Investment banking : valuation, LBOs, M&A, and IPOs
Author(s)
Bibliographic Information
Investment banking : valuation, LBOs, M&A, and IPOs
（Wiley finance series）
Wiley, c2021
3rd ed., University ed
- : pbk
Available at / 3 libraries
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Note
First ed. 2009, 2nd ed. 2013
In partnership with Nasdaq
Includes bibliographical references (p. 515-519) and index
Description and Table of Contents
Description
Investment Banking Praise for Investment Banking, UNIVERSITY EDITION
"This book will surely become an indispensable guide to the art of buyout and M&A valuation, for the experienced investment practitioner as well as for the non-professional seeking to learn the mysteries of valuation."
-David M. Rubenstein, Co-Founder and Co-Executive Chairman, The Carlyle Group Host, The David Rubenstein Show: Peer to Peer Conversations
"The two Joshes present corporate finance in a broad, yet detailed framework for understanding valuation, balance sheets, and business combinations. As such, their book is an essential resource for understanding complex businesses and capital structures whether you are on the buy-side or sell-side."
-Mitchell R. Julis, Co-Chairman and Co-CEO, Canyon Partners, LLC
"Investment Banking provides a highly practical and relevant guide to the valuation analysis at the core of investment banking, private equity, and corporate finance. Mastery of these essential skills is fundamental for any role in transaction-related finance. This book will become a fixture on every finance professional's bookshelf."
-Thomas H. Lee, President, Lee Equity Partners, LLC Founder, Thomas H. Lee Capital Management, LLC
"As a pioneer in public equities, Nasdaq is excited to be partnering with Rosenbaum and Pearl on Investment Banking as they break new ground on content related to IPOs, direct listings, and SPACs. We recommend the book for any shareholder and senior executive looking to take a company public, as well as their bankers and lawyers."
-Adena Friedman, President and CEO, Nasdaq
"Investment Banking requires a skill set that combines both art and science. While numerous textbooks provide students with the core principles of financial economics, the rich institutional considerations that are essential on Wall Street are not well documented. This book represents an important step in filling this gap."
-Josh Lerner, Jacob H. Schiff Professor of Investment Banking, Harvard Business School Co-author, Venture Capital and Private Equity: A Casebook
"Valuation is the key to any transaction. Investment Banking provides specific step-by-step valuation procedures for LBO and M&A transactions, with lots of diagrams and numerical examples."
-Roger G. Ibbotson, Professor in the Practice of Finance, Yale School of Management Chairman and CIO, Zebra Capital Management, LLC Founder, Ibbotson Associates
"Investment Banking provides fresh insight and perspective to valuation analysis, the basis for every great trade and winning deal on Wall Street. The book is written from the perspective of practitioners, setting it apart from other texts."
-Gregory Zuckerman, Special Writer, The Wall Street Journal Author, The Greatest Trade Ever, The Frackers, and The Man Who Solved the Market
Also available from the authors:
Investment Banking WORKBOOK
Investment Banking FOCUS NOTES
Investment Banking ONLINE COURSE
www.efficientlearning.com/investment-banking
Table of Contents
- Instructor and Student Resources xv About the Authors xix About the Editors xxi Foreword xxiii Acknowledgments xxv Disclaimer xxxiii Introduction 1 Structure of the Book 3 Part One: Valuation (Chapters 1-3) 3 Part Two: Leveraged Buyouts (Chapters 4 & 5) 5 Part Three: Mergers & Acquisitions (Chapters 6 & 7) 6 Part Four: Initial Public Offerings (Chapters 8 & 9) 8 ValueCo Summary Financial Information 9 Part One Valuation 11 Chapter 1 Comparable Companies Analysis 13 Summary of Comparable Companies Analysis Steps 14 Step I. Select the Universe of Comparable Companies 17 Study the Target 17 Identify Key Characteristics of the Target for Comparison Purposes 18 Screen for Comparable Companies 22 Step II. Locate The Necessary Financial Information 23 SEC Filings: 10-K, 10-Q, 8-K, and Proxy Statement 24 Equity Research 25 Press Releases and News Runs 26 Financial Information Services 26 Summary of Financial Data Primary Sources 27 Step III. Spread Key Statistics, Ratios, and Trading Multiples 28 Calculation of Key Financial Statistics and Ratios 28 Supplemental Financial Concepts and Calculations 42 Calculation of Key Trading Multiples 47 Step IV. Benchmark the Comparable Companies 50 Benchmark the Financial Statistics and Ratios 50 Benchmark the Trading Multiples 50 Step V. Determine Valuation 51 Valuation Implied by EV/EBITDA 52 Valuation Implied by P/E 52 Key Pros and Cons 54 Illustrative Comparable Companies Analysis for ValueCo 55 Step I. Select the Universe of Comparable Companies 55 Step II. Locate the Necessary Financial Information 57 Step III. Spread Key Statistics, Ratios, and Trading Multiples 57 Step IV. Benchmark the Comparable Companies 69 Step V. Determine Valuation 74 Chapter 1 Questions 75 Chapter 2 Precedent Transactions Analysis 79 Summary of Precedent Transactions Analysis Steps 80 Step I. Select the Universe of Comparable Acquisitions 83 Screen for Comparable Acquisitions 83 Examine Other Considerations 84 Step II. Locate the Necessary Deal-Related and Financial Information 86 Public Targets 86 Private Targets 89 Summary of Primary SEC Filings in M&A Transactions 90 Step III. Spread Key Statistics, Ratios, and Transaction Multiples 92 Calculation of Key Financial Statistics and Ratios 92 Calculation of Key Transaction Multiples 98 Step IV. Benchmark the Comparable Acquisitions 102 Step V. Determine Valuation 102 Key Pros and Cons 103 Illustrative Precedent Transaction Analysis for ValueCo 104 Step I. Select the Universe of Comparable Acquisitions 104 Step II. Locate the Necessary Deal-Related and Financial Information 105 Step III. Spread Key Statistics, Ratios, and Transaction Multiples 107 Step IV. Benchmark the Comparable Acquisitions 115 Step V. Determine Valuation 117 Chapter 2 Questions 118 Chapter 3 Discounted Cash Flow Analysis 123 Summary of Discounted Cash Flow Analysis Steps 124 Step I. Study the Target and Determine Key Performance Drivers 128 Study the Target 128 Determine Key Performance Drivers 128 Step II. Project Free Cash Flow 129 Considerations for Projecting Free Cash Flow 129 Projection of Sales, EBITDA, and EBIT 131 Projection of Free Cash Flow 133 Step III. Calculate Weighted Average Cost of Capital 139 Step III(a): Determine Target Capital Structure 140 Step III(b): Estimate Cost of Debt (rd) 141 Step III(c): Estimate Cost of Equity (re) 142 Step III(d): Calculate WACC 146 Step IV. Determine Terminal Value 146 Exit Multiple Method 147 Perpetuity Growth Method 147 Step V. Calculate Present Value and Determine Valuation 149 Calculate Present Value 149 Determine Valuation 151 Perform Sensitivity Analysis 153 Key Pros and Cons 154 Illustrative Discounted Cash Flow Analysis for ValueCo 155 Step I. Study the Target and Determine Key Performance Drivers 155 Step II. Project Free Cash Flow 155 Projection of Sales, EBITDA, and EBIT 157 Step III. Calculate Weighted Average Cost of Capital 162 Step IV. Determine Terminal Value 167 Step V. Calculate Present Value and Determine Valuation 169 Chapter 3 Questions 174 Part Two Leveraged Buyouts 179 Chapter 4 Leveraged Buyouts 181 Key Participants 183 Financial Sponsors 183 Investment Banks 184 Bank and Institutional Lenders 186 Bond Investors 187 Private Credit Funds 188 Target Management 188 Characteristics of a Strong LBO Candidate 189 Strong Cash Flow Generation 190 Leading and Defensible Market Positions 190 Growth Opportunities 190 Efficiency Enhancement Opportunities 191 Low Capex Requirements 191 Strong Asset Base 192 Proven Management Team 192 Economics of LBOs 193 Returns Analysis-Internal Rate of Return 193 Returns Analysis-Cash Return 194 How LBOs Generate Returns 194 How Leverage Is Used to Enhance Returns 196 Primary Exit/Monetization Strategies 199 Sale of Business 199 Initial Public Offering 200 Dividends / Dividend Recapitalization 200 Below Par Debt Repurchase 200 LBO Financing: Structure 201 LBO Financing: Primary Sources 204 Secured Debt 204 High Yield Bonds 208 Mezzanine Debt 210 Equity Contribution 211 LBO Financing: Selected Key Terms 214 Security 214 Seniority 214 Maturity 215 Coupon 216 Call Protection 217 Covenants 218 Term Sheets 221 LBO Financing: Determining Financing Structure 224 Chapter 4 Questions 229 Chapter 5 LBO Analysis 233 Financing Structure 233 Valuation 234 Step I. Locate and Analyze the Necessary Information 236 Step II. Build the Pre-LBO Model 236 Step II(a): Build Historical and Projected Income Statement through EBIT 237 Step II(b): Input Opening Balance Sheet and Project Balance Sheet Items 240 Step II(c): Build Cash Flow Statement through Investing Activities 242 Operating Activities 242 Step III. Input Transaction Structure 245 Step III(a): Enter Purchase Price Assumptions 245 Step III(b): Enter Financing Structure into Sources and Uses 247 Step III(c): Link Sources and Uses to Balance Sheet Adjustments Columns 248 Uses of Funds Links 251 Step IV. Complete the Post-LBO Model 254 Step IV(a): Build Debt Schedule 254 Step IV(b): Complete Pro Forma Income Statement from EBIT to Net Income 263 Step IV(c): Complete Pro Forma Balance Sheet 266 Step IV(d): Complete Pro Forma Cash Flow Statement 268 Step V. Perform LBO Analysis 270 Step V(a): Analyze Financing Structure 270 Step V(b): Perform Returns Analysis 272 Step V(c): Determine Valuation 276 Step V(d): Create Transaction Summary Page 277 Illustrative LBO Analysis for ValueCo 278 Chapter 5 Questions 288 Part Three Mergers & Acquisitions 293 Chapter 6 Sell-Side M&A 295 Auctions 296 Auction Structure 299 Organization and Preparation 299 Identify Seller Objectives and Determine Appropriate Sale Process 299 Perform Sell-Side Advisor Due Diligence and Preliminary Valuation Analysis 301 Select Buyer Universe 301 Prepare Marketing Materials 302 Prepare Confidentiality Agreement 305 First Round 306 Contact Prospective Buyers 306 Negotiate and Execute Confidentiality Agreement with Interested Parties 306 Distribute Confidential Information Memorandum and Initial Bid Procedures Letter 307 Prepare Management Presentation 308 Set Up Data Room 309 Prepare Stapled Financing Package (if applicable) 311 Receive Initial Bids and Select Buyers to Proceed to Second Round 311 Second Round 313 Conduct Management Presentations 313 Facilitate Site Visits 314 Provide Data Room Access and Respond to Diligence Requests 314 Distribute Final Bid Procedures Letter and Draft Definitive Agreement 315 Receive Final Bids 316 Negotiations 320 Evaluate Final Bids 320 Negotiate with Preferred Buyer(s) 320 Select Winning Bidder 320 Render Fairness Opinion (if required) 321 Receive Board/Owner Approval and Execute Definitive Agreement 321 Closing 322 Obtain Necessary Approvals 322 Shareholder Approval 323 Financing and Closing 325 Negotiated Sale 326 Chapter 6 Questions 328 Chapter 7 Buy-Side M&A 331 Buyer Motivation 332 Synergies 333 Cost Synergies 334 Revenue Synergies 334 Acquisition Strategies 335 Horizontal Integration 335 Vertical Integration 335 Conglomeration 336 Form of Financing 337 Cash on Hand 338 Debt Financing 338 Equity Financing 339 Debt vs. Equity Financing Summary-Acquirer Perspective 340 Deal Structure 340 Stock Sale 340 Asset Sale 343 Stock Sales Treated as Asset Sales for Tax Purposes 346 Buy-Side Valuation 349 Football Field 349 Analysis at Various Prices 352 Contribution Analysis 353 Merger Consequences Analysis 355 Purchase Price Assumptions 355 Balance Sheet Effects 360 Accretion/(Dilution) Analysis 365 Acquisition Scenarios-I) 50% Stock/50% Cash
- II) 100% Cash
- and III) 100% Stock 368 Illustrative Merger Consequences Analysis for the BuyerCo / ValueCo Transaction 373 Chapter 7 Questions 394 Part Four Initial Public Offerings 399 Chapter 8 Initial Public Offerings 401 Why Do Companies Go Public? 402 Characteristics of a Strong IPO Candidate 404 Attractive Industry 404 Strong Competitive Position 404 Growth Opportunities 405 Moat & Barriers to Entry 406 Healthy Financial Profile 406 Disruptive & Differentiated Solutions 407 Favorable Risk Profile 407 Proven Management Team 408 Key Participants 409 Investment Banks 409 Company Management 412 Current Owners / Investors 413 IPO Investors 413 Lawyers 414 Accountants 414 Exchange Partner 415 IPO Advisors 416 Vendors 416 Selected Key Terms 417 Offering Size 418 Primary / Secondary 419 Overallotment Option, a.k.a. "Greenshoe" 420 Syndicate Structure 421 Lock-up Provision 422 Listing Exchange 422 Gross Spread 423 Dual-Track Process 424 Special Purpose Acquisition Companies (SPACs) 427 Direct Listings 429 Post-IPO Equity Offerings 432 IPO Considerations 433 Chapter 8 Questions 435 Nasdaq Appendix 439 Chapter 9 The IPO Process 443 Organization and Preparation 445 Select IPO Team, Exchange Partner, and Assign Responsibilities 445 Manage Corporate Housekeeping 448 C Corp vs. Up-C Structure 453 Determine IPO Timing 455 Determine Offering Structure and Preliminary IPO Valuation 456 Host Organizational Meeting 459 Due Diligence, Drafting, and Filing 460 Perform Underwriter Due Diligence 460 Draft and File the Registration Statement 461 Prepare Other Key Transaction and Corporate Governance Documents 466 Coordinate with Equity Research 467 Respond to SEC Comments and File Amended Registration Statement 467 Marketing and Roadshow 468 Prepare Marketing Materials 468 Salesforce Teach-in 469 Conduct Roadshow 470 Build Order Book 473 Pricing and Allocation 475 Price the Offering 475 Allocate Shares to Investors 477 Closing 477 Chapter 9 Questions 479 Solutions to Selected Questions 485 Afterword 513 Bibliography and Recommended Reading 515 Index 521
by "Nielsen BookData"
