value Means 2:10 The 3 Key Rules of Thumb 5:15 Walk-Through of Vivendi's Assets and What to Subtract 11:08 How to Determine the Proper Treatment for Certain Assets 12:33 Excel Calculations for Assets Subtracted 13:30 Walk-Through of Vivendi's Liabilities & Equity and What to Add 15:14 How to Determine the Proper Treatment for Certain Liabilities 17:04 Excel Calculations for Liabilities Added 18:57 The Equity Section and Noncontrolling Interests 19:45 Recap and Summary The Three Rules of Thumb: 1. Is this item a *long-term funding source* for the company? In other words, will the funds we raise from this item help fund our business for years to come? If so, you should ADD this item when calculating Enterprise Value! Examples: Debt, Preferred Stock, Noncontrolling Interests (Minority Interests), Capital Leases, Unfunded Pension Obligations, Restructuring/Environmental Liabilities... 2. Will this item cost an acquirer of the company something extra when they go to buy it? And is it NOT something that will be repaid out of the company's normal operating cash flows (e.g., Accounts Payable)? If so, ADD it when calculating Enterprise Value! Examples: Debt, Preferred Stock. 3. Is this item NOT an operating asset? In other words, could the company continue to operate even WITHOUT this particular asset and be fine? If so, SUBTRACT it when calculating Enterprise Value! (These items often "save acquirers money" when buying the company.) Examples: Cash, Liquid Investments, Net Operating Losses, Assets from Discontinued Operations or Assets Held for Sale... How Does Each Item In Our Analysis Satisfy This Criteria? ITEMS THAT YOU SUBTRACT: Cash - Non-operating asset, the company doesn't "need" it to run its business beyond a certain low, minimum level. Liquid Investments - Also non-operating, the company has no need to invest in the stock market if it sells normal products/services. Equity Investments - Non-operating, not recorded in this company's revenue/expenses, doesn't "need" it to run the business. Other Non-Core Assets - Typically items that will be sold off or discontinued soon, so they're the very definition of "non-operating." NOLs - Also non-operating since long-term tax savings from these are not required to run the business. ITEMS THAT YOU ADD: Debt - Long-term funding source, and an acquirer has to repay it. Preferred Stock - Long-term funding source, and an acquirer has to repay it. Noncontrolling Interests - Long-term funding source, but this one's mostly for *comparability*... the company has recorded 100% of revenue and expenses from this company, so we want to capture 100% of its value as well (see our dedicated lesson on this one). Unfunded Pension Obligations - They're a long-term funding source! "Work for us now, we'll pay you a bit less, but we'll take care of you when you retire! Really!" To the company, very much like super-long-term debt.... but owed to employees, not outside investors. Plus, an acquirer has to pay for these somehow... Capital Leases - Also a long-term funding source, sort of like debt used to fund PP&E... these leases are used to fund operations and must be repaid. Restructuring & Legal Liabilities - Increases the cost to an acquirer, and they are also "long-term funding" of a sort - "Instead of paying for these expenses right now, we'll take care of them far into the future and reflect that liability." The Bottom-Line The Enterprise Value calculation is always somewhat subjective, and you'll see it done different ways. Everyone agrees on certain items (Cash, Debt, Preferred Stock), but the treatment of others varies by group, firm, industry, etc. As long as you can justify and explain how you calculated it, you'll be fine - even if someone else wants to change it later. To do that, keep in mind the 3 key rules of thumb above. Further Resources http://youtube-breakingintowallstreet-com.s3.amazonaws.com/106-07-VIV-Equity-Value-Enterprise-Value.xlsx http://youtube-breakingintowallstreet-com.s3.amazonaws.com/106-07-VIV-Annual-Financial-Statements-Notes.pdf
Views: 38287 Mergers & Inquisitions / Breaking Into Wall Street
Test your knowledge of comparable companies analysis! The following video covers the chapter 1 questions from the Joshua Rosenbaum Investment Banking book. The multiple choice questions offer a great challenge for any students preparing for their investment banking interviews. Chapter 1 covered topics like; - Finding the right universe of comparable companies using business and financial characteristics - Enterprise and equity value multiples - Treasury stock and if-converted methods for fully diluted shares - Net share settlement method (NSS) - Calendarization of financial data - Adjustments for non-recurring items - Benchmarking and valuation For those who are interested in buying the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl, follow the Amazon link below; https://www.amazon.ca/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
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In this session, we looked at acquisitions through the lens of project analysis, and argued that the same principles apply. We then talked about the differences between NPV & IRR, often overblown, but still there. Finally, we talked about side costs & benefits from projects, a discussion to be continued in the next session. Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfspr19/session14slides.pdf Post Class Test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session14test.pdf Post Class Test Solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session14soln.pdf
Views: 1388 Aswath Damodaran
This class represented a transition from hurdle rates to measuring returns. We started by completing the last pieces of the cost of capital puzzle: coming up with market values for equity (easy for a publicly traded company) and debt (more difficult). We then began our discussion of returns by emphasizing that the bottom line in corporate finance is cash flows, not earnings, that we care about when those cash flows occur and that we try to bring in all side costs and benefits into those cash flows. Defining investments broadly to include everything from acquisitions to big infrastructure investments to changing inventory policy, we set the table for investment analysis by setting up the Rio Disney investment. We will return to flesh out the details in the next session (after the break Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfspr17/session11.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session11test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session11soln.pdf
Views: 5736 Aswath Damodaran
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Views: 54880 Finanzfluss
"Go to www.HowtoBuyaBusiness.coach to Register For Your Free Training. Find out How to Buy Your Perfect Company and How to Structure, Negotiate & Finance Your No Cash Down Deal. Business acquisition process and merger and acquisition training if you are an m&a consultant or a corporation in need of m&a facilitation or dd contact princeton corporate solutions for our full service and turn-key m and a strategies. Finance (Industry), Mergers And Acquisitions (Organization Termination Type), pewdiepie, ÐŸÑ€Ð¾Ñ…Ð¾Ð¶Ð´ÐµÐ½Ð¸Ðµ PewDiePie: Legend of the Brofist [60 FPS]. Small business acquisition process,document about small business acquisition process,download an entire small business acquisition process document onto your computer. Small business acquisition process,small business acquisition process. Pdf document,pdf search for small business acquisition process. Provide expertise, processes, and tools for capturing new business using Boeing Integrated Business Acquisition Process (IBAP). Influencing company investment and taking new products to market using the Boeing Integrated Business Acquisition Process. Q: I need advice for my business on expertise topics and not sure who to approach from the best answers. I now have people to turn to if I need advice for my business. I need advice for my business name, please help. Download What Is Business Acquisition What Does Business Acquisition Mean Busin MP3 3GP MP4 HD. 7 key business acquisition rules. HOW TO BUY A BUSINESS WITH NO MONEY: Learn The Secrets Of Overnight Millionaires. How to Buy a Business With No Money Down (Seller Financing). Business acquisition meaning - business acquisition definition - business acquisition explanation... Welcome to this video on business acquisition strategy. The quick but risky way to grow- merger and acquisition process. 9 steps = merger and acquisition process. The merger and acquisition process. John dearing managing director of capstone appeared on jacobson & katz: inside maine business in april to discuss the mergers and acquisitions process. This tutorial on the mergers and acquisitions process is a chapter from our full corporate finance course: . The mergers and acquisitions process. What does the acquisition process look like? How to apply the acquisition method in a business combinations and business consolidations determine goodwill gain or loss on the acquisition of a subsidiary company by the parent based on the fair value of net assets received includes calculations with accounting journal entries by allen mursau. Accounting for acquisition method in a business consolidation. Welcome to this video partly about the business acquisition process. This is all about finding the right size of business for acquisition. So for all these reasons we stick to the range $500000 to 10 million dollars in annual sales in years with want to been our absolute sweet spot for your business acquisition. Welcome to this video on business acquisition strategy. Welcome to this video on business acquisition strategy. What does the acquisition process look like? What does the acquisition process look like? Best practices in acquisition strategy by dr. A single acquisition refers to one company buying the assets and operations of another company and absorbing what is needed while simply discarding duplicated or unnecessary pieces of the acquired business. What does business acquisition mean? There are many risks related to business acquisition and a number of mergers or acquisition fail ending up inducing higher operating costs. Go to for the recognised as the worldâ€™s most trusted complete business acquisition process... Business acquisition process and merger and acquisition training if you are an m&a consultant or a corporation in need of m&a facilitation or dd contact princeton corporate solutions for our full service and turn-key m and a strategies. Business acquisition process and merger and acquisition tra. What does the acquisition process look like?"
Views: 628 How to Buy a Business
This LBO exit strategy training will cover different ways a private equity firm can exit a leveraged buyout... By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" ... including an M&A deal – a sale to a normal company or to another private equity firm – as well as an initial public offering (IPO), and a recapitalization / perpetual dividend “non-exit.” 2:09 Exits in Real Life: M&A, IPO, and Dividends/Recaps 6:27 Standard M&A Exit in an LBO 7:21 IPO Exit in an LBO 12:44 Dividends / Recapitalization in an LBO 16:42 Recap and Summary Exit Strategies in a Leveraged Buyout / LBO Model There is typically VERY little thought given to the exit in a leveraged buyout (LBO) model – in 99% of models, people just assume a simple exit multiple based on EBITDA, implying that another company or another private equity firm buys the company. But in real life, that doesn’t necessarily happen… sometimes, a portfolio company cannot be sold to another normal company or even to another private equity firm. For example, it might be too big for another company to buy, or it might be in an unfavorable market where there’s little M&A activity. Also, it tends to be harder to do M&A deals in emerging and frontier markets because potential buyers are also smaller and less willing to make big acquisitions. As a result, you need to think about 2 alternative exit strategies: initial public offerings (IPOs) and recapitalizations (recaps), otherwise known as dividends / dividend recaps. The Mechanics of an M&A Deal A normal M&A deal is simple: you simply assume an exit multiple, calculate Enterprise Value based on that, and then back into Equity Value by subtracting Net Debt. Then, you calculate the IRR and multiple to the private equity firm by looking at its initial investment and how much the firm receives back at the end upon exit. There is some uncertainty around the timing of the exit and the multiple, but overall it is a very “clean” process because the firm sells 100% of its stake all at once, to another single firm. Initial Public Offerings in an LBO In an IPO scenario, the PE firm cannot sell its entire stake when the company goes public because it sends a big negative signal to everyone else in the market and new potential investors: if this company is so great, why are you selling your entire stake in it? So instead, the firm has to sell off its holdings over a period of time… perhaps 20% in Year 1, 35% in Year 2, 30% in Year 3, and 15% in Year 4, as in our example. If the share price stays the same, the MoM multiple is the same but the IRR is lower because it takes more time to get the same capital back. But if the share price fluctuates a lot, it could work for the firm or against the firm: a higher share price over time obviously helps them, while a declining share price hurts them. In general, though, the IRR tends to be lower in an IPO because it takes the PE firm more time to sell its holdings; the MoM multiple may be about the same, or it might be higher or lower depending on the share price movement. Dividends / Recapitalizations in an LBO This is not really an “exit strategy” at all: the private equity firm simply holds the company indefinitely and the firm keeps issuing dividends from its excess cash flow to the PE firm. In some cases, the company may take on extra debt to issue these dividends (known as a “dividend recap”). The problem here is that the company can only issue dividends with the cash flow it has available, which is typically far less than its EBITDA. This strategy can work if the company grows very quickly and/or is a “cash cow” business with high margins and high FCF yield, but in general it is very tough to realize a high IRR solely with dividends, simply because it might take years and years just to recoup the initial investment. The MoM multiple, over a long period, might be reasonable, but the IRR would end up being so low that many PE firms would not be interested at all. Conclusion The M&A sale is the preferred strategy in 99% of leveraged buyout scenarios because it tends to produce the highest IRRs and highest MoM multiples, with the least amount of uncertainty. However, in many cases the PE firm will have to use strategies such as an IPO exit if, for example, the company is too big to be acquired; and if it really can’t figure out what to do, dividends / recapitalizations may be used. They are especially common in emerging and frontier markets where the capital markets are smaller and less liquid and where it’s harder to find qualified buyers. Regulatory issues may also prevent these types of companies from going public in larger, developed markets. http://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-07-LBO-Exit-Strategies-Comparison.xlsx http://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-07-LBO-Exit-Strategies.pdf
Views: 22281 Mergers & Inquisitions / Breaking Into Wall Street
Hey Guys, Vikas Vohra - 8888 078 078 Telegram Channel - https://t.me/VikasVohraLaw For more video lectures, visit: http://bit.ly/VikasVohra CS Executive Company Law, CS Executive Lectures, Company Free lectures, company law cs, company law video lectures, cs executive video lectures, company law video classes, cs executive online classes, best lectures for cs executive, company law best lectures, best online classes for cs executive Topics Covered Shares, Types of Shares, Issue of Shares at Premium, Issue of Shares, at Discount, Sweat Equity Shares, DVR Issue, ESOP, Bonus Issue Relevant for: Company Law lectures for CS Executive, CS Professional, CA IPCC, CA Inter, CA Final, CMA Inter, CMA Final, BBA, BCom, MBA, LLB, LLM, and other allied subjects. Social Media Links https://www.facebook.com/csvikasvohra https://www.facebook.com/profile.php?id=100017183944357 https://www.facebook.com/corpbaba/ https://www.instagram.com/vikasvohra/?hl=en For more lectures/video lectures, visit: www.vikasvohra.com; www.onlineshikshak.com CS VIKAS VOHRA Vikas is a Commerce and Law Graduate and a Company Secretary by profession. He has to his credit, few other Certifications and specializations in Corporate and Securities Laws. On the teaching side, he has taught more than 10,000 students. He is also a speaker at various Management Institutes and ICSI on various Corporate matters and Entrepreneurship. In his previous assignments, he worked as an Associate Vice President with LexValueAdd Consulting Private Limited, an Investment Banking firm based out of Mumbai. He has significant hands-on experience in Mergers and Acquisitions, Public Offerings and a consequent listing of the Shares and GDR’s on the Bourses, fundraising and Deal Structuring. Before that he also worked with Kirloskar Brothers Investments Limited & Bajaj Auto Limited wherein, he was deeply involved in various M&A activities. Vikas is presently a Partner at Agrawal Classes, Pune (a leading Institute for CA/CS/CMA Courses). He is a Co-Founder of PapaZapata (Mexican food chain), OnlineShikshak.com (Where Shikshak meets Chatra), GujjuKhakhra (Indian Breads) and also owns a Franchisee of Chaat Bazaar. He enjoys writing poetry and doing meditation in his free time.
Views: 1165 Vikas Vohra, Corporate Baba
In this lesson, you’ll learn what it means to “refinance” commercial real estate loans in development and acquisition deals, why Equity Investors do it, and how it can boost their returns in deals. https://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 1:24 The Short Explanation for Refinancing 4:27 Examples with the Property’s Value Increasing 12:47 Different Types of Lenders and the Downsides of Refinancing 15:32 Recap and Summary Resources: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Real-Estate/Commercial-Real-Estate-Loan-Refinancing-Example.xlsx https://youtube-breakingintowallstreet-com.s3.amazonaws.com/Real-Estate/Commercial-Real-Estate-Loan-Refinancing-Slides.pdf Lesson Outline: A pair of questions that came in the other day: “Can you explain, in layman’s terms, why you often assume that Debt gets refinanced in real estate deals?” “Also, why is the amount of new Debt raised often different from the amount of existing Debt repaid?” SHORT ANSWER: Equity Investors complete refinancings to boost their returns in real estate deals – and because it’s in everyone’s best interest to do so. “Refinancing” means repaying existing Debt – almost all real estate deals involve Debt – by raising new Debt (think of it as “replacing” existing Debt). Refinancing boosts returns for the Equity Investors by reducing the interest expense and letting them earn back some of their initial investment before the exit (sale of the property). There are three main, specific reasons to refinance: Reason #1: Interest rates have fallen, or the property’s credit profile has changed, and the Equity Investors can get lower rates. For example, maybe interest rates have fallen from 5% to 4% – that may seem like a small difference, but since property deals often use 50-70% leverage, lower interest rates could result in a significant increase in cash flow. Reason #2: The property’s value has increased, so by refinancing at the same “Loan to Value” (LTV) Ratio, the sponsor can earn back some of its initial investment early – before the exit. For example, if an investor pays $10 million for a property that generates $600K in Net Operating Income (NOI) in Year 1 (6% Cap Rate) and uses a 70% LTV, that’s $7 million of Debt. By Year 3, the property’s NOI has increased to $650K, and market conditions have stayed about the same, so assuming the same 6% Cap Rate, the property is now worth $650K / 6% = $10.8 million. The New Debt would be worth $10.8 million * 70% = $7.6 million at a 70% LTV now, so the extra $600K in proceeds go to the Equity Investors early. We demonstrate a more complex example of this with a $54 million AUD hotel in Darwin, Australia, acquired at an 8.80% Cap Rate using an 85% LTV. After four years, the forward NOI has increased from $4.7 million to $6.3 million, so it is worth $70.5 million at a 9.00% Cap Rate. We refinance at a 75% LTV, slightly lower, and use a $52.9 million Permanent Loan to repay the $44.4 million of remaining acquisition debt and mezzanine at this point. That $8.5 million “extra” goes to the Equity Investors (it’s a bit less due to the financing fees). Without the refinancing, the 5-year IRR would be 17.9%; with the refinancing, it would be 19.1%. This is a small difference because Cap Rates rise slightly and the LTV drops – but if Cap Rates fall or the LTV stays the same or increases, refinancing could add far more than 1% to the IRR. Reason #3: The terms of the Debt require a refinancing. Different lenders target different risk and potential returns, and Construction and Bridge Loan investors don’t want to stay on board once a property is built or stabilized. So, these lenders often require property owners to refinance under certain conditions or when there’s a “change of control” (someone else buys the property). Downsides to Refinancing The Equity Investors might not refinance if the property’s value has fallen or if interest rates have risen. Refinancing does present some risk because it could increase the default risk, especially if the Interest Coverage Ratio or Debt Service Coverage Ratio fall. Finally, it can sometimes be tricky to estimate the correct property value and use it in these formulas, especially if the property has not yet stabilized and will take time to do so.
Choosing between raising money for a company or a secondary round giving liquidity to founders and investors or selling a company is a hard decision to make. A Dual-Track process of talking to potential investors and acquirors in parallel can optimize a transaction value and probability of success. Many aspects of a fundraising process are similar to those of a sale process: confidential information memorandum, detailed financial model, due-diligence materials and the use of an investment bank (fundraising advisor/ M&A advisor). The possibility of obtaining liquidity in a single transaction at a higher valuation generally makes a dual-track process appealing to shareholders in a company and can increase significantly the likelihood of a sale. Paul's session will address the key issues using both his insight from over 13 years advising game companies as an investment banker but also as an investor in game companies in the past 3 years. Delivered at Casual Connect Europe, February 2013. Download Slides: https://s3.amazonaws.com/Casual_Connect_Europe_2013_Presentations/Paul_Heydon_CCEurope_2013.pdf
Views: 620 CasualConnect
In this Excel tutorial, you'll learn how to clean up data using the TRIM, PROPER, and Text to Columns functions (and more). By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Why Do You Need to "Clean Up" Data? Often you've pasted in data from websites or PDFs or other sources, and you get lots of ugly formatting and other problems, such as extra spaces, non-printable characters, etc. Also, data may be grouped together in cases where it's better to be separated (as in the address data here). This happens all the time on the job, and cleaning up the data makes your life easier and makes it 100x easier to manipulate and analyze it. You COULD go in and manually fix it, but you might want to jump off the roof of a tall building after doing that. Instead, we'll use these functions to automate the process: Text Manipulation Formulas (Across all PC and Mac versions): =TRIM Remove extra spaces =PROPER Makes first letter in each word uppercase =CLEAN Removes all non-printable characters from text =UPPER Capitalizes all letters in all words =LOWER Turns all letters in all words to lowercase Alt + A + E / Alt + D + E Text to Columns Ctrl + C Copy (CMD + C on the Mac) Alt + E + S + F Paste Formulas (Ctrl + CMD + V, CMD + F on the Mac) Alt + E + S + V Paste Values (Ctrl + CMD + V, CMD + V on the Mac) Alt + O + C + A Auto-Fit Column Width Alt + H + C + A Center Text How to Clean Up This Data in 5 Steps: 1. First, remove all the extra spaces and capitalize each individual word with TRIM and PROPER - could throw in CLEAN for good measure. 2. Then, separate everything into separate columns with the "Text to Column" function. May have to apply this several times if different characters separate each type of data (commas vs. spaces). 3. Fix anything that still requires fixing in these separate columns - capitalize all state abbreviations, make sure ZIP codes with trailing 0 still work properly (change format to text), and so on. May also need to apply additional TRIMs here. Must be really careful with copying and pasting data as values - have to do that to avoid errors! 4. Add column headers at the top, based on copy and paste of original header. 5. Delete extra rows/columns and shift everything over or up properly. What Next? Go apply this to real data that you're working with... depends a bit on the specific problems with the data, but you can never go wrong with TRIM, PROPER, and Text to Columns! If you're more advanced, you could try automating this entire process with VBA and macros, but that also gets complicated and may not save you much time since you need to know what the data looks like before writing code for that.
Views: 60541 Mergers & Inquisitions / Breaking Into Wall Street
http://bit.ly/TheInvestmentBankingCourse The Investment Banking Course To Learn How To Start A Career In Investment Banking Or Private Equity. The Complete Investment Banking Course 2016 The #1 Course to Land a Job in Investment Banking. IPOs, Bonds , M&A, Trading, LBOs, Valuation: Everything is included! The Complete Investment Banking Course 2016 is the most hands-on, interactive and dynamic course you will find online. The course starts off by introducing you to the four main areas of investment banking – Capital Markets, Advisory, Trading and Brokerage, and Asset Management. Then we continue by digging deeper into each of these lines of business. You will learn the subtleties of Initial Public Offerings, Seasoned Equity Offerings, Private Placements, Bond Issuances, Loan Syndications, Securitizations, Mergers & Acquisitions, Restructurings, Trading instruments, Asset management vehicles and more. Pretty much everything that can come up in an investment banking interview. However, the best part is that you will learn different valuation techniques like the ones used by Goldman Sachs, Morgan Stanley and J.P. Morgan. We will show you how to carry out a Discounted Cash Flow valuation, a multiples valuation, and a Leveraged buyout valuation. You will estimate a company’s cost of capital and future cash flows. Don’t worry if any of these sound unfamiliar right now; everything is shown in the course - Step-by-step - with no steps skipped. This is a one-stop-shop, providing everything that you need to land a job on Wall Street. What makes this course different from the rest of the Finance courses out there? High quality of production – Full HD video and animations (This isn’t a collection of boring lectures!) Knowledgeable instructor (worked on several M&A transactions) Complete training – we will cover all major topics and skills you need to land a job in Investment Banking Extensive Case Studies that will help you reinforce everything you’ve learned An abundance of materials – PDF & Excel files, Infographics, Course notes; you name it! Everything is inside! Excellent support: If you don’t understand a concept or you simply want to drop us a line, you’ll receive an answer within 1 business day Dynamic: We don’t want to waste your time! The instructor keeps up a very good pace throughout the whole course. Bonus prizes: Upon completion of 50% and then 100% of the course, you will receive two bonus gifts Why should you consider a career as an Investment Banker? Salary. Hello? Investment Bankers are some of the best paid professionals in the world Promotions. Investment Bankers acquire valuable technical skills, which makes them the leading candidates for senior roles within industrial companies and Private Equity firms Growth. This isn’t a boring job. Every day you will face different challenges that will challenge your existing skills To Take The Course Please Visit: http://bit.ly/TheInvestmentBankingCourse
Views: 947 Renata Diva
Hey Guys, Vikas Vohra - 8888 078 078 Telegram Channel - https://t.me/VikasVohraLaw For more video lectures, visit: http://bit.ly/VikasVohra Topics Covered: Sale, agreement to sell, bailment, hire purchase goods, perishable goods, condition, warranty, caveat emptor, delivery of goods, rights of an unpaid seller, auction sale, ascertained goods, unascertained goods, future goods, existing goods, Relevant for: Company Law lectures for CS Executive, CS Professional, CA IPCC, CA Inter, CA Final, CMA Inter, CMA Final, BBA, BCom, MBA, LLB, LLM, and other allied subjects. Social Media Links https://www.facebook.com/csvikasvohra https://www.facebook.com/profile.php?... https://www.facebook.com/corpbaba/ https://www.instagram.com/vikasvohra/... For more lectures/video lectures, visit: www.vikasvohra.com; www.onlineshikshak.com Sale, agreement to sell, bailment, hire purchase goods, perishable goods, condition, warranty, caveat emptor, delivery of goods, rights of an unpaid seller, auction sale, ascertained goods, unascertained goods, future goods, existing goods, CS VIKAS VOHRA Vikas is a Commerce and Law Graduate and a Company Secretary by profession. He has to his credit, few other Certifications and specializations in Corporate and Securities Laws. On the teaching side, he has taught more than 10,000 students. He is also a speaker at various Management Institutes and ICSI on various Corporate matters and Entrepreneurship. In his previous assignments, he worked as an Associate Vice President with LexValueAdd Consulting Private Limited, an Investment Banking firm based out of Mumbai. He has significant hands-on experience in Mergers and Acquisitions, Public Offerings and a consequent listing of the Shares and GDR’s on the Bourses, fundraising and Deal Structuring. Before that he also worked with Kirloskar Brothers Investments Limited & Bajaj Auto Limited wherein, he was deeply involved in various M&A activities. Vikas is presently a Partner at Agrawal Classes, Pune (a leading Institute for CA/CS/CMA Courses). He is a Co-Founder of PapaZapata (Mexican food chain), OnlineShikshak.com (Where Shikshak meets Chatra), GujjuKhakhra (Indian Breads) and also owns a Franchisee of Chaat Bazaar. He enjoys writing poetry and doing meditation in his free time.
Views: 587 Vikas Vohra, Corporate Baba
In this tutorial, you'll learn about the most common LBO modeling-related questions and some tricks and rules of thumb you can use to approximate the IRR and solve for assumptions like the purchase price and EBITDA growth in leveraged buyouts. Table of Contents: 2:36 Question #1: LBO Model Walkthrough 5:34 Question #2: Ideal LBO Candidates 8:09 Question #3: How to Approximate IRR 11:46 Question #4: How to Solve for EBITDA or the Purchase Price 13:58 Question #5: How to Approximate the IRR in an IPO Exit 16:03 Recap, Summary, and Key Principles Lesson Outline: Will you get LBO-related questions in interviews? Yes, possibly, but full case studies are unlikely unless you're interviewing for PE roles or more advanced IB roles. Interviewers now ask trickier questions about the fundamentals, they ask progressions of questions on the same topic or scenario, and they're more likely to give you *simple* cases and numerical tests rather than complex ones. A typical progression for LBO models might be as follows: Question #1: LBO Model Walkthrough "In a leveraged buyout, a PE firm acquires a company using a combination of Debt and Equity, operates it for several years, and then sells it; the math works because leverage amplifies returns; the PE firm earns a higher return if the deal does well because it uses less of its own money upfront." In Step 1, you make assumptions for the Purchase Price, Debt and Equity, Interest Rate on Debt, and Revenue Growth and Margins. In Step 2, you create a Sources & Uses schedule to calculate the Investor Equity paid by the PE firm. In Step 3, you adjust the Balance Sheet for the effects of the deal, such as the new Debt, Equity, and Goodwill. In Step 4, you project the company's statements, or at least its cash flow, and determine how much Debt it repays each year. Finally, in Step 5, you make assumptions about the exit, usually using an EBITDA multiple, and calculate the MoM multiple and IRR. Question #2: Ideal LBO Candidates Price is the most important factor because almost any deal can work at the right price – but if the price is too high, the chances of failure increase substantially. Beyond that, stable and predictable cash flows are important, there shouldn't be a huge need for ongoing CapEx or other big investments, and there should be a realistic path to exit, with returns driven by EBITDA growth and Debt paydown instead of multiple expansion. Question #3: Approximating IRR "A PE firm acquires a $100 million EBITDA company for a 10x multiple using 60% Debt. The company's EBITDA grows to $150 million by Year 5, but the exit multiple drops to 9x. The company repays $250 million of Debt and generates no extra Cash. What's the IRR?" Initial Investor Equity = $100 million * 10 * 40% = $400 million Exit Enterprise Value = $150 million * 9 = $1,350 million Debt Remaining Upon Exit = $600 million – $250 million = $350 million Exit Equity Proceeds = $1,350 million – $350 million = $1 billion IRR: 2.5x multiple over 5 years; 2x = 15% and 3x = 25%, so it's ~20%. Question #4: Back-Solving for Assumptions "You buy a $100 EBITDA business for a 10x multiple, and you believe that you can sell it again in 5 years for 10x EBITDA. You use 5x Debt / EBITDA to fund the deal, and the company repays 50% of that Debt over 5 years, generating no extra Cash. How much EBITDA growth do you need to realize a 20% IRR?" Initial Investor Equity = $100 * 10 * 50% = $500 20% IRR Over 5 Years = ~2.5x multiple (2x = ~15% and 3x = ~25%) Exit Equity Proceeds = $500 * 2.5 = $1,250 Remaining Debt = $250, so Exit Enterprise Value = $1,500 Required EBITDA = $150, since $1,500 / 10 = $150 Question #5: Approximating IRR in an IPO Exit "A PE firm acquires a $200 EBITDA company for an 8x multiple using 50% Debt. The company's EBITDA increases to $240 in 3 years, and it repays ALL the Debt. The PE firm takes it public and sells off its stake evenly over 3 years at a 10x multiple. What's the IRR?" Initial Investor Equity = $200 * 8 * 50% = $800 Exit Enterprise Value = Exit Equity Proceeds = $240 * 10 = $2,400 "Average Year" to Exit = 1/3 * 3 + 1/3 * 4 + 1/3 * 5 = 4 years IRR: 3x over 3 years = ~45%, and 3x over 5 years = ~25% Approximate IRR: ~35% (This one's a bit off – see Excel.) RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-13-LBO-Model-Interview-Questions-Slides.pdf
Views: 50078 Mergers & Inquisitions / Breaking Into Wall Street
How to value acquisitions paid in stock. Demonstrated on Facebook's acquisition of WhatsApp. The Value of Share Buybacks Pedersen, M.E.H., Hvass Laboratories Report HL-1201, 2012 http://www.hvass-labs.org/people/magnus/publications/pedersen2012share-buyback.pdf Other videos in this series: https://www.youtube.com/playlist?list=PL9Hr9sNUjfsk2b8Y-MFU6W_rnCgwN51Ef
Views: 109 Hvass Laboratories
Hey Guys, Vikas Vohra - 8888 078 078 Telegram Channel - https://t.me/VikasVohraLaw For more video lectures, visit: http://bit.ly/VikasVohra CS Executive Company Law, CS Executive Lectures, Company Free lectures, company law cs, company law video lectures, cs executive video lectures, company law video classes, cs executive online classes, best lectures for cs executive, company law best lectures, best online classes for cs executive Topics Covered: Director, Types of directors, appointment of a director, reappointment of a director, additional director, alternate director, casual vacancy director, small shareholders director, independent director, managing director, whole time director, resignation of a director, removal of a director, disqualifications of a director Relevant for: Company Law lectures for CS Executive, CS Professional, CA IPCC, CA Inter, CA Final, CMA Inter, CMA Final, BBA, BCom, MBA, LLB, LLM, and other allied subjects. Social Media Links https://www.facebook.com/csvikasvohra https://www.facebook.com/profile.php?... https://www.facebook.com/corpbaba/ https://www.instagram.com/vikasvohra/... For more lectures/video lectures, visit: www.vikasvohra.com; www.onlineshikshak.com CS VIKAS VOHRA Vikas is a Commerce and Law Graduate and a Company Secretary by profession. He has to his credit, few other Certifications and specializations in Corporate and Securities Laws. On the teaching side, he has taught more than 10,000 students. He is also a speaker at various Management Institutes and ICSI on various Corporate matters and Entrepreneurship. In his previous assignments, he worked as an Associate Vice President with LexValueAdd Consulting Private Limited, an Investment Banking firm based out of Mumbai. He has significant hands-on experience in Mergers and Acquisitions, Public Offerings and a consequent listing of the Shares and GDR’s on the Bourses, fundraising and Deal Structuring. Before that he also worked with Kirloskar Brothers Investments Limited & Bajaj Auto Limited wherein, he was deeply involved in various M&A activities. Vikas is presently a Partner at Agrawal Classes, Pune (a leading Institute for CA/CS/CMA Courses). He is a Co-Founder of PapaZapata (Mexican food chain), OnlineShikshak.com (Where Shikshak meets Chatra), GujjuKhakhra (Indian Breads) and also owns a Franchisee of Chaat Bazaar. He enjoys writing poetry and doing meditation in his free time.
Views: 316 Vikas Vohra, Corporate Baba
In this lesson, you'll learn how to SIMPLIFY and consolidate the financial statements when you're building 3-statement projection models for companies. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Chipotle's Statements: http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-12-Chipotle-Financial-Statements.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-12-Chipotle-Financial-Statements.xlsx Practice Exercise: "Before": http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-12-Practice-Consolidation-Exercise-Before.xlsx "After": http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-12-Practice-Consolidation-Exercise-After.xlsx Table of Contents: 2:12 The Process of Simplifying and Consolidating the Statements 7:39 Walk-Through for Chipotle's Statements 8:47 Balance Sheet - Assets Side 16:19 Balance Sheet - L&E Side 21:31 Smaller Items and Random Problems 24:21 Recap and Summary Why Does This Matter? Tons of people jump into projecting the financial statements without ever THINKING about what they're doing! That creates 2 problems: Problem #1: It will be MUCH tougher to project and link items later on, unless you simplify and consolidate the financial statements before doing anything else first. Problem #2: "Help, my Balance Sheet doesn't balance!" But the problem is that you STARTED OUT THE WRONG WAY! The Balance Sheet will be exceptionally difficult to balance unless you simplify the statements and ensure that you know how the items are linked before you start projecting anything. Goal: Each item on the Balance Sheet should have a corresponding item on the Cash Flow Statement, and vice versa. If you CANNOT establish this link, then you need to add in appropriate items in some cases, and consolidate items in other cases. To illustrate this, we'll go through an example for Chipotle, a chain of Mexican restaurants based in the US, and you'll learn how to simplify and consolidate their financial statements. Rules of Thumb for Consolidating and Simplifying the Financial Statements: 1. Hard-code ALL the historical numbers except for possibly the BS/CFS cash (and that one is only to check that you entered the data correctly). Trust us, the historical statements will NEVER link properly no matter what you do - don't even try! It's because companies group items differently from how they're shown in their public filings. 2. Keep the Income Statement largely as-is for 99% of companies - maybe separate out Gains / (Losses) or Impairments if those are not shown separately. 3. Balance Sheet and Cash Flow Statement - A bit trickier to describe, but here's the basic idea: IFRS / Direct Method - If a company uses the Direct Method for its Cash Flow Statement, or otherwise starts it with something other than Net Income, you'll have to adjust it by following the reconciliation in its filings. This will make your life much easier later on! Not relevant in this example since Chipotle uses the Indirect Method, and so its CFS starts with Net Income. a) First, check the BS against the CFS and try to figure out which item should link where. For example, Receivables on the BS will always link to the Change in Receivables on the CFS… but you run into issues with lots of smaller items that don't have apparent links elsewhere. Examples Here: Current Deferred Tax Assets, Accrued Payroll and Benefits. b) When this happens, consolidate these items and make sure there's always a corresponding entry on the other statement. Here, we consolidated Current Deferred Tax Assets into "Prepaid Expenses & Other Current Assets" and consolidated "Accrued Payroll and Benefits" into "Accrued Liabilities." c) Make sure the location of different items makes sense - on IFRS Cash Flow Statements, you'll often see items like dividends in the CFO section, or investment-related items in the CFF section, so feel free to move those around.
Views: 35442 Mergers & Inquisitions / Breaking Into Wall Street
You'll learn what "Free Cash Flow" (FCF) means, why it's such an important metric when analyzing and valuing companies. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" You'll also learn how to interpret positive vs. negative FCF, and what different numbers over time mean -- using a comparison between Wal-Mart, Amazon, and Salesforce as our example. Table of Contents: 0:54 What Free Cash Flow (FCF) is and Why It's Important 2:26 What Positive FCF Tells You, and What to Do With It 3:56 What Negative FCF Tells You, and What to Do With It 4:38 Why You Exclude Most Investing and Financing Activities in the FCF Calculation 7:55 How to Use and Interpret FCF When Analyzing Companies 11:58 Wal-Mart vs. Amazon vs. Salesforce: Free Cash Flow Across Sectors 19:33 Recap and Summary What is Free Cash Flow? Normally it's defined as Cash Flow from Operations minus Capital Expenditures. Tells you the company's DISCRETIONARY cash flow - after paying for expenses and working capital requirements like inventory and capital expenditures, how much cash flow can it put to use for other purposes? If the company generates a lot of Free Cash Flow, it has many options: hire more employees, spend more on working capital, invest in CapEx, invest in other securities, repay debt, issue dividends or repurchase shares, or even acquire other companies. If FCF is negative, you need to dig in and see if it's a one-time issue or recurring problem, and then figure out why: Are sales declining? Are expenses too high? Is the company spending too much on CapEx? If FCF is consistently negative, the company might have to raise debt or equity eventually, or it might have to restructure itself or cut costs in some other way. Why Do You Exclude Most Investing and Financing Activities Other Than CapEx? Because all other activities are, for the most part, "optional" and non-recurring. A normal company does not NEED to buy stocks or issue dividends or repurchase shares... those are all optional uses of cash. All it NEEDS to do to keep its business running is sell products to customers, pay for expenses, and keep investing in longer-term assets such as buildings and equipment (PP&E). Debt repayment and interest expense are "borderline" because some variations of Free Cash Flow will include them, others will exclude them, and some will include interest expense but not debt principal repayment. How Do You Use Free Cash Flow? It's used in a DCF (or at least, a variation of it) to value a company; it's also used in a leveraged buyout (LBO) model to determine how much debt a company can repay. And you can calculate it on a standalone basis for use when comparing different companies. The key is to DIG IN and see why Free Cash Flow is changing the way it is - Organic sales growth? Artificial cost-cutting? Accounting gimmicks? Different working capital policies? IDEALLY, FCF will be increasing because of higher units sales and/or higher market share, and/or higher margins due to economies of scale. Less Good: FCF is growing due to cost-cutting, CapEx slashing, or FCF is growing in spite of falling sales and profits... because of a company playing games with Working Capital, non-core activities, or CapEx spending. Wal-Mart vs. Amazon vs. Salesforce Comparison Main takeaway here is that Wal-Mart's FCF is all over the place, but Cash Flow from Operations is MOSTLY growing, so that appears to be driven by the also growing organic sales. The company is doing some odd things with CapEx and Working Capital, which led to fluctuations in FCF - not exactly "bad" or "good," just neutral and requires more research. With Amazon, they've increased CapEx spending massively in the past 2 years so that has pushed down CapEx. CFO is growing, driven by organic revenue growth (no "games" with Working Capital), but it's very difficult to assess whether all that CapEx spending will pay off in the long-term. With Salesforce, FCF is definitely growing organically (Revenue growth leads directly to CFO growth, and CapEx varies a bit but not as much as with Amazon), but the company is also spending a ton on acquisitions... will it continue? If CapEx as a % of revenue stays low, it will most likely continue to spend on acquisitions - unlikely to issue dividends, repurchase shares, etc. since it's a growth company. Further Resources http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-10-Free-Cash-Flow.xlsx http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-10-Walmart-Financial-Statements.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-10-Amazon-Financial-Statements.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/105-10-Salesforce-Financial-Statements.pdf
Views: 145844 Mergers & Inquisitions / Breaking Into Wall Street
The Book on Mergers and Acquisitions by corporate consultant, lecturer and 5 time bestselling author James Scott. This is a step by step how to guide that should be in the arsenal of every CEO and senior executive. This valuable resource walks the reader through the due diligence stages of a real life M & A in a 'How To' manner and without the complicated industry technical jargon. Whether a company is public or private there are few methods of rapid expansion that can rival a powerful Mergers and Acquisitions campaign. M&A is the lifeblood of companies seeking globalization and diversified channels of distribution. This book offers easy to follow insight into the identification, due diligence and facilitation of a prototypical merger or acquisition. This handbook is a 'Must Have' for all entrepreneurs, C- level executives and those who want to increase their knowledge of the inner workings of expedited corporate expansion. The Book on Mergers and Acquisitions is published by New Renaissance Corporation and Available in Paperback, Kindle and Audiobook versions. Visit newrenassaincecorporateion.com for more information about out other executive training manuals, public speaking engagements or consulting services.
Views: 275 New Renaissance Corporation