MnA, LBO and others

Question 1

Under what circumstances would a company prefer to offer equity over debt?

Answer 1

Company does not have sufficient cash flow to service debt

Does not have collateral

Share price is perceived to be high

Equity markets are attractive and on a bull run

Question 2

When looking at forecasted multiples, what would a rapidly declining P/E multiple imply about a
company?

Answer 2

Means earing growth outpacing equity valuation

Question 3

Walk me through the process of a sell-side MnA deal

Answer 3

Firm will prepare redacted material about company, usually designed to keep company anonymous, send out to a list of potential buyers.

Once serious pool of potentials are involved, they sign NDAs, IB will then prepare slides to pitch the company to the potential buyers.

Once bidding is complete and buyer is serious, need to meet with eachother and such, IB will then conduct due diligence and finalise deal: Fairness valuations etc

Question 4

What are the two type of buyers?

Answer 4

Strategic and financial.

Question 5

Walk me through an LBO

Answer 5

1) Asses purchase price, usually a multiple of LTM EBITDA, aswell as the combination of debt and equity used

2) Build a sources and uses table to asses where the money is coming from and how it is being spent

3) Project Unlevered FFCFs for next 5-7 years, to asses how much cash we have to pay debt

4) Model tranches of debt and forecast debt payments overtime

5) Calculate companies exit value