At the end of the course, participants will have a sound understanding of:
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Some common methods for judging the viability of investment opportunities
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The nature and uses of financial valuation techniques such as discounted cash flow (DCF) and weighted average cost of capital (WACC) and market multiples
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Key design principles for building financial models in Excel
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The nature and uses of valuation ratios such EPS, DPS, and P/E
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The key drivers of shareholder value and the methods used to calculate the value of a company such as enterprise value ratios
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The application of valuation techniques to M&A and LBOs.
Who should attend
The course should appeal to:
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Financial Analysts
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Investment and Portfolio Managers
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Commercial Bankers
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Investment Bankers
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Securities Analysts
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Business Development & Strategic Planning Executives
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Corporate Finance Analysts
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Company Advisors and Auditors
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Market Regulators
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Executives and Managers
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Credit Analysts and Credit Controllers
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Anyone working with or connected to the corporate finance process
Teaching methods
The programme combines lectures with practical and interactive case studies and exercises to reinforce the concepts. These will include real life cases in analysis and valuation.
Delegates will acquire the skills to analyse financial statements including practical, hands-on experience in the design and construction of financial models in Excel. Suitable spread sheets will be provided as part of the course materials.
Day 1
Valuation triangulation and modelling
Session 1: Investment Appraisal Techniques
- Corporate objective – maximising shareholder value
- Time value of money
- Appraising investment projects
- Alternative measures of value
- Payback period; NPV; IRR
- Introductory sensitivity analysis
- Excel tools for cash flow analysis
- Dividend discount models
- Gordon growth model
- Multi-stage dividend discount models
- Weaknesses in these models.
Case study: Comparing alternative investment opportunities and developing sensitivities of returns to variations in key project parameters.
Building the model
- Key assumptions
- Modelling principles
- Model drivers:
- Tax
- Working capital
- Capex
- Deriving financial statements.
Case study: Building a financial model.
Cost of Capital
- Capital Structure Theory: Modigiliani and Miller
- Enterprise value concept
- Impact of tax and financial distress costs
- Cost of Debt
- Cost of Equity
- WACC (weighted average cost of capital)
- How CAPM can be used to identify the cost of equity
- The impact of gearing on the cost of equity
- Model inputs and sensitivity
- Calculating beta and the risk premium.
Case study: Calculating the cost of equity using beta and adjusting the beta for changes in gearing.
WACC (Weighted average cost of capital)
- Estimating enterprise value using WACC
- Forecast of free cash flows
- Terminal value calculations
- Obtaining an equity value using WACC
- Review of WACC as a valuation tool
- Preparation of free cash flows
- Alternative terminal value calculations
- Re-iteration where necessary
- Selecting the right beta.
Case study: Valuation involving preparation of cashflows, calculation of WACC, estimating enterprise value and hence equity value.
Day 2
Valuation multiples
Multiples based valuation methodologies
- The key valuation ratios
- "Proof" of the validity of multiples-based valuation tools
- Characteristics of the earnings forecast
- Comparable company analysis
- Selecting the right companies
- Appropriate ratios/multiples.
Case study: Valuation using price/earnings ratios.
Alternative multiple-based valuation methodologies
- Weaknesses with price earnings based multiples
- Enterprise ratios and their advantages over conventional ratios
- Alternative multiple-based valuation ratios
- Price/book, price/sales, price/pop and other ratios.
Case study: Global brand valuation.
Break-up valuation analysis for M&A
- Valuing multi-activity companies
- Using comparable transaction analysis
- Valuing non-standard companies: e.g. property companies
- Accounting problems
- Accounting scams and impact on value.
Case study: Break-up analysis for a European building materials group.
Key steps in the M&A process
- Strategic decision making: do companies need to grow?
- Acquisition versus organic growth
- Strategic considerations
- Types of transaction: strategic or financial
- Developing a strategic approach to acquisitions
- Screening potential targets
- Deals from hell
- What is success?
Case study: Delegates identify causes of failures from some spectacular M&A disasters.
Day 3
M&A essentials
Growth by acquisition, by joint venture or organically
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Types of synergies: operating or financial
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Revenue enhancement or cost cutting
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Cut the fat not the muscle
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Advantages of each expansion route
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What can go wrong?
Case study: An acquisition in the brewing industry.
Due diligence (in friendly/hostile deals)
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Legal risks in acquisitions
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Mitigating risk via due diligence
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Legal protections
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Credit risk in the event of a problem
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Impact of the nature of the transaction (friendly/hostile)on due diligence
Case study: Issues arising in due diligence for a carve-out.
The impact on the financials of the bidder
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Financial analysis: producing pro forma projections
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Valuing synergies and assessing the reality of achieving them
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Analysing the effect of synergies on financials including earnings
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The breakeven price earnings ratio for debt
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Establishing the amount of debt that can be used.
Case study: Pro forma analysis of an acquisition prospect.
Financing the acquisition and deal structuring
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Assessing the impact on the value of the acquirer's shares
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Paying with shares or cash or a combination? Pros and cons of each
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Event risk and capital structure objectives
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Underwriting a share issue
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Earn-outs, contingent value rights.
Case study: Equity bridge by international acquirer.
Day 4
Leveraged buy-outs
Introduction to private equity = financial acquisitions – Recent trends
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Different types of transaction: LBO, MBO, MBI, BIMBO, IBO, LBU, P2P
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Trends in debt ratios pre- and post-credit crunch/crisis
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Growth in funds.
Case study: review of recent P2P transaction
Characteristics of private equity buy-outs
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Acquisitions suitable for leveraged finance
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Deal structuring: equity and debt (including senior and mezzanine debt)
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Refinancing with bonds or other capital instruments post acquisition
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The leveraged buy-out process
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Structure, financial economics
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Management participation, the envy ratio
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Exit strategies.
Case study: A large secondary LBO.
The road to financial distress
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Symptoms of distress
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Causes of distress
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The cycle of distress
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The role of covenants as early warning devices
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The rating agencies and missed problems
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Distressed security prices
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Systemic distress or ad hoc distress
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Speed of recognition versus management denial.
Case study: Americredit and the US car industry.
Restructuring options
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What business levels can be projected in the future
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Can the projections support the current debt burden?
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Does the company need more cash to execute the new plan?
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Legal options available
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Approaches to insolvency (INSOL Principles)
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Workouts
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Prepackaged deals
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Court led/judicial restructurings
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Comparing international approaches.
Case study: Parmalat and the Marzano Law.
Course summary & close
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Paul Richards
Paul Richards graduated from Cambridge University in mathematics and has a Masters degree in business administration from London Business School. He is also a CFA charter holder, an Associate of the Chartered Institute of Bankers, a Member of the Association of Corporate Treasurers and a Fellow of UKSIP.
Paul has more than 20 years investment banking experience specialising in domestic and international corporate finance at UBS (Warburg), HSBC and Map Securities (part of Skandia Insurance and Mapfre, Spain). He was also the chief executive of the London merchant banking operation of Credit Industriel et Commercial, a major French banking group.
As a result of this experience, Paul has extensive first hand experience of: Mergers and acquisitions; IPOs; bond issues; secondary market issues; privatisation; debt syndications; corporate treasury; equity valuation; investment analysis; security and derivative valuation; private equity; modelling; corporate governance; and compliance.
Paul won the 2004 Wincott Foundation Prize for his article "Lessons in shareholder value" on the boom and bust in new economy stocks, published in Professional Investor (the journal of the UK Society of Investment Professionals - the UK member society of the CFA Institute). He has taught MBAs and Masters to Finance students at Cass and Cranfield Business Schools for more than 12 years in a range of financial disciplines; and has trained staff at major City houses and in banks on different continents.
Courses run by this instructor
Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.
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This course has now expired please email us to find out when the course will next be running.