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TECHNICAL TRAINING

AlumnEye©2018 -All rights reserved. 9

Table of Content

►Introduction to Valuation
►Different Methodologies for Valuation
» Public Comparables
» Acquisition Comparables
» Discounted Cash Flow
» Accretion/Dilution
» Leveraged Buyout
►Frequently Asked Questions

AlumnEye© 2018-All rights reserved. 10

)
Introduction to Valuation

•A valuation allows to answer the question: « how much is a

company worth?». Another way to look at it is: « how much is
a bt!Jer willing to pqy for this company?»
•3 main methods exist to determine a valuation:
- Multiple methods
• public comparables
• transaction comparables
- Discounted Cash Flow

I ITW Q 0
WHAT ARE THE DIFFERENT VALUATION

METHODS?
:

AluIIU1Eye©2018 -All rights reserved. 11

Introduction to Valuation
WHAT FOR?

•Initial public offering

•Debt Offering
•M&A
- Buy-side or Sell-side
- Restructuring
-LBO
- Active Defense
- « Fairness opinions»
•Research

AluIIll1Eye©2018 -All rights reserved. 12

I<:.ey
Concepts
• EQUITYVALUE:
- Value of shareholders' interests
- Also called: Market Cap, Market Value, Offer Value

• ENTERPRISE VALUE:
- Includes all forms of financing: equity, debt, preferred stocks,
minority interests, associates
- Also called: Firm Value, Total EV, Transaction Value, Aggregate
Value, Adjusted Market Value

• PERFORMANCE MEASURES:
- Sales, EBITDA, EBIT, Net Income, EPS, FCF, etc.

AlunmEye© 2018 -All rights reserved. 13

Enterprise Value
w4 7-
W .SO'--vt
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l .1ab11it1c" Jt f: V"'J
,Je.,l/ -

AlumnEye© 2018 -All rights reserved. 14

J
 Minority Interests '(

■ If a Company A owns >50% of another Company B, the parent company A has to consolidate its
books, reflecting 100% of the assets and liabilities and 100% of financial performance of the
majority-owned subsidiary B

■ Since the parent company A does not own 100% of the subsidiary B, the parent company A has to recognize
two items in its financial statements:
In the Balance Sheet, you will find an entry in the Shareholder Equity section representing the proportion
of the subsidiary B that parent company A does not own (i.e. owned by minority shareholders)
In the Income Statement, you will find a line« Minority Interests» reflecting the portion of the subsidiary
B's net income that the parent A is not entitled to (= % of minority ownership x Net Income of B)

■ Example: Company A owns 90% of Company Band theEquity Value of Bis $100mm
On Ns Balance Sheet, there is a $10mm liability in minority interests account to account for the 10% of Company B
that Company A does not own
On Ns Income Statement, there is a line« minority interests» reflecting 10% of B's Net Income that A is not entitled
to

AlunmEye© 2018 -All rights reserved. 15

Associates

■ An Associate Company B is a company whose parent A owns a minority stake in the

ownership, typically between 20% and 50% of ownership (if >50% it becomes a subsidiary).

■ In this case, the parent company does not consolidate the Associate company's financial statements. The
revenues and profits from the Associate company appear separately in the parent company's Income Statement
In the Income Statement, you find a line« Income from Associates». It is the proportional share of the
Associate company Net Income. It is recorded post tax, thus you should not apply Taxes on this income stream
In the Balance Sheet, you find an Asset recording the associate company's value, named
« Associate »

■ You can see Associates as the reciprocate of Minority Interests:

If a Company C is owned at 80% by a company A, it creates Minority Interests in Ns
Balance Sheet (as a Liability)
If the remaining 20% of Company C is owned by a company B, it creates a line« Associate» in company B's
Balance Sheet (as an Asset)

AlunmEye© 2018 -All rights reserved. 16

 Unfunded Pension Liabilities

• Unfunded Pension Liabilities are also called Pension Provisions

• Pension Provision = [Projected Benefit Obligation* - Fair Value of plan Assets**] x (1-
Tax rate)
• Only Defined Benefit Plans*** are liabilities for the company

*Projected Benefit Obligation (PBO) is the net present value of the anticipated pension payments that will be incurred in
the future for services rendered in the past. It thus represents the future obligations / liabilities toward employees. PBO
calculation is based on actuarial and financial assumptions: wage inflation, expected final salary, turnover and expected
retirement date, discounts rate, etc.
**Fair value of assets ("FVA'') is the market value of the stocks, bonds, real estate, and other assets allocated to the
fulfilment of the obligations
The pension plan is: Overfunded if FVA > PBO
Underfunded if FVA < PBO
DEFINED CONTRIBUTIONS (DC) PLANS DEFINED BENEFIT (DB) PLANS
•Commitmenttomakecontributions on a regular basis on behalf of the •The company will have to pay an already established pension to the
employee into a fund employee
•No promise from the company to the employee that it will pay an •Pension plan may be funded (investments are paid into a fund and
already established pension generate returns) or not
•No risk borne bythe company •Whole risk supported by the company
No accounting restatements: contributions are booked as costs •IAS 19 requires the company to provisionfuture employee
benefits

AlumnEye© 2018 -All rights reserved. 17

Capital vs Operating Leases

Finns often choose to lease long-term assets rather than buy them fora vmicty of reasons - the tax benefits are greater to the lessor than the
lessees, re;;;s offer more flexibility in tern1s of adjusting to chanbrcs in technology and capacity needs. Lease payments create the same kind of
obligation that interest payments on debt create, and have to be viewed in a similar light. If a fim1 is allowed to lease a significant portion of its
assets and keep it off its financial statements, a perusal of the statements will give a very misleading view of the company's financial strength.
Consequent!)', accounting rules have been devised to force firms to reveal the extent of their lease obligations on their books
There are two ways of accounting for leases:
In an operating lease, the lessor(or owner) transfers only the right to use the property to the lessee. At the end of thelease period, the lessee
returns the property to the lessor. Since the lessee does not assume the risk of ownership, the lease expense is treated as an operating
expense in the income statement and the lease does not affect the balance sheet.
In a capital lease, the lessee assumes some of the risks of ownership and enjoys some of the benefits. Consequent!); the lease, when signed,is
recognized both as an asset and as a liability(for the lease payments) on the balance sheet. The firm gets to claim depreciation each year on the
asset and also deducts theinterest expense component of thelease payment each rear. In general, capital leases recognize expenses sooner than
equivalent operating leases
Since fim1s prefer to keep leases off the books, and sometimes prefer to defer expenses, there is a strong incentive on the part of firms to report
all leases as operating leases. Consequently the FinancialJ\ccounting Standards Board has ruled that a lease should be treated as an capital lease
if it meets any one of thefoUowing four conditions
(a)if thelease life exceeds 75% of the life of the asset
(b)if there is a transfer of ownership to the lessee at the end of the lease term
(c)if there is an option to purchase the asset at a "bargain price" at the end of thelease term
(d)if thepresentvalue of the lease payments, discounted at an appropriate discount rate, exceeds 90% of the fair market value of the asset

Source: Damodaran

Alu11U1Eye© 2018 -All rights reserved. 18

 Capital vs Operating Leases (Cont'd)

<G>
The lessor uses the same criteria for dctemuningwhcther the lease is a capital or operating lease and accounts for it accordingly. If it is a capital
lease, the lessor records tl1e present value of future cash flows as revenue and recognizes expenses. 'I11e lease receivable is also shown as an
asset on the balance shee and the interest revenue is recognized over the term of the lease, as paid.
Prom a tax standpoin the lessor can claim the tax benefits of the leased asset only ifit is an operating lease, though the revenue code uses
slightly different criteria for determining whether the lease is an operating lease.
When a lease is classified as an operating lease, the lease expenses are treated as operating expense and the operating lease does not show up as
part of the capita! of the firm.
When a lease is classified as a capital lease, the present value of the lease expenses is treated as debt, andinterest is imputed on this amount and
shown as part of the income statement In practical terms, however, reclassifying operating leases as capital leases can increase the debt shown
on the balance sheet substantially especially for firms in sectors which have significant operating leases; airlines and retailing come to mind.
We would make the argument that in an operating lease, the lease payments are just as much a commitment as lease expenses in a capital lease
or interest payments on debt The fact that the lessee may not take ownership of the asset at the end of the lease period, which seems to be the
crux on which the operating/ capital lease choice is made, should not be a significant factor in whether the commitments are treated as the
equivalent of debt
•Convertingoperatinglease expenses into a debt equivalent is straightforward. The operating lease payments in future years, which are reveakrl
in the footnotes to the financial statemeni,; for US firms, should be discounted back at a rate that should reflect their status as unsecured and
fairly risky debt. As an approximation, usingtl1e firm's current pre-tax cost of debt as the discount rate yields a good estimate of the value of
operating leases. Note that capitalleases are accounted for similarly in financial statemenLs, but ilie significantdifferenceis that the present
value of capital lease payments is computed using the cost of debt at the time of the capital lease commiunen½ and is not adjusted as market
rates change.

Source: Damodaran

AlumnEye©2018 -All rights reserved. 19

I<:.ey Financial Statements &

Links
Income
1 Sales
Statement Balance Sheet Cash Flow Statement
L- COGS
Assets Beginning Cash
, Gross Margin Current Assets Balance
'1 -SG&A .------• Long-Term Operating CF
-t" -R&D Assct.S .---++ EBITDA
C - Rent Liabilities -/1 Net Working Capital
--1- EBITDA Current Liabilities -Income Tax
r _ D&A ======------ L::;;o.:..:n.:b..-.:::tc ·r.:..:m.:.;L=ia""b""ili"'tic:::c.."1-,: ,1----- -Interest Expense
Investing CF
,1EBITA Shareholder's Equity -CAPEX (Maintenance+
-Amortization of GW Common Stock Retained Investment)
Earnings -Investment in subsidiaries
_j EBIT
+Income from Associates
-Lntcrcsc Expense Financing CP
-Participation des Salaries + Proceeds from shares issued
- Share Buybacks
,//o Pretax Earnings
- Dividend paid
A - Income Tax
+ New Debt Raised
A tNetlncome - Debt Repaid
V NetIncome Group et increase/ (decrease) in cash
Share
Net Income from minorities
Ending Cash Balance

AhumEye©2018 -All rights reserved. 20

 EBIT

• Earnings Before Interest and Taxes

- Operating revenues before the effects of financing
(reflected by the Interest Expenses) and taxes
- In theory, it is a good measure of the operating profit of a
company. By including Depreciation & Amortization
(D&A), EBIT takes into account the cost of Long-Term
investments
- EBIT does not depend on the capital structure of the
company

AlumnEye© 2018 -All rights reserved. 2

1

EBITDA

• Earnings Before Interest, Taxes, Depreciation and Amortization

- Used as a proxy for Operating Cash Flow
• EBITDA does not depend on the capital structure of the
company
• EBITDA is NOT equal to actual Cash Flow:
- Working Capital need is not reflected (ST investment), nor
CAPEX (LT investment)
ITW
:
Q WHAT IS THE DIFFERENCE BETWEEN EBITDA AND "EBE"?
0

La "Participation des Salaries" qui n'existe qu'en France

EBITDA = EBE - Participation des salaries - Dotations aux provisions d'exploit.

AlunmEye©2018 -All rights reserved. 2

2
 Goodwill

■ Goodwill: Excess purchase price over fair mar et value of net identifiable assets.
Goodwill is an intangible asset on the balance sheet resulting from an acquisition. It
typically reflects the value of intangible assets such as a strong brand name, good
customer relations, good employee relations and any patents or proprietary technology

■Net identifiable assets: Assets -Target's existing goodwill- Liabilities - Non-

controlling interest

Purchase Price
GOODWILL
You do not amortize
goodwill. Instead, you
Write-ups to FMV
test it for impairment
every year
Net identifiable
Assets of Target

AlumnEye©2018 -All rights reserved. 2

3

PUBLIC
COMPARABLE
S

AlumnEye© 2018 - All rights reserved. 24

 Public Comparables

• Comparison with similar quoted companies

• It is based on public information at a given point in time
• This method gives a relative valuation based on key multiples

EquityValue EnterpriseValue
Netlncome Sales I EBITDA I
ex:Jan 1st. 20XX, Apple trades at 14x NTM EPSEBIT
and NTM EPS=$30 Calculate
Apple's share price
Price per share = PE multiple* EPS = $420

If Microsoft NTM EPS is $3, what price per share can we imply using a comparable
multiple analysis?
Implied share price= Apple PE*MSFT EPS = 14*3 = $42

AlumnEye© 2018 -All rights reserved. 2

5

Public Comparables
WHAT IS A« COMPARABLE» COMPANY?

}
■In terms of Operations:
- WHAT: products, services
- WHERE: geography, markets
- WHO: clients, suppliers Selecting the peer
- HOW: distribution group

• In Financials:
- Growth rates
- Margins
- Credit Statistics Sorting the peers
- Size (EV)
- Market Shares

■ Problems:
- How do you manage holdings with different business units?
- How do you determine the value of the brand and the management expertise?

► It is often difficult to find pure comparables

AlumnEye© 2018 -All rights reserved. 2

6

,/
 Public Comparables
WHERE TO FIND THE COMPARABLES?

•Companies identify their competitors in their regulatory filings (10-K., IPO prospectus)
- www.sec.gov/ edgar/ searchedgar/ companysearch.html
- www.amf-france.org/inetbdif/sch_cpy.aspx?lang=fr

•Your bank will often have previously constituted lists of comparables that you will need
to update

•Broker Notes published by research departments (available on Thomson)

•Financial information databases: Capital IQ, FactSet, Bloomberg, etc.

AlumnEye© 2018 -All rights reserved. 27

Multiple
s
EQUITY PERFORMANCE
MULTIPLES
Only concerns equity shareholders
AFTER interest expense, preferred
dividends and minority interest
Numerator is Equity Value
Most common multiples: Price/EPS («
P /E multiple») Market Value/Net
Income
Market Value/Book Value (FIG) PE/
Growth Rate (« PEG ratio »)
ENTERPRISE MULTIPLE
PERFORMANCE
Concerns all capital holders BEFORE
interest expense, preferred dividends or
minority interest
Numerator is Enterprise Value as it must
include all forms of capital
Most common multiples: Enterprise
Value/Sales Enterprise Value/EBITDA
Enterprise Value/EBIT

AlumnEye©2018-All rights reserved. 2

8
 Interpretation of Multiples

• Multiples depend on:

- Risk: operating risk (margin), credit risk (credit stats)
- Growth: sales, EBITDA, EBIT, EPS
- Size: EV, market share

• Companies are compared through their multiples

AlumnEye© 2018 -All rights reserved. 2

9

Public Comparables
EXAMPLE OF PUBLIC COMPS

Ente111riN Value Price

Stock Price Proj.
as a Multi!!le of: H a Mu!!!J!le of:
En11t111rtu Ll LTM CY+t CY+2 5YrEPS PEG
uof: Markel
CCllllflUIV Value lal M LTM
EPS R.all
Value
sU3x
■l EPS Gr. Rate o
CampbetlSoupCo. £19.10 £6,689.7 £8,234.4 9 ox
ESIIDA 10.8x 13.9x 13.0x 7.4% t.7it
Sant..4. 2009 of Eoultv
EBIT
ConAgra Foods, Inc. 12.69 5,621.5 7,599.6 u0.98 10.3 12.9 12.1 9.6% 1.3
Danone 32.69 (b) 20,028.1 26,010.6 1.99 1 14.6 17.7 15.7 8.8% 1.8
Hershey Co. 23.65 5,372.8 6,460.4 2.00 10.8 12.9 18.6 17.3 8.8% 2.0
HJ Heinz Co. 23.14 7,294.4 10,255.3 1.67 9.5 11.3 14.2 13.1 7.6% 1.7
Kran Foods Inc. 17.20 25,375.6 36,666.4 1.47 10.0 11 7 14.3 13.1 9.0% 1.5
NeslleSA 24.88 (c) 89,958.3 102,088.7 1.63 9,.2 10.7 15.5 14.5 6.9% 2.1
Sara Lee Corp. 5.74 3,995.1 5,138.7 0.65 5.'6 8.1 10.3 9.4 10.3%
0.9
Tootsie Roi Industries Inc. 14.03 808.9 783.5 2.46 14.1 17.5 26.3 24.1 NA

NA
High 2.46x 14.1x 17.5x 26.3x 24.1 x 10.3% 2.1
Avenige 1.62 9.8 12.0 16.0 14.7 8.5% 1.6
.
Median 1.67 9.5 11.3 14.3 13.1 8.8% 1-7
Low 0.65 5.5 8.1 10.3 9 4 6.9% 0.9

C.dbury pie £5.68 £7,831.1 £9,801.1 Ui7x 10.b ...._ 13.3x 18.3x 14.3x 14.1%
\a) ed as hlaiki!I Value uf Equity Iola\ debl., mmonty ncrcsi.Md p(dcn-w S\<X , less <.a.sh & le\ls"'- 1.0

AlumnEye©2018 -All rights reserved. 30

 Case: Valuation Exercise
Assumptions as of September 4, 2009:
Diluted shares = 1,378.707 million LTM EBITDA = £ 887.0 million
Net debt= £1,770.0 million 2009E EPS = £ 0.35
LTM Sales = £ 5,711.0 million 2010E EPS = £ 0.40
Questions: After reviewing the comparables, we determine: 1/ an
EBITDA range: 9.0x to 11.0x
2/ the implied Enterprise Value and Equiry Value
3 / the implied price per share
EBITDA Mlllriplc 9.0x 11.0x
*LTMEBIIDA *887.0 *887.0
= Enterprise Value (mm) = 7,983 = 9,757
-Net Debt (1,770) (1,770)
= Equity Value =6,213 =7,987
/ Diluted Shares /1,378.707 /1,378.707
= Price per share = £ 4.51 =£ 5.79

o tY.tl.. .. AlumnEye© 2018 -All rights reserved. 31

r.

TRANSACTION
COMPARABLES

AlunmEye© 2018 -All rights reserved. 32

 Transaction Comparables

■ Comparison with similar deals

■ A fundamental difference with public comparables, the price paid is
on average higher as it reflects:
- Control premium
- Potential synergies
■ Transaction comparables are very sensitive to:
- Timing and surrounding events (bidding war)
- Considerations paid (Cash vs Stocks)
• About transaction comparables, we use the following vocabulary:
Offer Value (= Equity Value) Transaction Value (= Enterprise Value)

AlurrmEye©2018-A11 rights reserved. 33

Transaction Comparables
WHERE TO FIND THE« COMPARABLES »?

■Regulatory filings
- www.sec.gov/ edgar/ searchedgar/ companysearch.html
- www.amf-france.org/inetbclif/ sch_cpy.aspx?lang=fr

■Your bank will often have previously constituted lists of comparables that you will
need to update

■Databases for deal summaries: Thomson, Capital IQ, Dealogic, FactSet...

■Regulatory filings:
8-K for« material event»
- S-4 merger proxy

■Other sources for smaller or private deals:

- Financial newspapers
- Broker notes

AlmmEye©2018 -All rights reserved. 34

 Transaction Comparables
TRANSACTION COMPARABLES

PRE-SYNERGIES: Premium TranHClio

Trane V!!Y! LTM 2!!!L Synergleo n ValUe /
Dote LlM LTN EBITilA .-.11'1n%of
1 Day Anoou.m:1d Adjuoled
Tar ell Ac ulror Announced Sale■ ESITI)A !Mr !fl Ptlor
Wm. Wrigley Jr Company/ Mars, lncOfJ)Ofllled $22,313.1
04/28/08 $23,146.1 281%

t
Certain Biscuits & Cereal Assets of DANONE I Kraft Foods Incorporated 03/07/07 7,216 o (c) 7,216.0 (c) 4 14x
2.67 @13.7224%19.4% NA
Certain Confeclione,y Assels of Kraft I Wm, Wrigley Jr Compony 11115104 1,1800 1,180.0 2.47 224% NA $300 6.3% 8,6x
Chips Corporation I Orkla ASA
11106/04 515 5 (d) 6318 (d) 158 138% 235% NA
Adams Confeclionery Business I Cadbury SchWepps pie 12117/02 3,750.0 3,1810 2 01 12.9 15.5% NA 125,0 6.6% 9,1
Hershey Foods Corp / Wm Wrigley Jr. Company Ralston NA 12,5012 13,193.1 2 89 14.7 196% 42.4% NA
Purina Co. / Nestle S A
01/18/01 10,010.3 10,3103 3 73 15.7 23.8% 36.0% 260.0 9.4% . 11.2
Van Melle N.V. / Per1etti S.p A Keebler Foods Co./
01/15/01 920,0 (a)
952 8 (e) 199
, 71.9% N
Kellogg Co Nabisco Holdings Corp. / Philip Morris A
10126100 3,853 3 4,553 3 187 18.7% 82% 7.9
165% 17
06125100 14,934.0 18,934, 2 23 101.4 71% 9,5
0 Jri % 0.0
High 414• 1814.8%
5x l01A% 600 94% 11..2
Average 23.8% 46.0% .0 71% >
Median 254 1313.6
5 9391
16.4% 36.0% 6.6%
Low 18.5% 13.6% 187%
1.56 11 0 6.:1% 7.9
2.35 13 3 180%
(a) Calculaled as Offer Value or Equily plus total debt, mn0iiy interest and preferred stock, less cash &
equivalents
(b) Adjusted EBITDA = Target's LTM EBITOA + announced annual synergies

LTM EBITDA Multiple range: 12.Sx - 15.0x

AlunmEye©2018 -AH rights reseived. 35

Case: Valuation Exercise

Assumptions as of September 4, 2009
Diluted shares = 1,378.707 million LTM EBITDA = £ 887.0 million

Net Debt=£ 1,770.0 million 2009E EPS = £ 0.35

LTM Sales = £ 5,711.0 million 2010E EPS = £ 0.40

Questions: Calculate the EBITDA multiple with a purchase price of £7.55 per share?
What is the premium paid?

Offer Price per share £7.55

*Outstanding shares (mm) *1,378.707 Current price per share = £5.68
=Equity Value (mm) =10,409.24
Premium = offer price/ current price - 1
+ Net Debt +1,770
= 7.55/5.68 -1
=Enterprise Value (mm) 12,179.24 = 32.9%
L1M EBIIDA (mm) 887
EV /EBIIDA multiple 13.7x!

AlunmEye©2018 -All rights reserved. 36

 DCF

AlumnEye©2018-All rights reserved. 3

7

DCF Valuation

•This method looks to determine the intrinsic value of a

company

•It derives the value of the company from the value of the
discounted cash flows

•2 different methods for a DCF:

- WACC: Weighted Average Cost of Capital
- APV: Aqjusted Present Value

AlunmEye©2018-All rights reserved. 38

 DCF Valuation

Strenghts \Xieaknesses
Determine the intrinsic value of a company Projected cash flows can be biased or not
reliable
Flexible analysis, with many parameters Highly sensitive to a change in the
-growth rates underlying assumptions
-margms
-synergies ...
Always computable Terminal Value is an approximation The
discount rate depends on the Beta

The DCF method should give a range of values, not a single value

AlumnEye©2018 -All rights reserved. 39

Fundamentals
■ Net Present Value: FutureValu
=------
rc1: discount rate
n: number of years
H: today is worth more than 1€ tomorrow PresentVa1ue e (1+rd)"

• Discount Rate: Rate at which you discount the value of a future cash flow. It reflects 2 things:
- The time value of money
- A Risk premium: the extra return investors demand in compensation for the extra risk associated with the cash flow

■ Beta: Volatility of an asset in relation to the volatility of the underlying benchmark

■ CAPM: The Capital Asset Pricing Model is a model used to calculate the return on investment for an asset,
also called« expected ROE». The model takes into account the asset's sensitivity to non­diversifiable risk (also
known as systematic risk or market risk), often represented by the
quantity beta ( ) in the financial industry, as well as the expected return of the market and the expected return of
a theoretical risk-free asset
re= discount rate for an all-equity firm rr = risk-free rate
= equity beta
rm - tr = market risk premium rm=marketreturn

AlunmEye©2018 -All rights reseived. 40

 l-CfE - - :r..t..-.J --
Fundamentals Fe.ff xC1- rvl:
"4r)-t

• Free Cash Flow: Free cash flow (FCF) represents the cash that a company is able to
generate after laying out the money required to maintain or expand its asset base

( FCFF = EBIT*(l-T) + D&A- 6.NWC - CAPEX

or
)
{ [ FCFF = EBITDA- 6.NWC - CAPEX- Taxes (=T*EBIT) )
FCFE = EBITDA- 6.NWC - CAPEX - Taxes (=T*PTE) - Interest Exp
Where?
EBIT: Income Statement
D&A: CF Statement (CF from Operating Activities)
bNWC: CF Statement (CF from Operating Activities) CAPEX:
CF Statement (CF from Investing Activities)

Present value of the cash flows is then:

AlunmEye© 2018 -All rights reserved. 41

Fundamentals

•Terminal Value: It is the value of a business beyond the forecast period. when we expect
stable growth rate forever. In year 10, the terminal cash flow equals:

TYFCF= FCFioO+g)
(rd - g)
Then, we discount this terminal value and we get:

Although this theoretical method is perfectly correct, the Exit Multiple method is more
often used in practice: the terminal Cash Flow is calculated with an EBITDA multiple

TV = EBITD xMultiple

AlurrmEye©2018 -All rights reserved. 42

 WACC
WEIGHTED AVERAGE COST OF CAPITAL

• The discount rate is the WACC. the required rate of return for both equity and debt
investors. It is the average cost of financing for a company

L E D
WACC=r x--+rdx(l-T)x--
e D+E D+E
r/· = discount rate for le, rd= discount rate for debt E = market value These are target
of equity D = market value of debt T = marginal tax rate
Ratios
•According to CAPM.
tr = risk-free rate
r.L= discount rate for leveraged equity
L = leveraged beta
rm= market return

AlunmEye©2018 -All rights resetVed.

43

WACC
WEIGHTED AVERAGE COST OF CAPITAL

•The formula to calculate Lis:

D
1+(1-T)
x-
E
• Thethat 1 will find on Bloomberg (or Google Finance) is the historical - Thus. it

is levere and we need to unlever it to determine /3

(J

[ 1+(1- T)x
L
l
AlunmEye©2018-All rights reserved. 44
 DCF

To recap:
1.Determine theunlevered with the historical (Bloomberg)
2.Calculate the levered (with new target capital ratios)
3.Using the CAPM, deduct the Return on levered Equity from the new levered
4.Calculate the WACC

Method Discount Rate Cap Structure

WACC Leveraged
APV reU All Equity

AlumnEye©2018 -All rights reserved. 45

DCF: Example
CADBURY AS OF DEC 31, 2008

Hlatorlcal Pro ected 2008-2013

2008 2007 2009 2010 2011 2012 CAGR
2001 2013

Sales £4,483.0 £4,699.0 £5,384.0 £5,626.3 £5,885.1 £6,161.7 £6,457.4 £6,773.9 4.N
EBITDA 641.0 632.0 834.0 894.6 960.4 1,031.5 1,108.1 1,190.8 7.4%
Less: Depreciation (147.0) (138.0) (161.0) (178.2) (237.3) (3012) (370.3) (445.0)
Less: Amortization (33.0 35.0 35.0 30.0 30.0 30.0 30.0 30.0
EBIT 481.0 459.0 638.0 686.6 693.3 700.4 708.0 715.9 2.3%
Less: Taxes@ 28.0% 129.1 128.5 178.6 192.2 194.1 (196.1 (198.2 200.5
Tax-effected EBIT 3319 330.5 459.4 494.3 499.2 504.3 509.7 515.5 2.3%

Plus: Depreciation & Amoltlzalion 2082 267.3 331.2 400.3 475.0

Less: Capital Expenditures (398.1) (414.1) (431.0) (449.2) (468.5)
Less: Additions to Intangibles (30.0) (30.0) (30.0) (30.0) (30.0)
(lncrease)/decrease in working capital 21.7 22.4 23.9 25.6 27.4)
Unlevered Free CHh Flow £262.7 £300.1 £350.6 £406.3 £460

AlumnEye©2018 -All rights reserved. 46

 DCF: Example
CADBURY AS OF DEC 31. 2008

Pernetultv Growth Method EBITDA Multlole Method

Weighted average coet or capital: 8 0% Weighted averap coot or capital: 8.0%
Net p1escnt value of free cash now ·1-•'J ),:\ Net present velue of free cash flow •v--,,., .,.,,, £1,383 6
£1,383.6
Torrmnalmultiplo 10.0x
Terrnlnel grQ\\ih rate 4.0% Tennlnlll value £11,908.0
Terminal value >1,01 Present value ol lhe terminal value 8,HM.4
o
Enterprise Value £9,488.0
£12,079.8 (1.770,0)
Less: Net debl
Present value of the terminal value
Eoultv Value £1718.0
8,221.2
Diluted shares: 1,378.707 Diluted shares: 1,378.707
Enterprtu Value
£11,104.8 Equity Value Per Share £6.68 ! Equity Value Per Share
Less: Net debt
:,\Z,vfl i ,l\ .iJ lv1} (1,770.0)•W
:\. Jh1,._ £6.80 I
h\ "-{.
Equitv Value ':ll',.4.W.ll-, ·- \ti,.:... ,..... - '""'
I
£7834.8
r;...
Sonsitlvily Analysis - Equity Value per Share

Parpa1ulty Growth EBITOA

E E
35% 4 k Muhlpie 11
7.0% £8,85 £8.08 £.9.79 7.0% £5.29 £5.91 I Ox
£6.52
40%
90•
7.5% £5.81 £6.71 £7.91 7.5% £5.15 £5.75 £6.35
8.0% £4.99 £5.68 £6.57 8.0% £5.01 £ .60 £6.19
85% £4.34 £4.88 £5.56 85% £4.67100• £5.45 £6.02
9.0% £3.81 £4.25 £4 .78 9.0% £4.74' £5.30 £5.87

J J
AlurrmEye© 2018 -All rights reserved. 47

ACCRETION /DILUTION

AlumnEye© 2018 -All rights reserved. 48

 Accretion/Dilution

• What is the financial impact of a given acquisition for the

buyer?
- EPS variation
- Change in capital structure
- Change in ownership

• This analysis determines

- The price that the acquirer is able to pay
- The optimal form of consideration (cash & stocks)

• It is used by both buyers and sellers

AlumnEye© 2018 -All rights reserved. 49

!<raft Acquires Cadbury

Share Price $29.58 Share Price as of Sep. 4. 2009 $9.26

Diluted Shares Outstanding 1478.590 Diluted Shares Outstanding 1415.000

EBITDA $6 420.2 EBITDA 1525.7

Net Income 2 851.0 Net Income 859.0

EPS $1.93 EPS $0.61

Existing Total Debt $16 513.0 Existing Total Debt 2 977.1

Tax Rate 38.0% Offer price per share (£8.40) $13.69

Interest on new debt 5.4%

AlumnEye©2018 -All rights reserved. s

o
 I<raft Acquires Cadbury
Offer Price $13.69 per share: $5.54 in stock and $8.15 in cash. Calculate:

1. Offer value 2. Exchange ratio

3. New shares issued to Cadbury shareholders 4. New debt issued to finance the
transaction

AluITTIEye©2018-Al1 rights reserved. 51

I<raft Acquires
Cadbury
Offer Price $13.69 per share: $5.54 in stock and $8.15 in cash. Calculate:

411,' :-;, su)ck s

1. Offer value 111 2. Exchange ratio
:i'
Offer price: $13.69 '),_::;':.,;, in ca:;li # of acquirer shares to be issued per target
*Target Shares: 1 415,000 mm shares
= Offer value $19 371,4 mm offerprice
-------x¾stockconsideration
Acquiret: tockprice
#uf l,r:1f1
lrnrcs per
$13,69x 0 S¾ = 0,187x
=
C1dbun·slun:s $29,58 4
' r-atio) or a fixed #of shares.
It is possible to agree on a fixed$ value (=floating exchange
3. New shares issued to Cadbury shareholders . New debt issued to
finance the
transaction (=cash part)
- New shares issued == Exch. ratio*Cadbury
0,187*1 shares Offer value*%=cash
415,000=265,226m consideration
19 371,4 * 59,5%
- New shares issued = = 11 526,0
OfferValuex¾stock= 19371,4x40,5%= 265 226mm
AcquirerStockprice 29,58 '

e -t'... r. AluITTIEye©2018-AII rights reserved. 52

 I<raft Acquires Cadbury

1. After-Tax cost of new debt issued 2. Pro Forma EPS

3. Accretion/ (dilution) $ and % 4. Pre-Tax synergies to breakeven

AluIIIllEye© 2018 -All rights reserved. 53

I<raft Acquires Cadbury e

1. After-Tax cost of new debt issued 2. Pro Forma EPS
New Debt 11 526,0mm PFNI PF #Shares
Pre-tax int. rates *5,4% l aftNI2851,0 Kraft Sh. 1478,590
Pre-tax cost of debt = 622,4 mm Tax rate Cadbury NI 859,0 +New Sh. 265,226
@38% - Adjustments (385,9) =PF Sh. 1743,816m
After-tax cost 622,4 * (1-38%) = 385,9 mm PF NI 3 324, 1mm PF BPS= $1,91
i- StandaloneBPS = $1,93
3. Accretion/ (dilution) $ and % 4. Pre-Tax synergies to breakeven
PF BPS 1,91 Ace/ (Dil) ($0,02)
- Acq. BPS (1,93) *PF Shares *1 743, 816mm
Acq/ (Dil) ($0,02) NI Dilution ($ 34,9)mm
I Acq. EPS I (1,93) /Tax /(1-38%)
Acq. In% 1,1% Pre-tax syn. $56,3mm
to breakeven

AluIIIllEye© 2018 -All rights reserved. 54

 Sensitivity Analysis
PF EPS % Accretion/(Dilution) 59.5% Cash, 40.5%
Stock
£7.65 £7.90 £8.15
Offllr Price£8.40 £8.65
per share• £8.90 £9.15
$12.47 $12 88 $13 28 $13.69 $14 10 $14 51 $14.9. 1
$0.0 1.2% 0.4% (0.3%) ((1. (1.8%) (25%) (32%)
$75.0 2.5% 1.7% 1 0% 0.2 (0.5%) (1.2%) (2.0%)
$150.0 3.8% 3.0% 2.3% 1.5% 0.8% 0.0% (0.7%)
$225.0 5.1% 4.3% 3.6% 2.8% 2,0% 1.3% 0.6%
Pre-tu $300.0 6.4% 5.6% 4.8% 4.1% 33% 26% 1.8%
SynergiH $375.0 7.7% 6.9% 6.1% 5.4% 4.6% 38% 3.1%
$450.0 9.0% 8.2% 7.4% 6.7% 59% 51% 4.4%
$525.0 10.3% 95% 8.7% 7.9% 72% 6.4% 5.6%
$6000 116% 10.8% 10.0% 9.2% 8.4% 77% 6.9%
$675.0 129% 12.1% 11.3% 10.5% 9.7% 89% 8.2%
$750 0 14.2% 13.4% 12.6% 11.8% 11.0% 10.2% 9.5%

Debt I EBITDA I Debt I EBITDA

EBITDA lntereat EBITD I
0.0% 2.5x 5.3x $12.47 £7.65 A3 9x lntareat
3 8x
Offllr Pr1ca• 2.Bx 4 9x 59.5% C■-h 12 71 7.80 3 9x 3.8x
100 o 3.0x 3.3x 4.6x 40.5% Stock 12.96 7.95 3.9x 3.8x
I £8.40 I 4.3x 13.20 8.10 3.9x 3.7x

20.0o/
$13.69

30.0%
40.0% 3.5x 4.1x Offllr 13.45 8.25 4.0x 3.7x
Percentage 50.0% 3 Bx 3.9x Price• 13.69 8.40 4.0X 3.7x
C■1h ®.0% 4 Ox 3.7x 13.94 8.55 4.0X 3 7x
70.0%AlunmEye©2018-All
4.3x 3.5x rights reserved. 14,18 8.70 4.0x 3.7x 55
80.0% 4.5x 3.4x 14.43 8.85 4.1x 3.6x
90.0% 4.8x 3.2x 14 67 900 4.1x 3 6x
100.0% 5.0x 3 1x 14.91 9.15 4.1x 3.6x

LBO

AlumnEye© 2018 -All rights reserved. 56

LBO

• An LBO is a Leveraged Buyout, an acquisition financed mostly with debt

• An LBO creates value through

Multiple expansion: difference between entry multiple and exit multiple
Deleveraging: repayment of debt with CF
Operational Improvement
Build up: acquiring a target at 4.0x EBIIDA when you are valued at 5.0x EBIIDA

• The investor has a target return called IRR (Internal Rate of Return) of ~20%

• An LBO analysis is a valuation method looking at what a financial sponsor can cifford to
pay. The parameters are:
The target IRR
- The debt capacity constraint (depends on market conditions)

•There are no synergies when a LBO happens as the financial sponsor does not have
operational activities

AlunmEye©2018-AII rights reserved. 57

LBO

l \\ ln,·c 1ur

Cas
h
Stock of
Newco
l Equity
' .
Cash

Targl't Asse:t
.' Be.b
Cash
t
Ass
NEWCO
ets
or
Sto
ck

AlurnnEye©2018 -All rights reserved. 58

 What Makes a Good LBO Candidate?

• Strong and predictable Operating Cash Flows to pay back the interests on
Debt
• Mature company

• Strong position on the market with clear competitive advantage

• Llmited CAPEX
• Undervalued or synergy opportunities
• Owned by a motivated seller
Need of cash
Sale of non-core business units
• Has a viable exit strategy
IPO: stand-alone valuation
M&A: full exit with a change of control valuation Leveraged Recap ("special
dividend'')

AlumnEye©2018 -All rights reserved. 59

The Investment Process

Deal process & diligence steps Deal flow form completed Conflicts of interest cleared
Business Plan reviewed ManagementTeam Meetin1:,>s
Latest management accounts/audited accounts reviewed
Independent market analysis reviewed/ conducted Management questionnaires and net worth
statements mken Managements references mken
Management background checks done Experienced mentor/NXD on board
Supplier references taken
Customer references ta.ken
Confirm extent/ownership ofIP rights
Confirm outstanding litigation/ contingent liabilities
Keyrnan and corporate insurance reviewed Legal Due diligence completed and reviewed Financial
Due diligence completed and reviewed
ri..tanagementservice contracts one year mic'Un1um Fast forward and Invesnnent Papers Completed
IC approval minuted
Post Investment
Board representation
Monthly board meetings and management accounts Quarterly valuations completed
Annual 3,d party valuations audit Proactive exitfacilirntion

AlurrmEye©2018 -All rights reserved.

60
How do You Fund an LBO?

Sponsor
Bank Debt High Yield
E,guity
• LBO equity funds • Senior bank term loans • Subordinated debt
• 40%-60% of funding and revolving credit • Higher interest rates
• IRR 20+% facilities • Single bullet payments
• Investment horizon: 4- • Amortize • High yield or
6 years • Term of 5 - 7 years « junk » bonds

AlunmEye© 2018 -All rights reseived. 61

How do you generate your IRR?

0 0
e
Operational improvement

Multiple expansion
Deleveraging / dividends

Tax shield advantage

e
10,000

EV Remainini::
Debt

5 years

0
USE SOURCE
S Entry S Holding Period E:-..
ir
¼5
IRR= 2 0,000
- -- -
l = 23.4%
- [ 7,000 ]

AlunmEye©2018 -All rights reseived. 62

 Case: Determining the IRR
■ Assumptions:
Diluted shares = 1,400.000 mm Net Debt= Year 5 EBITDA = £1,200 mm
£1,800.0 mm L1M EBITDA = £900.0 mm Year 5 Net Debt= £4,000.0 mm
Entry Multiple: 8.0x LTM EBITDA
■ Equity check: 30%
■

■ Sale of the company in Year 5 for 8.0x EBITDA

I IRR= (FV/PV)A(t/N)- 1 I
Determine
The offer price per share The IRR to the sponsor
8.0x EBITDA N = Syears PMT= 0
*900.0 mm PV = - 30%*7.200 (IV)= - 2,160 mm
=7,200mm Transaction Value FV = 8.0 * 1,200 mm - 4,000 mm= 5,600 mm

-
(1,800.0) Less Net Debt IRR= (5,600/2,160)"(1/5) -1 = 21.0%
= 5,400mm Offer Value
/1,400.000 mm

=£

Share
- 3.86 Offer Price per

AlunmEye©2018-A11 rights reseived. 63

LBO Example
IS in
millions)
Type
Maturity % of Total
Amount (Yrs) Capitalization
x2010
EBITDA j,WMM.O
e
Senior Bank Il!:.u!.mi 2010 201J 20l2 2014 2014 201S
Debt
Revolver 0
TermLoanA
TermLoanB 6
U3lTIJA 102 138.7
150
El.BJ'fDA
Total Senior Bank 350
6 49% 3.43 Multiple 7.0x 7.5<
Dehl lQQ_ llnccrpriscValue 714 1040.1
Senior Sub. Debt 110 10 T:.lquic)'Value -224 0 0 0 587.4

Sub. Discount Notes 7 10.5

--- 50 0
TOTALDEBT 510 71% 5.00 LRR 21¾
PIK Preferred Stock 0
Common Equity ---
204
TOTAL EQUITY 29%
Total Caeitalization ---
204
exit
entr 21¾ 714
7 7.2 7.4 7.6 7.8 8 8.2 8.4 8.(
y 7 18% 16%) 14% 13°/o 11% 10% 8% 7% 6%
7.2 19% 17% 16% 14% 12% 11% 10% 8% 7"A
7.4 21% 19% 17% 15% 13% 12% 11% 9% 8¾
7.6 22% 20% 18% 16% 14% 13% 12% 10% 901i
7.8 23% 21 /o 19% 17% 16% 14% 13% 11% 10°11
8 24% 22°/o 20% 18% 17% 15% 14% 12% 11°1\
8.2 25% 23% 21% 19% 17% 16% 15% 13% 12¾
8.4 26% 24% 22% 20% 18% 17 1/o
1
16% 14% 13°A
8.6 27% 25% 23% 21% 19% 18% 16% 15% 14°A

@t AlunmEye© 2018 -All rights reseived. 64

.Y.t'.1NNN.
X.
 Summary
$74.5
75$ 0
IU
70$
j $65.3
65$ $62.5
e
.
IU
$61.20 $66.13 0 $65.5
3
i:i. 60$
. n
.. 0
55$
. Current Price = $56,62
50$ c - -
., : :
ts
·O"' $51.33
45$ u....0: $48.2
- 40$ > 0
Public Comp:trnble:, .·\n11u ition
Comp:1c:1ble:,

ocr"·/ D,ll,,
oy1H..'i'g-
ic1--
2011E EPS 20.0-23.8 25.7-28.6 20.8-24.3 18.8-25.4 $2.57
25.5-29.0
2012E EPS 18.1-21.6 23.4-26.0 18.9-22.1 17.0-23.1 $2.83
23.1-26.3
LTM Sales 2.95-3.44 3.68-4.05 3,05-3.50 2.79-3.64 $4.842
3.65-4.10 ,3
LTMEBITDA 12.0-14.0 15.0-16.5 12.4-14.3 11.4-14.8
14.9-16.7 $1.188
(a) Assumes net debt of$1.870.7 mmand241.366mmdilutedsharesoutstanding
,8
AlumnEye© 2018-All rights reserved. 65

Other Valuation Methods

•Dividend Model (FIG) I

•Sum Of The Parts J I
•LBO
•Accretion/Dilution
•52-week high/low
•Premium paid analysis

AlumnEye©2018-All rights reserved. 66

 RECURRING QUESTIONS

AlumnEye©2018 -All rights reserved. 67

Recurring Questions
CONSOLIDATION - 80%

Company A acquires 80% stake of company B at 80m€ by issuing debt.

Below is the Balance sheet of company A and company B.

Q0 : Give the consolidated balance sheet of A + B

Company A Company B
Assets Liabilities Assets Liabilities
Non Current Equity Non current Equity
150 200 80 100
Current Net Debt Current Net Debt
150 100 70 so

AlumnEye©2018 -All rights reserved. 68

 Recurring Questions
CONSOLIDATION - 80%

•Sum NCA (Non Current Assets) line by line, as well as Current Assets
•Sum the Net Debt of A and B and add the debt that was issued to acquire 80% stake
of B (80m)
•Keep the equity of A as it is and add a line with minority interests (20%*100)

Company (A + B)
Assets liabilities
Equity
Non current 200
230 (150+80) Minority Interests
20 (20%*100)
Current Net Debt
220 (150+70) 230 (100+50+80)

AlunmEye©2018 -All rights reserved. 69

Recurring Questions
CONSOLIDATION - 66%

Company A acquires 66% (2/3) of company B at 100m, financed by debt

ConsolidateA+B

Company A CompanyB
Assets liabilities Assets liabilities
Non current Equity Non current Equity
150 200 80 100

Current Net debt Current Net debt

150 100 70 50

AlumnEye©2018-All rights reserved. 70

 Recurring Questions
CONSOLIDATION - 66%

If company A acquires 2/3 of company B at 100m, it means that company B is valued

at 150m € (vs. 100m€ in the balance sheet). Company A then overpays 50 m€, which
corresponds to the goodwill.

Company (A+B)
Assets Jjabilities

Non current Equity

230 (150+80) 200

Goodwill Minority interests

50 50

Current Net debt

220 (150+70) 250 (100+50+100)

AlumnEye©2018-All rights reserved. 71

Recurring Questions
OPERATING LEVERAGE

COMPANY A COMPANYB
Sales 100 100
COGS -30 -20
Gross Profit 70 80
SG&A -20 -30
EBITDA 50 50
Which company has the most important operating leverage? ie which company will benefit
more from an increase of 10 in Sales? (Hyp: increase in volume)
COMPANY A COMPANYB
Sales 110 110
COGS -33 -22
Gross Profit 77 88
SG&A -20 -30
EBITDA 57 58
Conclusion: Operating Leverage is more important in Company B
Operating Leverage is a measttre of how revenue gro/l)th translates into operating
income
AlumnEye© 2018 -All rights reserved. 72
 Recurring Questions
TREASURY SHARES

What are Treasury Stock ?

The portion of shares that a company keeps in their own treasury. Treasury stock may
have come from a repurchase or buyback from shareholders; or it may have never been
issued to the public in the first place. These shares don't pay dividends, have no voting
rights, and should not be included in shares outstanding calculations.
"Actions autodetenues" in French

AlumnEye©2018 -All rights reserved. 7

3

Recurring Questions
FINANCIAL STATEMENTS

•"If a company incurs $10 (pretax) of depreciation expense. how does that affect the three financial statements?"
(Income Statement, CF statement, Balance Sheet)

•First, the income statement: depreciation is an expense so operating income (EBI1) declines by $10.
Assuming a tax rate of 40%, net income declines by $6. Second, the cash flow statement: net income
decreased by $6 and depreciation increased by $10 so cash flow from operations increased by $4.
Finally, the balance sheet: cumulative depreciation increases by $10 so Net PP&E decreases by $10. We
know from the cash flow statement that cash increased by $4. The $6 reduction of net income caused
retained earnings to decrease by $6. Note that the balance sheet is now balanced. Assets decreased by $6
(PP&E -10 and Cash +4) and shareholder's equity decreased by $6

•You may get the follow-up question: If depreciation is non-cash, explain how this transaction caused
cash to increase $4. The answer is that, because of the depreciation expense, the company had to pay the
government $4 less in taxes so it increased its cash position by $4 from what it would have been without
the depreciation expense

AlumnEye©2018 -All rights reserved. 74

 . I

Recurring Questions
ACCRETION /DILUTION

•"Company A wants to buy company B. Company A's earnings are

$10mm and it has 1mm outstanding shares (thus BPS =$10). Company B's
earnings are $2mm"

•If A agrees to a stock swap and issues 500,000 shares which it will trade for all
B's shares, will the deal be accretive or dilutive?
The combined company will have 1.5mm shares and $12mm in earnings. The new EPS
are $8 per share. The deal is dilutive

•What happens if A agrees to issue 100,000 shares instead?

The new company will have 1.1mm shares and $12mm in earnings, or earnings of
$10.91 per share. The deal is accretive

AlunmEye©2018 -All rights reserved. 7

5

Recurring Questions
EXAMPLE OF FINANCIAL NEWS ANALYSIS

MARCH 9. 2012. 10:32 AM MERGERS & ACQUISITIONS

Quest Software Agrees to Buyout

nucsr SoftWI\Ce,aprovlclcrof databaseapplirn,ioos and other C(>t'f,Omte I.T.rnust haves,said friday thatithad agreed to be taken private by a New York-
bMcd ,·cnturec pilJll and privateequit)•linn,Insight Venture l';rmcrtr.
The offer, which values QuestatroughlyS2 billion,"illgive shareholders $23 a share in cash, a 19 percent premium to the company's clo ng price on Thursday.
VincontC.S11,ith,the """'l"'"y'Jchicfc. =•hie.and membe of"Mr.Smirh's manngcment 10,u11willcontinueto run Questnfter itis taken pd,•:1.tc.,M,I the comp.'my\horlquarters
willrc:nl.'Unin "Niforni,1,1he statement s:tlclMr.Smith ownsnbout34 pc.ro:utof1.he company's shtlrcs.

''A•a private C01npa11y. we will h.-•c inc nscd Oc."<lbili,po drive inno,.,uion ocra1sourprodua·llncsand ext-cute our lon tcrm orn,c!l)'•" Mr.Smith hi
in . .snucmcnr. '''Thi" trl()\jC to a. priv:uecorn1>:'ln)' nh:owill c:n:i.t'c exciting cara:rQpportunitics fqr ourcmplO)'CCS, whllcretainjngollt conimitnlent to con1inuiog Ill ptt)\
Tidc rxa:-llc:111Sc:rvicc: to our customers.."

Quest's board voted unanunonsly to approve the deal, the companrsaid.Now.aspecialcommitreecomposedof threedirectorswilloversce a 60-day "go shop" period to con•i<la
outside bids The grecmct1t fnrgtd be,wcm lnsig)1tand Quest calls for a$4.2 million breakup fee paid to Insight in ohe eventthru lhtdeal falls U110Uj'j, during lhatperiod.
which rites to• S(;J nlilli,» break"Up fee after the end of the period.
The deal is espocicd 10 cJo,-, this fall the c0111ranys.id. Insight hM committed $210 million inequity 10 the • kc-private deal. which will be combined wid1 more thll1l
$1billion in prearranged debt financing from JPMorgan Chase, RBC Capital Markets
and Barclays Capital, according to the statement. Mr.Smith's shares wiU be rolled over into the newly private company if the deal goes through. RBC Capital Markets and
Barclays Capital acted as financial ad vcsers on the deal. Morgan Stanley advised the special committee of the Quest board.
The law firm Potter Andersnt1 & Corn:lOnolso nd1•is«l1hc,1>ecilll c<1mmittee,Latham& Watkins served as legal counsel to Quest,and Willkie Farr & Gallagher ad,1sed
Insigh Cadwalaclcr, Wlckc,i;h:1.m&Tof, crvw a.• lcg,il courucl c Mr.Smith.
"We arc pico cd, hMc sucressfully nq:otioted a trnns:11:llon thot includes an au,.,.ctivcupfmnrpronium forQuc$t's shftrcho!Jcrs,an all-cash deal that wollltl cl,iminntc
".',g<Jingc.<c,cution rl<k following• u·:u1saction,and rhat compores fovorabl)' \\;th Qucst'sstorulolune altcm.ih•es." said I I.John Didts, who chaired
,be p c,nl comnuna:.
Quest'sshare price, which fcU nearly30 percent in the previous yenr, jtunped more than 20 peti:ent on news of the deal,:md was trading at around
$23.50 on Friday morning.

Source: dealbook.ny timesco m/2012/03/ 09/ guest-so li:ware-agre<s-to-buyout/

AlunmEye© 2018 -All rights reserved. 7

6
 Recurring Questions: Accounting
''
1. Walk me through the major lines of a Balance Sheet
2. Walk me through the major lines of an Income Statement. Where do you put the
minority interests?
3. What are the three components of a Cash Flows Statement?
4. How does a $10 increase in depreciation affect the 3 financial statements?
5. What is the impact of a dividend payment on the 3 financial statements?
6. What does a decrease in Net Working Capital means in terms of cash?
7. What does a negative Working Capital mean for a company? Any example?
8. What are the links between the 3 financial statements?
9. What are the minority interest, associate and preferred stock?
10. What is the difference between margin and return?
11. What is the effect of a payment of dividends on a stock price?

AlurrmEye©2018 -All rights reserved. 77

Recurring Questions: M&A

1. What is the formula of a Free Cash Flow?
e
2. What is the formula of the WACC? What is its meaning? When do you use the WACC?
3. What is the impact of a $100 loan on the Enterprise Value? If I use this cash to buy a fixed asset? How does it impact
EV?
4.How much is the CAC40 worth?
5.Why would we use an EBITDA multiple over an EBIT multiple?
6.In which case can we use EV /Sales instead of EV/EBITDA?
7.In the WACC formula, which period should we use to calculate the FCF? According to the sector.
8.Why do we use EV /EBITDA and not Equity Value/EBITDA?
9.Why do we add-back D&A in the FCF formula?
10.What is the CAPM? Where do you get Rm, Rf and ?
11.What does a negative mean? Do you have an example?
12.If I called you and asked for a back-of-the-envelope valuation of a quoted company, giving you the value of its Net
Debt, how would you do in 1 mn?
13. What makes a good candidate to an LBO?
14. \Vb.at are the interest rates for an LBO these days?
15. \'v'hich multiple are most used? Why? What is the PE ratio?
16. What is a synergy? \Vb.at is the Goodwill?
17. How do you get the Net Income from the PE?
18. \Vb.at is an Associate in the formula: EV= Equity Value+ Net Debt+ Preferred Stocks+ Minority Interest
19. + Unfunded Pension Liabilities -Associates?

AlumnEye© 2018 -All rights reserved. 78

 Recurring Questions: Tricks

1. How do you deduct CAPEX from D&A?

2. What is, in average, the risk premium in France?
3. Why don't we include the Debt interests in the calculation of FCF while it is an
outflow?
4. Between the different valuation methods, which one will give the highest value for a
given company? Why?
5. Give an example of a potential candidate to an LBO around you
6. Give a ballpark of EBIT or EBITDA multiples or PE Ratio for the Tech sector
7. What is the yield of UST-Bills? Of French Treasury Bonds (OAT)?
8. What is the most important indicator to decide of an LBO ?
9. Sum-up a company in a slide(« company profile»)
10. How does the M&A process work?
11. How do you determine the of the company?

AlumnEye© 2018 -All rights reserved. 7

9

What to do Now?
You need to be up-to-date on the markets. Read at least one or two market/area analysis to be
able to form an opinion on the matter. Follow on a daily basis at least a week from your D-
day: Financial Markets Mergers & Acquisitions

-=-·-·n,A-lphaville: th;·bi f·;;"j.=r,- • Google Finance: latest values for stocks, indexes
itli··; ci l;;-- • FT, WSJ, NYT, Bloomberg: international fmance
1analyzing the current market movements and events press
• Wall Street Oasis: US Finance community (forum)
•The Oil Drum: a blog about Energy Commodities
• DealBook: NYT blog on M&A, PE, HF
• Deus Ex Macchiato: treats of market behavior • Mergers & Inquisitions: blog on IB
• Zero Hedge: insight on financial markets
• Investopedia • Investopedia
---------·-·-·--·--····-······- --··---·-·-·-··········-·--··-···----
You need to be able to talk about current levels of :
•Indexes: FTSE 100, S&P 500, DOW, CAC40
•Commodities prices: Oil (Brent and WTI), Gold, Copper
•Stock prices: The company you are interview with and its peers
•Sovereign bond yields and debt levels
•Exchange rates levels: EUR-USD, EUR-GBP, USD-YUAN, etc.

AlumnEye©2018 -All rights reserved. 80

 Thank
You!
Thank You!
Last but not least: feedbacks

Questions? contact@alumneye.fr or 01.76.39.01.09

Fol/01vus:
9 alumneye.fr fb.com/ alumneye
't# @alumneye
@ alumneyenetwork
lffl AlumnEye
0 bitly.com/ alumneyemsg

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