Leveraged Buyout Structures and Valuation

M&A and Other Res tructuring Ac tivities

M&A Environment

M&A Process

Deal Structuring

Alternative Restructuring Strategies

Motivations for M&A

Business & Acquisition Plans

Public & Private Company Valuation

D ivestitures , Spin-Offs, & Carve-Outs

Common Takeover Tactics and Defenses

Search Through Closing Activities

Financial Modeling Techniques

Bankruptcy & Liquidation

Alternative Structures

Tax & Accounting Issues

Learning Objectives
• Primary Learning Objective: To provide students with a knowledge of how to analyze, structure, and value highly leveraged transactions. • Secondary Learning Objectives: To provide students with a knowledge of – The motivations of and methodologies employed by financial buyers; – Advantages and disadvantages of LBOs as a deal structure; – Alternative LBO models; – The role of junk bonds in financing LBOs; – Pre-LBO returns to target company shareholders; – Post-buyout returns to LBO shareholders, and – Alternative LBO valuation methods – Basic decision rules for determining the attractiveness of LBO candidates

Financial Buyers
In a leveraged buyout, all of the stock, or assets, of a public corporation are bought by a small group of investors (“financial buyers”), usually including members of existing management. Financial buyers: • Focus on ROE rather than ROA. • Use other people’s money. • Succeed through improved operational performance. • Focus on targets having stable cash flow to meet debt service requirements. – Typical targets are in mature industries (e.g., retailing, textiles, food processing, apparel, and soft drinks)

LBO Deal Structure
• Advantages include the following: – Management incentives, – Tax savings from interest expense and depreciation from asset write-up, – More efficient decision processes under private ownership, – A potential improvement in operating performance, and – Serving as a takeover defense by