Modelling for Mergers, Acquisitions and Buy-outs

Course Overview

This course equips participants for analysing and modelling M&A transactions and leveraged acquisitions.

It improves participants’ understanding of the attractions and risks of mergers, acquisitions and levered structures, as used by corporates and private equity firms.

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

By the end of this course 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 acquisition debt facilities can be structured
• Drivers on debt capacity and the interests of debt holders
• Risks and rewards to different parties

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 lap top with USB port to the course to facilitate modelling work

Course Content

Day One

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?
• Do we really need integrated financial statements in M&A modelling?

Modelling – integrating financial statements: participants complete a partially-developed financial model for the case study which integrates P&L, balance sheet and cash flow. This model is used to analyse an acquisition by the business

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 v.s. enterprise value
• Calculating free cash flow before financing
• Understanding and calculating WACC
• Discussion – calculating WACC
• Conducting a DCF valuation

Modelling – valuation: participants calculate the cost of capital and complete a DCF valuation for the acquirer

Financing acquisitions: debt structuring

• Clear, simple and concise explanation of different debt instruments:
  • Senior debt
  • High-yield debt
  • Mezzanine
  • Payment-in-Kind
• Understanding the nature of different financial instruments and risk profiles
• Modelling waterfall structures
• Estimating and optimising debt capacity

Modelling – debt structure: participants develop a debt structure for the case study and start to flex the structure within given constraints. How much debt could the business support? How big a target could it contemplate acquiring? What impact does changing the debt structure have on debt capacity?

Day Two

Developing a new deal structure – sources & uses of funds

• Developing a “first cut” debt structure
• Calculating refinancing needs
• The role of working capital and extra cap ex requirements
• Typical financing and transaction fees
• Determining the equity gap

Modelling: delegates develop their own deal structure for a transaction conducted by the case business

Acquisition modelling – consolidating accounts

• Key adjustments
• Working from the post-acquisition balance sheet
• How to model and consolidate accounts
• Modelling pro-forma accounts post acquisition

Modelling – consolidated accounts: participants incorporate the new deal structure into their model and analyse its impact

Merger modelling case study

• Completing a merger model
• Getting to DCF valuation for the combined business
• Valuing operating synergies
• Valuing financing synergies
• Analysing the results
• Sense-checking the output
• Drawing the right conclusion

Modelling – post acquisition valuation: participants complete a merger model for a case business after it has completed its acquisition

Day Three

Making money in private equity

• How private equity works
• How investors make money
• Drivers on gains
• The rationale for leveraged finance
• Review of the market for private equity
• Private equity fundamentals
• How private equity players make their money
• Private equity life cycle
• Jargon-busting

Financing alternatives: equity

• The nature of equity instruments
• The different risks and rewards accruing to different parties
• The impact of loan stock & preference shares
• Iterating to optimise rewards to key participants
• Key drivers for equity investors
• Exits: the good, the bad & the ugly

Exercise – the choices for exit – a real case study: you are a private equity firm’s representative on the board of an investee company. The business has grown to the point where exit is a possibility and management are still ambitious for the business. Which exit route are you going to recommend to the board?

Completing the analysis: repaying debt and building value

• This session will take much of the third day and will also allow some time to catch up or cover in more detail issues arising out of other parts of the course:
  • Iterating around value
  • Rewards to the various parties (institutional equity, management, debt)

Modelling – finalising a buy out model: Participants modify their model, providing an opportunity to understand the likely impact of key adjustments to assumptions and analyse the risks and opportunities the transaction will face. Participants model returns to the various parties and iterate to optimise returns.

At the end of this session participants will have a simple and working buy out model that is structured clearly

Course conclusion: best practice in transaction analysis

• Participants who have improved their understanding of and have had experience of modelling mergers, leveraged acquisitions and buy outs
• 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



“Great overview and passionate and enthusiastic teacher. A mixture of theory and lots of practice, with real-life examples”.

Delivering this course in-house for you to a number of participants could be very cost effective. Please call us on 020 7387 4484 to discuss this further.

If you have any questions about this seminar please write to us at post@redcliffetraining.co.uk.