The Banking and Corporate Finance Training Specialist

Mergers & Acquisitions

This course is presented in Cairo on:

15-18 October 2017

Course Overview

This four day M&A course covers all aspects of buying, selling, valuing private companies and management buy-outs. The first day of this mergers & acquisitions course covers creating shareholder value through the pursuit of a successful M + A strategy has been shown to be a far from risk-free activity. Buyers overpaying or using inappropriate financing methods can lead to destruction of value and in some cases financial distress. The second day of this mergers & acquisitions course covers the topics of the financial ratios used in comparable company valuation, creative accounting, the cost of capital, forecasting and discounting free cash flow. Exercises include the use of an Excel spreadsheet as input to valuing a business and, accordingly, attendees are requested to bring a laptop to the course. The third day of this mergers & acquisitions course covers the practical steps that are required to plan, negotiate, and close a successful sale. Valuing the business to be sold and the effective presentation of the commercial attractions of the business are key elements, as are choosing the appropriate advisers and running a competitive auction. The fourth day of this mergers & acquisitions course covers the principles and practicalities involved in arranging and negotiating a management buyout. In addition to the legal issues to be addressed, the use of bank debt and other financial instruments is examined in the context of developing a workable structure for the deal.

Course Overview

Course Content

Day 1 The Drivers of Growth Shareholder value The company life cycle

The importance of directors recognising the value curve Risk and return

Relating risk to the life cycle phase of the company / target Product market growth and decline

Evaluating niches, substitutes, value in innovation REVIEW: Comparison and contrast of the lifecycle of three different companies, highlighting how success or failure with acquisitions has determined their fate

Hewlett Packard Eastman Kodak Microsoft

Growth through Acquisition Assessing the alternatives

Investment JV Acquisition

DISCUSION: Advantages and disadvantages of each approach

Course Content

Determining the acquisition Market objectives

Consolidating a fragmented market Building the value proposition

Management issues Assessing cultural fit

Price parameters Knowledge of comparative deals

Opportunity cost Is it a “now or never” deal

REVIEW: The Ansoff Matrix, a handy way to categorise potential risks in acquisition strategies Pitfalls to avoid

Realism of synergies Risks of prediction, cost and achievement

Accounting standards Who is the auditor, what principles are followed

Judging forecasts Scepticism rules

Commercial factors Target’s history Recurring revenue Intellectual property Customer list

CASE STUDY: Reviewing company information to arrive at a value, taking into account qualitative and strategic factors

The Acquisition Process Establishing acquisition criteria

Target size and affordability Potential synergies Market / competitor impact Regulatory factors Shareholder impact

Due Diligence Investigation prior to offer

Public sources Private sources

Verification Contracts Accounts Pensions Employee disputes Litigation

CASE STUDY: Reviewing summary information on a company to determine which areas need investigation and who should have responsibility for the task

Structuring the deal Earn-out / deferred consideration Non-compete undertakings Warranties and indemnities Disclosure letters

Acquisition Integration Success / failure factors The importance of the integration team Earn outs and accounting issues Incentivising key managers Establishing clear reporting lines Day 2 Valuation Principles Value to whom? Price and intrinsic value The risk / return trade off Strategic risk

The Accounting Approach Accounting measures of performance and value Problems of the accounting approach

Are profits relevant? GAAP vs IFRS

Creative accounting How to find it Recent examples

Review: Was the near collapse of Quindell inevitable? Review: Olam Corporation’s accounting principles

Accounting Valuation Metrics Asset and net asset valuations Dividend-based models

Dividend yield Dividend discounting

Application and drawbacks of dividend models Earnings-based

Price / earnings ratios P/E strengths and weaknesses PEG ratios Enterprise value

Exercise: Valuation of a business using different metrics Comparable Company Valuation Issues

Is the comparability achievable? Accounting principles Averages, medians, outlines Listed vs private

Sustainability of earnings Business model flexibility

Exercise: Project Oxford, using comparable company techniques to value a company for acquisition

Course Content

Calculating the Cost of Capital Assessing the cost of debt Calculating the cost of equity

The risk free rate Equity premium Beta

The weighted average cost of capital The flaws in the capital asset pricing model Alternative approaches

Exercise: Calculating the cost of equity and the weighted average cost of capital

The Cash Flow Approach to Valuation The time value of money Calculating the discount rate Forecasting free cash flow

Calculating FCF Identifying value drivers

Terminal value

Exercise: Discounting free cash flow to arrive at a value per share

Exercise: Project Media. Using an Excel spreadsheet and given assumptions to arrive at a value of a company that is an acquisition target Project Media II. Varying inputs, in particular the debt / equity mix of the acquisition financing, to consider the maximum price that could be paid for the target

Day 3 Overview of the Process Motives and objectives of the vendor Which outcome is preferred

Cash only “sale with honour” Management buyout IPO

Timescale

Preparing the Company for sale optimising the operations

removing skeletons, resolving related party conflicts resolving accounting / audit issues

tightening up provisions, write offs, stock obsolescence clearing legal points

employee issues customer / supplier disputes

choosing advisers tax considerations

the vendor’s position company PAYE, corporation tax

Quiz: What are the top ten objective of a vendor

Course Content

Assessing the value of the business Other factors

IPR Market share Customer base Niche products Strategic value to a buyer

Exercise: Calculating the value of a business using different metrics Initiating the Process Choosing advisers

Investment bank Merger brokers Accountants Other

Exercise: Reviewing the terms of a mandate letter. Attendees are given a draft to edit and criticise Agreeing the mandate

Fees Retainer, success, no go

Exclusions Companies and territories

Time limits Indemnities

Preparing key documents Information memorandum Support material

Confidentiality undertakings, product information Due diligence pack Reasons for, use of vital data rooms

Management preparation Confidentiality Conflicts of interest The “sale team” Presentation material

The Sale Process The cost / risk / timescale issues in

A trade sale Buyout IPO

Trade sale approaches Public auction Private auction Bilateral negotiation

Organising an auction Identifying the purchasers

Tiering prospects into probables, possibles, maybe Defining the deadlines

The importance of realism Contact and confidentiality

Dealing with large company buyers Judging the offers

Will a “no price” offer work? Conducting the second stage discussions

Company and management visits Preferred bidder and exclusivity

How long for exclusivity?

CASE STUDY: Reviewing an information memorandum on a company sale to assess: the value of the business, the most likely buyers Sealing the deal

Earn-outs Bridging the valuation gap

Warranties, disclosure letter Buyer / vendor conflict

Time limits, caps Completion accounts Comfort letters

Alternative outcomes IPO, timescale MBO, management conflicts Post “exit” lock-in Ongoing relationship

Day 4 The Growth of Private Equity and Leveraged Buyouts Academic rationale for the use of leverage

Modigliani/Miller theory Michael Milken’s research

Growth of shareholder activism Reviving under performers

Changes in company law The development of the European high yield bond and securitisation markets

The Principles of Leveraged Finance The use of debt to drive equity values

Cash flow management Reducing debt to drive equity value

Operational improvements Building “need to have”

Incentivisation of management Getting rich together

Cash-capture clauses Exercise: Good or Bad LBO? Discussion of recent transactions to see which ones the attendees would do, and what lessons can be learned about elements of success or failure

Structuring the transaction

Target IRR Assessing the return appropriate to the risk

Assessing debt capacity Forecasting future cash generation

Senior / mezzanine debt mix Judging asset values

Forecasting exit values Consideration of non-bank finance

High-yield bonds Terms and size of issue

Second lien debt Too much debt?

PIK finance Saint or sinner?

Vendor loan notes Making the deal look good

Case Study: Based on information provided attendees are tasked with structuring the finance for an MBO. Answers are discussed to identify the critical elements in the financing Legal elements

Warranties and indemnities Investor protection

New Memo & Arts Incorporating P.E. control elements

Tag along and drag along Control of the exit

Veto rights for private equity Control of management

Management Jensen and Meckling agency theory

Why buyouts work The envy ratio

Management incentivisation Agreeing the ratchet

Carrot and stick Good leaver / bad leaver provisions

Covering under performance

Exercise: Agreeing the terms of the envy ratio Identifying and Closing a Good Transaction Ideal company characteristics

The three golden rules MBO / MBI

Assessing management strength Meeting vendors’ expectations

Structuring the deal Avoiding conflicts of interest

Recognising the risks of multi-layered financing

http://redcliffetraining.co.uk enquiries@redcliffetraining.co.uk

+44 (0)20 7387 4484

Due diligence Investigation and verification

Tie-in with contract terms Structuring the debt appropriate to the business Discussion: How to finance the acquisition of Manchester United. The Man U accounts are reviewed with the object of deciding how to finance its acquisition. Answers are compared to the actual result.

Exit Control by P.E. house IPO Second round financing Trade sale The “living dead”

9:30-17:00

Cairo

£2,400

Discounts available for multiple participants:

3-4 participants: 15% discount per participant 5-6 participants: 20% discount per participant 7-8 participants: 25% discount per participant

9 or more participants: 30% discount per participant

Delivering this course in-house for you to a number of participants could be very cost effective.