Corporate Finance Modelling Masterclass
Course
In City Of London
Description
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Type
Workshop
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Location
City of london
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Class hours
30h
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Duration
5 Days
This is a 5 day corporate finance modelling masterclass made up of:
-modelling for m&a
-advanced lbo modelling
For more information, please contact us on: enquiries@redcliffetraining.co.uk
Facilities
Location
Start date
Start date
Reviews
Subjects
- Modelling
- Financial Modelling
- Finance
- Corporate Finance
Teachers and trainers (1)
Contact us for details Former Practitioner
Former Practitioner
Course programme
On days one, two and three the course covers the key elements of an acquisition or merger, from the initial stand-alone valuation of the target to the more complex accounting and modelling issues to be considered and finally analysing and assessing the value created by synergy benefits and leverage
This course is run in an interactive, participative format, where participants learn by doing. The key concepts covered in the main teaching sessions are punctuated and illustrated by detailed case and modelling work.
The approach has been designed to equip participants to put key concepts into practical use immediately.
Participants will be led through a comprehensive review of analysis practices, from initial principles through to more advanced techniques that are used in transaction analysis.
As part of their work on this course participants model transactions based on real-life companies and scenarios.
On the last two days participants will cover the key elements of modelling in an LBO analysis. Participants will value the target business using historic data and available equity research. The valuation process will incorporate absolute and relative valuation techniques. Once the target business has been valued, participants will be introduced to LBO analysis and construct an LBO model.
The LBO modelling analysis will be developed by assessing the debt capacity of the business to determine the range of capital structures available for the transaction and how credit analysis is used in the LBO modelling process.
The participants will then cover more complex LBO instruments such as warrants and PIKs and how to calculate returns to each of the equity and debt providers.
Participants will model a more complex capital structure and calculate exit values and the IRRs generated by each investor. Using the integrated model participants will then analyse various scenarios (management case, base case, payout case) to derive the optimum financing structure taking into account the financial constraints of each investor.
The participants will undertake an adjusted present value (“APV”) analysis to determine where value has been created in the LBO transaction, using an APV model and finally look at recovery analysis for a failed LBO transaction.
Case Study: The participants will use a variety of case studies and exercises during the last two days, based on publicly quoted and generic businesses.
Participants will be required to bring a laptop and a calculator to the course.
By the end of days 1, 2 and 3 participants will understand:
- Drivers on M&A
- How to model integrated financial statements
- How to use financial statements to value a business
- How to model the balance sheet impact of transactions
- How to incorporate synergies into modelling work
- How to differentiate between financing and operating synergies
- How acquisitions can be structured
Much of the course work involves Excel modelling and analysis, equipping participants with the tools to analyse leveraged acquisitions:
- Building up from partially-complete models
- Working with integrated financial statements
- Developing the acquisition structure and modelling instruments
- Running scenarios, iterating and optimising
Each participant should bring a laptop with USB port to the course to facilitate modelling work.
Course Content:
Days 1, 2 & 3
M&A model build up: the starting point
- Modelling integrated financial statements
- Model structure
- Key forecast ratios
- Sourcing and cleaning historic data
- What makes a good model?
Modelling – integrating financial statements: participants complete a partially-developed financial model for a public quoted company which integrates P&L, balance sheet and cash flow. This company will be the target company used in the merger analysis
Modelling stand-alone valuation
- Overview of valuation methodologies
- What do investment banks do?
- What methodologies could we use?
- How should we define firm value? Equity vs. enterprise value
- Calculating free cash flow before financing
- Understanding and calculating WACC
- Discussion – calculating WACC
- Key issues with a two stage DCF valuation – WACC and terminal value assumptions
Modelling – valuation: participants calculate the cost of capital and complete a DCF valuation for the target company, producing a stand-alone valuation as a cross check to the acquisition price
Day Two
Accounting for corporate transactions
- Different types of transaction and how they are modeled in practice
- Consolidation accounting under the current IFRS 3 an IAS 27
- Change of control triggers
- Accounting for non-controlling interests (“NCI”)
- Accounting for disposals
- Partial disposals – creating a NCI
- Partial disposal – loss of control
- Recent changes to acquisition accounting under IFRS
- Definition of control
- Calculation of goodwill
Modelling: delegates complete a variety of transaction models incorporating all types of corporate transaction and calculate the effect of a transaction on a set of consolidated accounts in preparation to perform a merger analysis with the target business and an acquirer
Acquisition finance
- Types of transactions and synergies
- Availability of synergies and problems in achieving them
- Methods available for valuing synergies
- Key differences between public vs. private deals, recommended vs. hostile bids
- Choices for growth: acquisition vs. organic vs. joint venture
- Defence strategies for target companies resisting a hostile bid
Case study: Participants calculate synergies for a case company
Day Three
Structuring acquisition finance
- Once price has been agreed, how is it paid? Cash vs. Shares
- Financing choices for raising cash for an acquisition: Debt vs. Equity
- Calculating the success of a deal, accretion vs value creation
- The nature of equity instruments
- The different risks and rewards accruing to different parties
- The impact of loan stock, convertibles and preference shares on WACC
- Calculating returns to key participants
Case study: Calculating accretion/dilution and the effect of hybrids on cost of capital
Merger modelling case study
- Completing a merger model
- Getting to DCF valuation for the combined business
- Combined WACC
- Valuing operating synergies
- Valuing financing synergies
- Accretion/dilution analysis vs wealth creation
- Sense-checking the output and adjusting the capital structure
Modelling – bringing it all together: participants complete a complex merger model for an acquisition of the target business incorporating synergy analysis and varying capital structure. The transaction is analysed on an accretion/dilution analysis and a wealth creation/return on capital analysis
At the end of this session participants will have a working acquisition model incorporating a variety of different forms of transaction analysis
- Course conclusion: best practice in transaction analysis
- Participants will have improved their understanding of and have had experience of modelling mergers and acquisitions from first principles
- Simple and clear reference Excel models – providing participants with a platform for future internal modelling efforts and aiding decision making
- Participants who, at the end of the course, understand the drivers on transactions and how transactions can be modified to suit the various parties
Days 4 & 5
Leverage Overview
- Background to the LBO market
- Why do LBOs happen?
- The agency effect
- Main parties to a deal and their roles
- Basic theory – The effect of leverage on firm value
- Levered vs unlevered businesses
- The value of the tax shield
- Bringing in bankruptcy costs
The LBO process
- Stand-alone value of the target – what price to pay?
- Modelling an LBO deal – does the deal meet our returns?
- Further analysis – assessing the debt capacity
- Determining the capital structure
- Assessing the value creation
Valuing the target
- Sourcing information – Historic and forecast date
- Analysing equity research
- Key attributes of broker analysis
- Pluses and minuses of equity research
- Building a DCF valuation using equity research
- Which elements of research to use
- Cross checking the research
- Identifying errors in assumptions
- Modelling the stand alone valuation
- Which WACC to use
- Underlying assumptions in a DCF
- Different approaches to terminal value
- The value driver approach – producing a more realistic terminal value
- Comparing and contrasting DCF and LBO model structure
Case Study I: Participants model the stand alone valuation of the target using historic data and equity research
LBO Modelling Overview
- Key elements of an LBO model
- Comparing and contrasting DCF and LBO models
- Sources and uses of funds
- Key drivers in an LBO model
- From stand alone valuation to LBO analysis
- The debt waterfall and initial capital structure
- Assessing the IRR and initial optimisation of the capital structure
Case Study II: Participants use the stand alone valuation of the target to complete and LBO model
Assessing debt capacity for LBO financing
- Financial interdependencies
- Financing growth
- Sustainable debt
- Target debt capacity assumed in a WACC calculation, debt capacity and interest cover
- Debt capacity in LBOs
- Debt capacity multiples in practice and credit analysis
- The rating agency ratios
- Additional constraints in practice
- “Max out” calculation – optimising the structure with further constraints
Case Study III: Modelling the debt capacity of the target using multiple and credit analysis
Capital providers and their typical characteristics
- Background to the capital markets and key providers of finance
- Current market conditions and ability to finance
- The high yield market
- Mezzanine finance
- Deal multiples and exit conditions
- Institutional and management equity
- Traditional/new lenders
- Senior tranche profiles
- A, B, C, RCF
- Subordinated tranche profiles
- Second lien
- Mezzanine (with/without warrants)
- PIK
- High yield bonds
- More complex issues – warrants and options
Case Study IV: Modelling a more complex capital structure with various scenarios calculating exit value and IRR for each of the capital providers
Assessing value creation in LBO transactions – APV analysis
- Key components of an APV valuation
- Unlevered value
- Value of the tax shield
- Direct and indirect cost of leverage
- APV valuation and DCF valuation
- APV valuation in a steady state
- Calculating AP in a steady growth environment
- Incorporating APV analysis in an LBO transaction analysis
Case Study V: Where has value been created, modelling APV analysis for an LBO transaction
Corporate Finance Modelling Masterclass