School of M&A Finance & Execution

A comprehensive five day M&A School which will provide delegates with the skills to: Understand the most recent trends in the M&A sector Add value to the M&A process, for example, by identifying the key value drivers from an acquisition and good synergy assessment Value target companies by different methodologies - DCF, multiples and transaction comparables Structure and execute take-over transactions Understand the debt capacity and the financing structures of leveraged finance transactions Plan and execute the due diligence Learn to view the merger process through the eyes of the arbitrageur by understanding and practically demonstrating how to initiate and manage risk arbitrage trades Widen their portfolio management skill set by making effective trading choices when presented with publically quoted merger arbitrage situations Build a merger arbitrage model and trade a simulated deal through various market scenarios Transfer arbitrage modelling skills to a variety of other special situation style investments in equity and debt markets Who should attend Buy-side investment management professionals (portfolio managers, investment analysts and risk managers) Sell-side Bankers – Corporate Financiers, Corporate Lenders, Equity Traders and Salespeople facing arbitrageurs in the market Market regulators and M&A lawyers Corporate professionals – finance directors, investor relations, strategists, financial advisors and consultants Course Background Global M&A volumes continue to rise as countries and markets open to corporate and cross border investors. Equity investors can no longer ignore the added portfolio returns potentially available from announced corporate M&A. As global asset markets look forward to a more stable period of economic growth, the next wave of global M&A will present diversification and performance opportunities to investors skilled in analysing and trading the Merger Arbitrage process. This Euromoney Training M&A School gives participants the required tools to identify the capital instruments most exposed to Risk Arbitrage, and with reference to the UK market, follow a publically announced Merger Arbitrage deal through full regulatory process and timetable. Finally, participants will learn how to model a deal, initiate a position in a deal and present expected upside and downside to the deal. Teaching Methodology The course will follow a format of short classroom presentations mixed with group and individual exercises.
Day 1 Module 1 - M&A Finance Strategic Value Analysis of M&A: The Interplay of Corporate Finance, Strategy and Financial Economics M&A in perspective - Rationale for M&A and the influence of the market for corporate control on the form of the deal - M&A activities - M&A toolkit - Why acquire How to create shareholder value and the importance of M&A Characteristics of successful versus unsuccessful M&A deals Research evidence on what drives M&A success 7 steps for successful M&A - Develop a strategy and select M&A route - Screen candidates - Value short list - Evaluate synergies - Negotiate the deal - Conduct due diligence - Manage post-merger integration Develop a strategy and select M&A route - Defining M&A objectives consistent with corporate strategy - Understanding the source(s) of success - Estimating funding potential and requirements - Identifying success criteria and avoiding the ‘winner’s curse’ Case study: M&A in perspective The Valuation of Target Companies The Rationale for Valuation The rationale to value companies Do mergers create value? The different methodologies for valuation - Discounted cash flow - Market multiples - Comparable transactions - Performance ratios The Discounted Cash Flow Method (DCF) Introduction How to calculate free cash flow The forecast period and the terminal value Growth assumptions and sensitivities Calculating equity and enterprise value Calculating the Cost of Capital Cost of equity Understanding the weighted average cost of capital (WACC) The CAPM- model - The ß- factor - Key questions to be asked - Adjustments required, eg levering and delevering beta - The risk free rate - Equity risk premium Calculating the cost of capital of a private company Cost of debt Weighted average cost of capital (WACC) Workshop: Calculating the cost of capital of a private and a stock listed company Valuation by Multiples Understanding best practice - The rationale for valuations based on multiples - Choosing the peer group - Equity multiples - P/E, P/B - Enterprise multiples - EV/ EBITDA, EV/EBIT, P/sales - Identifying and comparing comparable market transactions Case study: The valuation of a company by applying different methodologies Valuation Triangulation Methods and approaches Challenges Importance of fundamental analysis Day 2 Evaluating Synergies using Valuation Analysis What are synergies, how are they measured and how can they be analysed within a transaction? - The strategic context - Importance of understanding different perspectives - Control premium - Valuation of synergies - Perspective analysis - The synergies framework - Operating - Financing - Tax Valuing the acquisition target with synergies Structuring the deal: How much should we pay? How should we pay? Case study: Delegates value the synergies resulting from a potential acquisition, and incorporate the results of potential synergies Evaluating financial synergies - Understanding the substance of a potential acquisition opportunity - Identifying the value of the various parts of the business - Applying peer group analysis - Debt capacity, financing synergies, and estimating the potential for refinancing - Identifying options Negotiation strategy - What are the key issues in developing a negotiating strategy? - Understanding the negotiation process - Negotiation tactics for closing the gap - Managing the negotiation environment - Team selection issues - Role of investment bankers and other advisors - Developing a negotiating stance - Using negotiation to bridge the valuation gap Defending a bid - Potential defences to a bid - Defences used in practice Documentation and Due Diligence Review of key documentation Review of due diligence - Types - Key issues - Data room management M&A Disposals and Integration Pre M&A integration planning strategic assessment of core business Disposal as a core element of strategic alignment Managing the disposal process What are the key issues in making an acquisition work? Identification and estimation of potential problem areas - Technology - Organisational structure - Culture - Management and administration - Compensation and motivation Scheduling and setting milestones Day 3 Understanding Privately Financed Deals – LBO Structures and Private Equity Understanding the difference between the corporate (strategic) and deal (financial) perspectives - What is the fundamental basis of the privately financed perspective? - Key issues and priorities in privately financed deals: - Creating a funding structure - Valuation - Due diligence - Negotiation - Legal issues and documentation - Leveraged buyouts - Private equity - Understanding the value creation of PE funds in leveraged transactions - Creating value in a leveraged transaction - Operational improvements - EBITDA expansion - Revenue growth - Using financial leverage Case study: Understanding the logic and structure of a leveraged transaction Acquisition financing - Determining the capital structure - Equity instruments - Common equity - Preferred shares - Mezzanine - The “traditional bank lending” instruments - Senior debt - Junior debt/ second lien - Asset based financing - Vendor loan - Alternative sources of financing - Capital market driven instruments - High yield bond - Mezzanine debt - Zero’s, PIK’s and other hybrid structures Day 4 Module 2 - M&A and the Public Markets What is Arbitrage? Degrees of arbitrage across asset classes Merger Arbitrage – a wide range of strategies Announced risk arbitrage – a typical payoff chart Case Study: Cadbury/Kraft Deal Announcement (UK market) RNS – Regulatory News Service Deal terms Deal conditions Cash mergers Stock-for-stock mergers Mix and match deals Cross border and currency factors Case Study: Takeover premiums – Autonomy PLC Exercise: Introduction of group deal game Each group takes the role of a start up Risk Arbitrage Fund with $50m seed capital. Each group is given a real historic Risk Arbitrage deal to manage through the course Positions are traded and managed within risk/return conditions Creating a Merger Arbitrage Model – Part 1 – Return Gross deal spread and annualised spread – what is parity? The merger timetable Dividend payments (long and short) Stock borrow – need, availability and cost Trading commissions and churn Leverage – boosting potential return on capital Return on capital, return on equity Exercise: Group Deal Game In small groups, participants will correctly calculate and present gross spreads, net spreads and annualised spreads (rates of return) for their given Risk Arbitrage deal (using real historic market data) Creating a Merger Arbitrage Model – Part 2 – Risk Friendly deals and hostile deals Management, shareholders and stakeholders to the deal The risk of a counterbid Deal financing – what the combined company will look like to investors Probability of the merger closing The downside of a deal break Case Study: Deals that go wrong – Rio PLC and Lonmin Day 5 Trading Risk Arbitrage – What to Buy and What to Sell (Short) The expected value of a risk arbitrage deal The questions that every arb will ask Hedge ratio – heavy or light? Trading the other way – ‘Chinesing’ the deal Equity swaps and contracts for difference Currency considerations and trading Deal consummation and closing a position Exercise: Group Deal Game In small groups, participants will correctly calculate and present the expected value of their given Risk Arbitrage deal (using real historic market data) The Merger Process (With Reference to UK Market Practice) Mergers versus schemes of arrangement The offer document Why the arbs prefer the UK The merger timetable (and why this will shift) Common takeover strategies – what to expect during the merger process Public disclosures – Rule 83 Voting and tendering shares into a merger Minority shareholder squeeze out Case Study: When a deal is not a deal – Charter PLC Equity Derivatives and Merger Arbitrage Covered call writing and enhancing returns Being long an implied put option – valuation techniques Volatility considerations before and during the merger process Hedging a Merger Arbitrage portfolio – position delta and beta Exercise: Group Deal Game – adding process and derivatives Other ‘Special Situation’ Trades Equity capital raising (rights issues) Debt exchanges and debt refinancing Share class trades and Dual Listed Companies (DLCs) Spin offs and stub trades Case Study: Debt special situations - British Energy and Wind Tel Exercise: Final round of group deal game – the clock is moved towards expected deal completion Merger Arbitrage and Asset Management Historic returns to dedicated arbitrage strategies The benefits of diversification – correlation to an equity portfolio The rise (and fall and rise) of the activist arbitrageur Course summary and close