Corporate Finance in Context - the Toolkit
Structure of the course
Financial statement analysis
- Ratio analysis and ratio models - the DuPont framework.
- Creative accounting - capitalisation of interest, research and development and intangibles; brand accounting; lengthening asset lives etc...
- Models for predicting bankruptcy - Z scoring.
- Economic profit analysis.
- Case study: Applying the tools of financial analysis.
- Capital budgeting and project appraisal.
- Tools of project appraisal - payback period, return on investment (ROI), net present value (NPV), internal rate of return (IRR), and modified internal rate of return (MIRR).
- Dealing with inflation, taxation, risk and uncertainty -relevance of the principles of finance - Fisher Effect.
- Tools and techniques for analysing and assessing risk and uncertainty.
- Capital project proposals - analysis, interpretation and evaluation.
- Senior secured bank financing.
- Short term debt financing.
- Lending bank perspective and lending/credit risk assessment criteria.
- Pricing debt.
- Yield to redemption.
- Credit spread.
- Overview of Islamic financing.
- Mezzanine financing.
- Overview of the optimal capital structure debt: debt versus equity.
- Importance of gearing/leverage.
- Capital structure and debt capacity.
- Valuing debt instruments and estimating the cost of debt.
Equity and valuation
- Review of traditional measures with contemporary approaches:
- Accounting issues and international accounting standards.
- Importance of value driver analysis.
- Key issues in valuation- estimating cash flow, assessing risk, competitive advantage analysis and terminal value estimation.
- Developments in valuation- commercially available valuation models and databases.
- Overview of valuation applications: Initial Public.
- Offerings (IPOs), Mergers and Acquisitions (M&A), Buyouts, Restructuring, Asset Management.
Cost of equity
- Supply and demand estimates - using dividends versus required investor returns.
- Brief overview of:
- Dividend Valuation Model (DVM).
- Capital Asset Pricing Model (CAPM).
- Risk free rate.
- Equity risk premium.
- Case study: Valuing a real-life company.
IPOs and M&A Analysis
Initial Public Offerings (IPOs)
- Key requirements of IPO candidates.
- Pros and cons of going public.
- Understanding the process from start to finish.
- Selecting the underwriter.
- Selecting the market.
- Determining the amount of capital to be raised.
- Valuation challenges.
- Case study: Valuing a telecoms IPO in an emerging market.
Mergers & Acquisitions (M&A)
- Definition and overview.
- The process.
- Key success factors.
- Estimating synergies - valuing existing businesses on a stand-alone basis and comparing them with the value of the combined businesses.
- Importance of understanding different perspectives control premium, valuation of synergies and perspective.
- Valuing the acquisition target with synergies.
- Potential acquisition defences - actions that a target can use to defend against a potential acquisition.
- Case study: Estimating the value of synergies from an acquisition.
- Review of due diligence.
- Types of due diligence.
- Linking due diligence with value driver analysis.
Making mergers and acquisitions work
- Why mergers and acquisitions fail.
- Characteristics of successful mergers and acquisitions.
Restructuring and value based management
Types of restructuring
Pressures to restructure
- Business turbulence.
- Debt problems.
- Assessing vulnerability- financial ratios, Z scoring and A scoring.
How to restructure
- Asset sales.
- Understanding the value of a portfolio.
- Understanding conglomerate discount.
- Assessing the value of the parts.
- Applying peer group analysis.
- Debt capacity and restructuring.
- Case study: Major restructuring case study.
Managing for value and value based management (VBM)
- Linking VBM, restructuring, M&A analysis and economic profit analysis.
Financing issues, privately financed deals, buyouts and private equity.
Understanding and determining the optimal capital structure: debt, equity and other alternatives, e.g. mezzanine
Different types of finance:
- Senior secured debt.
- Asset-based finance.
- Bridge financing.
- Mezzanine debt.
- High-yield bonds.
- Subordinated seller notes and earn-outs.
Understanding privately financed deals
- Understanding the difference between the corporate (strategic) and deal (financial) perspectives.
- What is the fundamental basis of the privately financed perspective?
- Key issues and priorities in privately financed deals:
- Creating a funding structure.
- Due diligence.
- Legal issues and documentation.
- Review of types of buyouts.
- Management buyouts (MBOs).
- Management buy-ins (MBIs).
- Leveraged buyouts (LBOs).
- Evaluating a buyout candidate.
- Financing a buyout candidate.
- Key practical issues.
- Private equity.
- Case study: Evaluating a buyout.
Course summary and close