Differences

Question 1

run me through a process to find a target

Answer 1

1. Industry: Look for companies in the same / adjacent industries for consolidation ideas but if your client has stated specific industries to expand into - obviously include those as well
2. Geography: Focus on companies operating in the target geography / countries
3. Size: Look for companies of similar size for transformational deals or within a certain smaller range for bolt-ons
4. Valuation: Look for companies trading at lower multiples where a deal could accretive
5. Leverage: Look for companies with too much debt which require equity-partners to grow / invest or which may divest parts of their business for your client to acquire
6. Financial Performance: Look at growth expectations, margins, FCF profile to determine if this would be helpful to your client’s existing outlook - i.e. will it add to the growth profile, will it improve or dilute margins, etc.
7. Ownership: Have a look at the existing ownership structure as part of your review - if they are private, what are the intentions of the shareholders / family; if they are public, are there any key shareholders which will influence any discussion

If you are using a database like Capital IQ or FactSet, running screens based on these criteria should be a fairly straight-forward exercise.

Question 2

another example

Answer 2

Southeast Asia is experiencing capital flight at the moment, which will put an increasing liquidity squeeze on a lot of companies who have borrowed too much over the last few years. Indonesia is particularly fucked. This means you’ll have quite a few desperate sellers.

Start by screening listed companies in Indonesia, Malaysia, Singapore and Thailand which have too much leverage. Debt to EBITDA multiples are the most common way to do this. You want to find businesses which are decent, but overlevered. You can then look at buying out the company or, if it’s a big conglomerate, buying out a subsidiary/business division.

Question 3

accretive dulutive analyis

Answer 3

relative pe analysis, higher pe companies may want to issue share for a transaction due to a accretive impact on pro forma eps
generally acquire p/e multiple = acquire share price/ acquire eps
and offer pe multiple = offer share price/ target eps
if acquirer pe greater than offer pe then accretive.

Question 4

what values does the peg go around

Answer 4

it is pe multiple divided by estimated annual growth rate
if it is 1 then fairly valued relative to growth
if above one then premium or expensive
if below then inexpensive