Thursday, December 3, 2015

Three Days of Acquisition Finance - Amsterdam

I'm reposting last weeks outline of our upcoming course in Amsterdam on Acquisition Finance.  Here is is.  There is still time to sign up - we hope to meet you there.

All the best,


Wednesday December 9, 2015

Time:                09.00 – 13:00


        Overview of Acquisition Finance: Structuring the Deal 
This session presents an overview of the program - outlining advantages, risks and current trends in acquisition finance. Particular attention is given to sources of gains in acquisition finance and the opportunities and risks entailed in highly levered transactions. The following topics will be discussed:
o    How Acquisition Finance Creates Value
o    Participants, Products, Risk and Return
o    The Importance of Markets
o    The Whole Deal Approach:
§  Understanding Participant Motivations
§  The interaction of Deal Components

        The Acquisition Process
o    Timeline of the Acquisition Process
o    Motives for Acquisition
o    Characteristics of Targets
o    Types of Deals
o    Ideal Qualities for LBO Candidates

        Key Participants and Markets in Acquisition Finance
o    PE Sponsors
o    Institutional Equity Investors
o    Management
o    Lenders
o    Corporate
o    Understanding Markets
o    Current European Market Overview

        Valuing the Target– a Quick Review
This session provides a review of valuation tools and models, discussing the strengths and weaknesses of each as well as their application to acquisition finance.
o    Discounted Cash Flow
o    Multiples
o    Comparable Transactions
o    Determining the Discount Rate in DCF
o    Terminal Value and The Exit Process
o    Valuing Synergies
o    Specialized Cases


Time:                13.00 - 14.00 Lunch


Wednesday December 9

Time:                14.00 - 15.30

·       Valuing Late-Stage Companies and Buyouts

·       Mergers and Acquisitions: Who Wins?  Who Loses
o    Measuring Abnormal Returns
o    Assumptions behind Event Studies
o    The Empirical Evidence
o    Adjusting for Anticipation

        Deals in the News: including Ahold/Delhaize, ABN-IPO, Perrigo/Mylan, Noikia Cablevision

Time:                15.30 - 15.45 Break

Time:                15.45 - 17.00 Initial Case Preparation:  "Monmouth”
o    The management of Monmouth Inc. is considering whether to acquire the Robertson Tool Company and the value and form that the acquisition should take.  Value can be assessed using a variety of approaches including a DCF with WACC analysis, impact on EPS and market multiples.  The case also requires consideration of how the offer should be designed and implemented.

Case material
·        “Monmouth”

Pre-reading material    
        Rosenbaum and Pearl: Investment Banking
o    Chapter 1 - "Comparable Companies Analysis”
o    Chapter 2 – “Precedent Transaction Analysis”
o    Chapter 3 – “Discounted Cash Flow Analysis”
        Joseph Rizzi: “Back to the Future Again: Private Equity After the Crisis”, Journal of Applied Finance, Volume 19, No. 1&2 2009
        Valuation of Late-Stage Companies and Buyouts, UVA-F-1639 by Susan Chaplinsky

Thursday December 10

Time:                09.00 – 11.30

·       Debriefing of Day 1 and Introduction to Day 2

·       Capital Structure - Theory
o    How Capital Structure Creates or Destroys Value
o    Capital Structure Theory – A Review
o    The Three Impacts of Debt
o    Debt vs. Equity
o    Empirical Evidence

·       Capital Structure - Practice
o    Historical Overview
o    Understanding the Cycle of Purchase Price Multiples
o    Different Approach of PE re Valuation and Capital Structure

Time:                11.30 - 13.30 Working Lunch Continued Case Preparation:  "Monmouth”

Time:                13.30 – 14.45

        Discussion of Monmouth Case 

Time:                14.45 – 15:00 Break

Time:                15.00 – 16.30

·       Financing the Deal
o    Products
o    Building the Capital Structure
o    Tools

Time:                16.30 – 17.00

·       Introduction to the Radnet Case
o    This case examines issues surrounding the choice of financing arrangements for the acquisition of Radiologix. The case follows Mark Stolper, the CFO of RadNet, as he considers how to raise the $363 million in funds necessary to finance the acquisition. When completed, the combined firms will be the largest private diagnostic imaging provider in the United States. When Stolper joined RadNet three years earlier, he confronted a company with "too much debt, and the wrong kind of debt." His goal is to finance the acquisition in a way that further enhances the financial strength and operating flexibility of the company. Given the large size of funding required, the firm will unlikely be able to fund the entire transaction with first lien or bank debt. His financial advisors differ in their recommendations for how to raise the remaining funds.

Thursday December 10


Pre-reading material                
        Joseph Rizzi: “How much debt is right for your deal?  The impact of market innovations on debt capacity”
        Rosenbaum and Pearl: Investment Banking
o    Chapter 4 - “Leveraged Buyouts”
o    Chapter 5 -  “LBO Analysis”


Social Event:    17.00 - 18.30   Drinks with AIF

Friday December 11

Time:                09.00 – 13.00

        Debriefing of Day 2 and Introduction to Day 3

        Structuring the Deal: Mitigating Risk
o    The Most Important Risks of the Deal
o    Mitigating Deal Risk

        Structuring the Deal
o    Covenants
o    Expanding Debt Capacity
o    Subordination
o    Due Diligence

        Hostile Deals, Activists and Arbs
o    Hostile Takeovers
o    The Role of Activists
o    The Importance of Arbs
o    Defensive Strategies of the Target
o    Understanding Speculation Spreads and What They Reveal

        Continued Case Preparation: “Radnet Inc.: Financing an Acquisition”

Time:                13.00 - 14.00 Lunch

Time:                14.00 – 15.00

·       Continued Case Preparation: “Radnet Inc.: Financing an Acquisition”

Time:                15.00 – 15.15  Break

Time:                15.15 – 16.45

·       Discussion of the Radnet Case 
o    Operating flexibility
o    Composition of investors
o    Repayment considerations
o    Type of debt
o    “The wrong type of debt”
·       Wrap-up – Putting it All Together
·       Concluding comments

Time:                16.45 - 17.00

        Completion of AIF Evaluation Form

Case material
        "Radnet Case”  (to be distributed during class on Day 1)

Pre-reading material                
        Rosenbaum and Pearl: Investment Banking
o    Chapter 6 - “Sell Side M&A”
o    Chapter 7 - “Buy Side M&A”

Monday, November 30, 2015

Keep It Simple Stupid: The New York Community Bank Astoria Financial Acquisition

New York Community Bank (NYCM) announced on October 29 the $2B acquisition of Astoria Financial (AF). The market reaction was brutal with NYCB dropping 8% (around $500 Mln) and AF losing 6%.  Perhaps, the AF drops reflects the depreciating value of the NYCB stock it is receiving. It is unusual for both the buyer and seller to drop. It is an in-market deal which should lead to cost saves. The price is full, but on its face does not seem excessive at 15% premium (over stock which may have run up in anticipation of a bid), 1.6X tangible book (1.2X book) and 30X AF earnings (high, but may reflect AF weak earnings?).

So what happened? Well it seems plenty happened beneath the surface including:

1)     Regulatory: the acquisition pushes NYCB past the $50B regulatory threshold. This means it will be subject to more intense regulation. Some estimate the incremental costs at $10 Mln+ p.a.  for items like compliance. Not necessarily bad if part of a higher value strategy. Nonetheless, it needs to be explained to investors so they can evaluate.
2)     Charge: NYCB is changing its capital structure by repaying existing debt. This triggers a $615 Mln charge represents 4X estimated first year cost savings and 30% of the purchase price. The cost plus premium starts to make this look like an expensive deal. The reduced debt lowers the interest tax shield and further lowers NYCB’s value. May be a preemptive regulatory action to ensure the deal’s approval?
3)     Equity Issuance: NYCB is diluting existing shareholders by a) issuing $600 Mln+ in new equity to cover the charge listed above and b) equity consideration for 80% of the purchase price. This is a sizeable surprise.
4)     Dividend Cut: NYCB is cutting its dividend by 35%. NYCB had been a high dividend yielding stock and attracted a dividend seeking clientele. To be fair this may be due to regulatory concerns to ensure the deal’s approval.

 This deal is a net negative and a real turkey (sorry for the pun given the season). The deal may be strategic, but the price and the financial policy changes make it a loser. When acquiring it is best to keep things simple and to explain clearly your actions to your shareholders.