Day 8 - Transaction Comparables and LBO Valuation

Day 8 a.m. - Transaction Comparables

Participants are introduced to preparing a transaction multiples matrix using LTM earnings. The rationale and components of control premium and its impact on valuation are discussed. The practical issues that are commonly met are flagged, using actual deal documentation. A comparable transaction analysis is performed on the case industry.

Key topics:

• Difference between trading multiples and multiples from precedent transactions
• Selection of transactions and information gathering
• Change of control issues
  • ­Share capital and equity linked instruments
  • ­Pensions
  • ­Poison pills
• Control premium and synergies
• Practical issues with transaction comparables
• Analysis and summary output

Day 8 p.m. - LBO Valuation

Participants are introduced to the basic concepts underlying leveraged buyouts. The session starts by establishing why private equity firms can create value through leveraged buyouts and how the levered valuation fits into the valuation roadmap. Using a simple free cash flow forecast, participants establish how much a financial buyer could pay for the target company. Participants then build a simple LBO model.

Key topics:

• What an LBO is and how it can create value
• LBO valuation as an alternative valuation methodology
• Characteristics of suitable LBO candidates
• Estimating cash flows available to capital holders
• Estimating debt capacity
• Simplified debt / equity split for entry capital structure
• Sources and uses of funds
• Debt structure
• Estimating the exit value
• Calculating the IRR
• Sensitizing the model