M&A -May 1st

DCF, LBO, cases

understand basic inputs leading to FCF

  • know how to calculate free cash flow

what potential problems you may run into for DCF

know how to do perpetuity or multiples value approach for the terminal at the end

assumptions that go along with the forecast period than the terminal period

  • implications

IRR calculation- solve for rate and number of cash flows, initial and ending

how we get to residual cash flows for repayment of debt— Dupont case

understand what we have left to pay off debt

unimportant: RCF

LBO: debt EBITDA multiples

  • a sign of how easily you can obtain debt finances

  • purchase price multiples are transaction multiples with the transaction costs added

drivers for LBOS: recognize in a model

  • leverage

  • multiples arbitrage

  • operation efficiencies

how does residual CF feed into the overall debt scenario

  • understand what is feeding what

  • given interest expense

  • replicate what’s going on in the LBO model- senior and subordinate debt

general characteristics for senior and subordinate debt

modeling out capital structure in APV and showing financial synergies

  • interest tax shields

differences in DCF and APV

basic details in cases

  • 4-5 important things in ANADRAKO

    • headline vs. economic value

    • economic value through market value BS

  • stock issuance problem

  • trigger need to get stockholder vote

  • know calculations that go into the small spreadsheet

  • perpetuity calculation

**don’t worry about NPV calculation on preferred stock

RADNET

  • basic pro forma calculation

  • familiar with how we did it and places we got stuck

  • different debt types- first lien, second lien, HY bonds

  • exhibit 10 pricing between 2nd lien and HY

  • why not HY bonds

  • GE offer heavy on 2nd lien debt

  • why 2nd lien and not HY

DUPONT:

question 4c

  • understand spreadsheet without calculations

  • rearrange order of spreadsheet to make sense

  • do a simple APV 3 year analysis

    • given FCF and rate

    • discounting and adding them up- 3 period

  • private equity firm willing to pay X versus what the firm is worth

  • just looking at target rate of return, not really risk — question 5