Investment Banking: Valuation, Lbos, M&a, and IPOs (Book + Valuation Models)Hardcover (2024)

Additional Resources xv

About the Authors xvii

Foreword xxi

Acknowledgments xxiii

Disclaimer xxxi

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 2 Precedent Transactions Analysis 75

Summary of Precedent Transactions Analysis Steps 76

Step I. Select the Universe of Comparable Acquisitions 79

Screen for Comparable Acquisitions 79

Examine Other Considerations 80

Step II. Locate the Necessary Deal-Related and Financial Information 82

Public Targets 82

Private Targets 85

Summary of Primary SEC Filings in M&A Transactions 86

Step III. Spread Key Statistics, Ratios, and Transaction Multiples 88

Calculation of Key Financial Statistics and Ratios 88

Calculation of Key Transaction Multiples 94

Step IV. Benchmark the Comparable Acquisitions 98

Step V. Determine Valuation 98

Key Pros and Cons 99

Illustrative Precedent Transaction Analysis for ValueCo 100

Step I. Select the Universe of Comparable Acquisitions 100

Step II. Locate the Necessary Deal-Related and Financial Information 101

Step III. Spread Key Statistics, Ratios, and Transaction Multiples 103

Step IV. Benchmark the Comparable Acquisitions 111

Step V. Determine Valuation 113

Chapter 3 Discounted Cash Flow Analysis 115

Summary of Discounted Cash Flow Analysis Steps 116

Step I. Study the Target and Determine Key Performance Drivers 120

Study the Target 120

Determine Key Performance Drivers 120

Step II. Project Free Cash Flow 121

Considerations for Projecting Free Cash Flow 121

Projection of Sales, EBITDA, and EBIT 123

Projection of Free Cash Flow 125

Step III. Input Transaction Structure 229

Step III(a): Enter Purchase Price Assumptions 229

Step III(b): Enter Financing Structure into Sources and Uses 231

Step III(c): Link Sources and Uses to Balance Sheet Adjustments Columns 232

Uses of Funds Links 235

Step IV. Complete the Post-LBO Model 238

Step IV(a): Build Debt Schedule 238

Step IV(b): Complete Pro Forma Income Statement from EBIT to Net Income 247

Step IV(c): Complete Pro Forma Balance Sheet 250

Step IV(d): Complete Pro Forma Cash Flow Statement 252

Step V. Perform LBO Analysis 254

Step V(a): Analyze Financing Structure 254

Step V(b): Perform Returns Analysis 256

Step V(c): Determine Valuation 260

Step V(d): Create Transaction Summary Page 261

Illustrative LBO Analysis for ValueCo 262

Part Three Mergers & Acquisitions 273

Chapter 6 Sell-Side M&A 275

Auctions 276

Auction Structure 279

Organization and Preparation 279

Identify Seller Objectives and Determine Appropriate Sale Process 279

Perform Sell-Side Advisor Due Diligence and Preliminary Valuation Analysis 281

Select Buyer Universe 281

Prepare Marketing Materials 282

Prepare Confidentiality Agreement 285

First Round 286

Contact Prospective Buyers 286

Negotiate and Execute Confidentiality Agreement with Interested Parties 286

Distribute Confidential Information Memorandum and Initial Bid Procedures Letter 287

Prepare Management Presentation 288

Set Up Data Room 289

Prepare Stapled Financing Package (if applicable) 291

Receive Initial Bids and Select Buyers to Proceed to Second Round 291

Second Round 293

Conduct Management Presentations 293

Facilitate Site Visits 294

Provide Data Room Access and Respond to Diligence Requests 294

Distribute Final Bid Procedures Letter and Draft Definitive Agreement 295

Receive Final Bids 296

Negotiations 300

Evaluate Final Bids 300

Negotiate with Preferred Buyer(s) 300

Select Winning Bidder 300

Render Fairness Opinion (if required) 301

Receive Board/Owner Approval and Execute Definitive Agreement 301

Closing 302

Obtain Necessary Approvals 302

Shareholder Approval 303

Financing and Closing 305

Negotiated Sale 306

Chapter 7 Buy-Side M&A 309

Buyer Motivation 310

Synergies 311

Cost Synergies 312

Revenue Synergies 312

Acquisition Strategies 313

Horizontal Integration 313

Vertical Integration 313

Conglomeration 314

Form of Financing 315

Cash on Hand 316

Debt Financing 316

Equity Financing 317

Debt vs. Equity Financing Summary—Acquirer Perspective 318

Deal Structure 318

Stock Sale 318

Asset Sale 321

Stock Sales Treated as Asset Sales for Tax Purposes 324

Buy-Side Valuation 327

Football Field 327

Analysis at Various Prices 330

Contribution Analysis 331

Merger Consequences Analysis 333

Purchase Price Assumptions 333

Balance Sheet Effects 338

Accretion/(Dilution) Analysis 343

Acquisition Scenarios—I) 50% Stock/50% Cash; II) 100% Cash; and III) 100% Stock 346

Illustrative Merger Consequences Analysis for the BuyerCo/ValueCo Transaction 351

Part Four Initial Public Offerings 373

Chapter 8 Initial Public Offerings 375

Why Do Companies Go Public? 376

Characteristics of a Strong IPO Candidate 378

Attractive Industry 378

Strong Competitive Position 378

Growth Opportunities 379

Moat & Barriers to Entry 380

Healthy Financial Profile 380

Disruptive & Differentiated Solutions 381

Favorable Risk Profile 381

Proven Management Team 382

Key Participants 383

Investment Banks 383

Company Management 386

Current Owners/Investors 387

IPO Investors 387

Lawyers 388

Accountants 388

Exchange Partner 389

IPO Advisors 390

Vendors 390

Selected Key Terms 391

Offering Size 392

Primary/Secondary 393

Overallotment Option, a.k.a. “Greenshoe” 394

Syndicate Structure 395

Lock-up Provision 396

Listing Exchange 396

Gross Spread 397

Dual-Track Process 398

Special Purpose Acquisition Companies (Spac s) 401

Direct Listings 403

Post-IPO Equity Offerings 406

IPO Considerations 407

Nasdaq Appendix 409

Chapter 9 The IPO Process 413

Organization and Preparation 415

Select IPO Team, Exchange Partner and Assign Responsibilities 415

Manage Corporate Housekeeping 418

C Corp vs. Up-C Structure 423

Determine IPO Timing 425

Determine Offering Structure and Preliminary IPO Valuation 426

Host Organizational Meeting 429

Due Diligence, Drafting, and Filing 430

Perform Underwriter Due Diligence 430

Draft and File the Registration Statement 431

Prepare Other Key Transaction and Corporate Governance Documents 436

Coordinate with Equity Research 437

Respond to SEC Comments and File Amended Registration Statement 437

Marketing and Roadshow 438

Prepare Marketing Materials 438

Salesforce Teach-in 439

Conduct Roadshow 440

Build Order Book 443

Pricing and Allocation 445

Price the Offering 445

Allocate Shares to Investors 447

Closing 447

Afterword 449

Bibliography and Recommended Reading 451

Index 457

Investment Banking: Valuation, Lbos, M&a, and IPOs (Book + Valuation Models)Hardcover (2024)

FAQs

What are the valuation models for investment banking? ›

There are many ways to value a company, but the most common ones in investment banking are: discounted cash flow (DCF), comparable company analysis (CCA), precedent transaction analysis (PTA), and leveraged buyout (LBO).

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Can you tell us what a banker does in an IPO or M&A deal? ›

On an IPO, the investment bank's responsibilities are very similar to those on a sell-side M&A transaction, insofar as it's responsible for positioning the company to prospective investors, drafting marketing materials, conducting investor outreach and determining a reasonable valuation.

Discover More Details ›

What is the sell-side of M&A investment banking? ›

The process of selling a business is similar to a general auction. However, in the M&A industry a sell-side auction is brokered by an investment bank who guides the buyer or bidder through a staged process, providing them informa- tion throughout.

What is the difference between LBO and DCF valuation? ›

LBO focuses on acquiring and managing a company to produce returns through operational improvements and sales. However, DCF estimates investment intrinsic value based on future cash flows.

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What are the 3 valuation of financial assets models? ›

The three widely used valuation methods used in business valuation include the Asset Approach, the Market Approach, and the Income Approach.

Find Out More ›

What is the difference between M&A and investment banking? ›

Investment bankers generally do the same work for sellers offered by M&A Advisors in boutique M&A firms. The difference is the value of the businesses they represent, the amount of work required to close a more significant, more complex transaction, and their firm's ability to assist in raising capital if needed.

Tell Me More ›

How much do investment banks charge for M&A? ›

In general, the smaller the transaction, the higher the percentage fee will be. Roughly speaking, fees for a $10 million deal might range from 5-8%, fees for a $20 million deal might range from 4-6%, fees for a $50 million deal might range from 2-4%, and fees for a $100 million deal might range from 1-3%.

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Why M&A is better than IPO? ›

An M&A is also one strategy that could be completed at nearly any time, while the IPO may a few years to go through all of the legal issues dealing with the SEC and Wall Street in general. One of the best things about an M&A exit strategy is that it may come out of relationships that present an opportunity.

Explore More ›

What is an ioi in M&A? ›

An indication of interest (IOI) is an informal notice of an investor's interest in purchasing or acquiring an asset.

How do investment banks make money from M&A? ›

Investment banks charge fees to act as advisors for spinoffs and mergers and acquisitions (M&A). In a spinoff, the target company sells a piece of its operation to improve efficiency or to inject cash flow. On the other hand, acquisitions occur whenever one company buys another company.

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What is the difference between buyside and sellside M&A? ›

The buy side is all about analysis, purchase and investment. On the sell side, companies are looking to create liquidity, build relationships and raise capital. In this case, it's through M&A deals. The sell side is all about promoting, generating interest and getting buyers.

Read The Full Story ›

What are the models of bank valuation? ›

Discuss the most common bank valuation methodologies: the dividend discount model, the residual income model, comparable analysis and regression, and calculating a bank's net asset value.

See Details ›

What are the 3 methods of investment appraisal? ›

Investment appraisal is one of the eight core topics within Financial Management and it is a topic which has been well represented in the exam. The methods of investment appraisal are payback, accounting rate of return and the discounted cash flow methods of net present value (NPV) and internal rate of return (IRR).

Get More Info Here ›

What is the valuation model of an investment? ›

The investment valuation model can be classified into relative and absolute models. The relative model uses comparison ratios to compare investments based on market price. In contrast, the absolute model attempts to find fair value based on an asset's projected cash flow value.

What are the investment evaluation models? ›

Valuation Model Methods

There are three main investment valuation models commonly used in the “absolute” and “relative” categories. They are the “Dividend Discount Model, “Discounted Cash Flow Model” and the “Comparables Method.” Each process has its own strengths and weaknesses.

Investment Banking: Valuation, Lbos, M&a, and IPOs (Book + Valuation Models)Hardcover (2024)

Table of Contents

FAQs

What are the valuation models for investment banking? ›

What is the difference between buyside and sellside M&A? ›