Module 1: core accounting concepts – ½ day
- Session 1: key P&L items
Exercise: review of a real P&L statement
- What’s the difference between the main line items?
- What’s confusing there?
- How does this impact on real deals?
- Why do corporate finance people like EBITDA?
- Where on the P&L would a seller like an earnout to link to?
- What’s the potential drafting impact?
Note, during each section of this module delegates have the opportunity to review financial statements, discuss and understand the impact of common accounting entries.
- Session 2: earn outs
Key issues in earnouts
- Team exercise: what are likely key issues in agreeing/ drafting earnouts?
- Example clause: the drafting impact. Review of a earnout clause. What issues do you see in this draft?
- Session 3: key balance sheet items
Team exercise: review of a real balance sheet
- What are the main line items?
- What’s potentially confusing there?
- What’s the impact on real deals?
- Session 4: cash flow statement
Team exercise: review of a cash flow statement
- What are the key categories?
- What’s the relationship between the P&L, balance sheet and cash flow?
Team exercise: corporate transactions. Delegates work in teams to understand key financial statement movements. Imagine you are a finance director preparing end of year accounts. How do these sample transactions (e.g. issue of shares, capital reduction, share buy back) impact on the company’s P&L, balance sheet and cash flow statement? This exercise is a chance for delegates to work together to understand the accounting impact of common transactions.
- Conclusion: what’s the impact on real deals? Imagine you are advising on the sale of a company that owns a portfolio of power stations. During the deal, one of the power stations unexpectedly fails. What is the likely impact on the financial statements of the company being sold? What’s the likely impact on the deal?
Module 2: understanding how clients value acquisitions – ½ day
- Session 5: how do clients value businesses?
- Overview of common valuation methodologies
- Comparable/ multiples based valuation
- Discounted cash flow valuation
Team exercise: delegates work together, imagining they are working for a client considering how much they should bid for a business. What price would it make sense to pay for this business?
- Session 6: debt free cash free
- Which documents do we see it mentioned in?
- What is it?
- Why is it used?
- How do we reconcile to shares value?
- What about the S&P agreement – what value is commonly used there?
- Sample clause: where can you see these concepts being applied?
- Session 7: debt free cash free vs. enterprise value
- Where have you seen the term used?
- What’s the difference?
- What’s the impact on real deals?
Team exercise: what is debt? Delegates work in teams, imagining that they are advising on a real transaction, working for either a buyer or a seller of a business. What strategy can you employ here, maximising your client’s position. [Note, this exercises incorporates discussion of the impact intra-group loans]
Module 3: the impact of working capital and completion accounts – ½ day
- Session 8: working capital
- What is working capital?
- What drives working capital requirements?
- How could we define working capital?
- How is working capital determined?
Team exercise: delegates work in teams to see whether they can come up with three imaginary businesses that have very high working capital requirements, as well as three businesses that have very low working capital requirements. This exercise helps delegates appreciate drivers on working capital.
- Working capital: what’s the likely impact on real deals?
- What’s the normal structure for a sale process, and where might working capital become an issue?
Team exercise: delegates imagine they are working for a seller. What’s the seller’s strategy? Knowing that working capital could become an issue on this deal, what opportunities does the seller have to influence the process?
- Session 9: completion accounts
- What policies are likely to be an issue in completion accounts?
Team exercise: delegates work in teams, imagining that they are working for the buyer of a business. What policies is the buyer tempted to introduce?
- Sample clause: the drafting impact. What policies do you see at issue in this sample clause?
- The completion accounts hierarchy
- Where can it all go wrong? Lessons from real life
Team exercise: quick review of a sample clause. How would a buyer want this clause drafted? How would a buyer want it drafted?
- Session 10: Locked box
- Class discussion
- What is it?
- What are the pros/ cons?
- How does it differ from a traditional completion accounts mechanism?
- Sample clause: the drafting impact. Review of a locked box mechanism. What issues do you see in this draft?
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