LBO, valuation and merger modelling course – 3 days

Day one - merger modelling starting point

• Merger model build up: the starting point
  • Modelling integrated financial statements
  • Model structure
  • Key forecast ratios
  • Sourcing and cleaning historic data
  • What makes a good model?
  • Do we really need integrated financial statements in M&A modelling?

Modelling - integrating financial statements: participants complete a partially-developed financial model for the case study which integrates P&L, balance sheet and cash flow.  This model is used to analyse an acquisition by the business

• Modelling stand-alone valuation
  • Overview of valuation methodologies
  • What do investment banks do?
  • What methodologies could we use?
  • How should we define firm value? Equity vs. enterprise value
  • Calculating free cash flow before financing
  • Understanding and calculating WACC
  • Discussion – calculating WACC
  • Conducting a DCF valuation

Modelling - valuation: participants calculate the cost of capital and complete a DCF valuation for the acquirer

• Financing acquisitions: debt structuring
  • Clear, simple and concise explanation of different debt instruments
  • Senior debt
  • High-yield debt
  • Mezzanine
  • Payment-in-Kind
  • Understanding the nature of different financial instruments and risk profiles
  • Modelling waterfall structures
  • Estimating and optimising debt capacity

Modelling – debt structure: participants develop a debt structure for the case study and start to flex the structure within given constraints.  How much debt could the business support?  How big a target could it contemplate acquiring? What impact does changing the debt structure have on debt capacity?

Day two - modelling a new deal; merger modelling case study

• Developing a new deal structure – sources & uses of funds
  • Developing a “first cut” debt structure
  • Calculating refinancing needs
  • The role of working capital and extra cap ex requirements
  • Typical financing and transaction fees
  • Determining the equity gap

Modelling - delegates develop their own deal structure for a transaction conducted by the case business

• Acquisition modelling – consolidating accounts
  • Key adjustments
  • Working from the post-acquisition balance sheet
  • How to model and consolidate accounts
  • Modelling pro-forma accounts post acquisition

Modelling – consolidated accounts: participants incorporate the new deal structure into their model and analyse its impact

• Merger modelling case study
  • Completing a merger model
  • Getting to DCF valuation for the combined business
  • Valuing operating synergies
  • Valuing financing synergies
  • Analysing the results
  • Sense-checking the output
  • Drawing the right conclusion

Modelling – post acquisition valuation: participants complete a merger model for a case business after it has completed its acquisition

Day three - Merger vs. LBO modelling

• Making money in private equity
  • How private equity works
  • How investors make money
  • Drivers on gains
  • The rationale for leveraged finance
  • Review of the market for private equity
  • Private equity fundamentals
  • How private equity players make their money
  • Private equity life cycle
  • Jargon-busting

• Financing alternatives: equity
  • The nature of equity instruments
  • The different risks and rewards accruing to different parties
  • The impact of loan stock & preference shares
  • Iterating to optimise rewards to key participants
  • Key drivers for equity investors
  • Exits: the good, the bad & the ugly

Exercise - the choices for exit – a real case study: you are a private equity firm’s representative on the board of an investee company.  The business has grown to the point where exit is a possibility and management are still ambitious for the business. Which exit route are you going to recommend to the board?

• Completing the analysis: repaying debt and building value
  • This session will take much of the third day and will also allow some time to catch up or cover in more detail issues arising out of other parts of the course
  • Iterating around value
  • Rewards to the various parties (institutional equity, management, debt)

Modelling - finalising a buy out model: participants modify their model, providing an opportunity to understand the likely impact of key adjustments to assumptions and analyse the risks and opportunities the transaction will face.  Participants model returns to the various parties and iterate to optimise returns.  At the end of this session participants will have a simple and working buy out model that is structured clearly

• Course conclusion: best practice in transaction analysis
  • Participants who have improved their understanding of and have had experience of modelling a merger and leveraged acquisition/ LBO
  • Simple and clear reference Excel models - providing participants with a platform for future internal modelling efforts and aiding decision making
  • Participants who, at the end of the course, understand the drivers on transactions and how transactions can be modified to suit the various parties.

Enquire about an in-house merger modelling course

Our merger modelling course feedback is consistently high. If you have 4-5 staff who are interested in a merger modelling course, in-house training will prove cost-effective for your company. To enquire about an in-house merger modelling course for a small group of your firm's employees, please use FTA's company contact details at the top right.

Book the merger modelling course

This course is next running March 2012. To book on the merger modelling program please click on the red "book course" button below.

Other Excel financial modelling course training

For full details of our Excel training program, please see our financial modelling courses.