Lecture 3

Question 1

The ”VC method”

Answer 1

Negotiation is for % ownership in a company - the implied percentage can be calculated from exit assumptions

Final ownership required = investment / (terminal value/(1+IRR)^t))

Question 2

Asset-based methods

Answer 2

For certain types of assets it is more accurate to look at the value of the assets rather than the value of the future cash flows

-> for assets that have a clear market value (e.g. Real estate, transport vehicles)

But careful not to double count

Question 3

M&A questions acquisition models help answer

Answer 3

-what will the combined company look like?
-what happens to Earnings Per Share (accretion/dilution)?
-how does the method of payment affect EPS and leverage?

Question 4

Divestment

Answer 4

Divestment involves a company selling off a portion of its assets, often to improve company value and obtain higher efficiency

Question 5

Sell side

Answer 5

The main purpose of a sell-side M&A pitchbook is to convince the client why they should choose the investment bank to handle the transaction

-list of potential buyers of the client’s business
-valuation summary
-recommendations
-list of the bank’s successful deals in the client’s industry
-an appendix section

Question 6

Buy side

Answer 6

Buy side means working with the buyers and finding oppotunities for them to acquire other businesses

Question 7

Pitch book

Answer 7

A pitchbook is a sales book used by investment banks to sell products and services as well as pitch potential customers

Question 8

Data room

Answer 8

A data room is a secure place that is used to store privileged data, usually for legal proceedings of mergers and acquisitions

Data rooms are used for storing documents, file sharing, securing sensitive documents and conductong financial transactions

Physical
Virtual

Question 9

Due diligence

Answer 9

DD is a process of vertification, investigation or audit of a potential deal or investment opportunity to confirm all relevant facts and financial information and to verify anything else that was brought up during a deal or investment process

DD is completef before a deal closes to provide the buyer with an assurance of what they’re getting

Question 10

Vendor DD

Answer 10

Financial review of a sales object on behalf of seller which illuminates questions and issues that are relevant to potential buyers of the business

Question 11

Closing condition

Answer 11

An obligation that each party must satisfy in the time period between the acquisition agreement and actual closing

Question 12

Deal toy

Answer 12

Customized gift that is intended to mark and commemorate the closing of a business deal in finance or investment banking

Question 13

Investment bankers and M&A

Answer 13

-assistance in finding M&A targets
-advicing acquiring companies (buyside) or sellside with respect to process, price and other terms
-defending companies against unwanted takeovers
-assisting buyside in obtaining funding from the market

Question 14

Understanding the M&A tactical situation

Answer 14

-seller’s alternative buyers or willingness to continue business
-hidden agendas of individuals, e.g. seller mngmt vs owners
-seller’s decision-making criteria
-valuation model of seller, our own, and of competing buyers
-BATNA, other targets, do it ourselves