M&A Fundamentals

Part One

Introduction to M&A

• What M&A is and why it happens. M&A as means to an end. M&A and the corporate mission misalignment. Agency risk and shareholders’ interests in M&A.
• What M&A value creation is. How often it is achieved.
• 8 types of value which must be taken into account in M&A.
• Main financial and accounting concepts to understand an M&A deal: SPAs, ESOPs, CIMs, PPAs, Lock-box, Holdbacks, Earn-outs…

M&A process (I)

• Internal, external. Players and their role. Conflicts of interest in M&A. Independent advisors vs brokers and investment banks.
• Overview of the end-to-end process. Open, Sealed, Staggered or negotiated deals.
• Deal perimeters: Buyout, Spin-offs, Carve-outs, P2Ps
• Planning a deal analysis. Setting the record straight with management. Iterating analysis and deal generation.
• Sourcing the deal. Internal vs external. Pros and cons. Confidentiality issues. Choosing the right size team for each step of the process.
• Approach to valuation for listed and non-listed companies.
• Organising an appropriate due diligence – a key step to a successful deal. VDRs vs face-to-face.

M&A process (II)

• The Confidential Information Memorandum (CIM) and the Teaser. Forever marketing documents. Seeing through the pitch. Financial focus. Pre due-diligence process.
• Letter of Intent. Managing time and resources internally. Managing the Exco vs deal fundamentals.
• The Share Purchase Agreement: Definitions. Reps and warrants, Covenants, Conditions precedent. SPA risks: Inaccuracy, non-disclosure, regulatory hurdles, post-closing disputes. Minority rights and obligations. Tag along/drag along.
• Closing mechanisms as means to reduce transaction risk: Locked box vs completion explained. Analysis of their pros and cons.
• Funding the transaction. The role of investment banks and commitment letters. Conflict of interest. Management overreliance and drawbacks. Dependence of deals on market conditions. Consequences of the yield curve in M&A flow. Recent experience.
• Post-merger integration. Execution timings, internal and external comms.
• Pitfalls in M&A. Case studies of M&A gone badly wrong.

Part Two

Structuring and funding

• Merger of equals vs asymmetrical mergers.
• The importance of getting the structure right. Case studies of mis-selling the structure.
• Stock sales vs Asset sales vs Mergers. Seller’s preference vs Buyer’s preference.
• Rationale, pros and cons of each approach.
• Introduction to M&A funding: RCF, Term loans, Senior, Syndicated, High Yield, Convertibles, Preference shares, Unitranche.

Due diligence (DD)

• Operational DD. Corporate process and procedures. Time allocation. Case study of mergers gone wrong due to operational DD failures.
• Financial DD. Case study: Autonomy sale to HP.
• HR DD. Calculating severance and retention impact on valuation.
• Legal DD. Identifying the most expensive risks to the transaction.

M&A modelling*

• Valuing the company. Intrinsic and extrinsic methodologies. Public vs non-public companies.
• Building a merger model. Pre and post due diligence considerations. Modelling independence vs management pressure.
• Modelling cost of equity advantages
• Assessing relative multiples as the main driver to value creation. Pitfalls.
• Synergies: Identifying the different types. Synergies vs cost savings. Pricing in synergies in line with market standards. Marketing synergies - institutional investor’s interpretation and their potential share price consequences. Revenue synergies. Negative synergies.
• Modelling for goodwill and badwill. Recent examples of impacts and write-downs
• Understanding equity vs cash deals impact on valuations
• Introduction to waterfall funding modelling
• Sensitivity analyses. Testing for critical M&A drivers. Intrinsic vs extrinsic valuation benchmarks.
• Case study: Selecting and merging companies based on value creation

* This module will be Excel based to a large extend. A previous knowledge of spreadsheets is recommended to follow this session.

M&A competition and associated transactions

• Corporates vs private equity bidders. Motivational differences and deal dynamics.
• M&A deal engines: SPACs boom and bust
• IPOs
• Case study: When private equities overtake corporates in M&A